July 4th Update - The buyer has been identified as Hulic, a large Japanese developer.

Advertising agency Dentsu Group (TYO:4324), announced June 29th, 2021 that it received an offer to purchase its 48 floor corporate headquarter building in Shiodome, Minato Ward, Tokyo.

The sale amount is expected, but not confirmed, to be about 300 billion yen (US$2.7 billion at time of writing).  Should the sale take place, Dentsu would be able to record an 89 billion yen gain on the transfer, allowing the company to fund future business reforms.

The deal would also be the one of the largest for a single property in Japan’s history.

The identity of the potential buyer has not been disclosed but terms of the sale would include an 11 year lease for Dentsu to remain in a portion of the building after the title transfer.  Dentsu stated in its release that neither the sale nor lease amounts would be made public but wrote to investors that both the price and the rent are at “appropriate prices that reflect market prices”.

Due to the pandemic, Dentsu embraced remote working and currently only 20% of the workforce is on site with over 9,000 employees teleworking.

Remote working together with a large drop in revenue pushed Dentsu into considering the sale of the building in January, 2021.  Dentsu's final profit and loss for 2020 was -159.5 billion yen, the largest deficit in company history, and the outlook for the business in 2021 so far is reportedly "undecided".

In a similar position to Dentsu, record label Avex Inc. (TYO: 7860, FWB: AX8) sold its corporate headquarters in Minami Aoyama, Minato Ward, Tokyo to Canadian fund BentallGreenOak for 72 billion yen.  The deal was announced to the Tokyo Stock Exchange on December 24th, 2020 with settlement executed in the spring of 2021.   

Avex, like Dentsu, continues to lease the same building it once owned.  BentallGreenOak, operating in Japan since 2010, said it sees opportunity in Class A buildings in metropolitan CBD areas throughout the country thanks in part to low interest rates.

Sensing opportunity, the fund announced in October, 2020, that it doubled its dry powder to US$12 billion with up to US$10 billion earmarked for Japan based opportunities.

Does Dentsu and Avex offer proof the pandemic has sent CBD Tokyo into a downward trend?  BentallGreenOak’s head of Japan Dan Klebes doesn’t think so, telling Mingtiandi in January, 2021 that some companies even prior to the pandemic had been evaluating exiting their real estate holdings with the health crises only accelerating those patterns.

Klebes also explained that Class A vacancy rates have remained at 1% or less in Tokyo, Osaka and Nagoya throughout the pandemic.  To Klebes, somewhat distressed sellers looking to offload assets in central areas with low vacancy rates paired with very low borrowing costs offers great buying opportunities for those properly positioned in Japan.

Further Reading: 

Mighty advertiser Dentsu struggles with Olympics-sized problems (Financial Times; July 5th, 2021)