Deepening and Expanding Business Domains (3) Real Estate Development Business

Expansion of the Office Leasing Business

Since the mid-2010s, the official figures for land prices in Japan’s three major metropolitan areas (Tokyo, Osaka, and Nagoya) have continued to rise year after year. Progress was made on urban infrastructure renewal and redevelopment projects through the use of programs such as National Strategic Special Zones and Special Priority Development Areas for Urban Renaissance. Corporate profits were also healthy, and demand for office buildings grew steadily due to a trend in office expansions and relocations aimed at improving office environments in response to work style reforms. Real estate investments were booming, with investment further stimulated on the back of financial policies, which kept real estate prices high.

The company has also continued to promote investment into the real estate leasing business, actively expanding its office leasing business and diversifying its portfolio of properties for lease, with a focus on the central Tokyo area. Additionally, the company has worked vigorously to acquire new properties by investing in income-producing rental offices in areas that are expected to maintain a competitive edge over the long term, along with participating in large-scale development projects including real estate redevelopment and joint real estate development. It also strove to expand the scope and variety of its business domains by leasing spaces other than offices, which was achieved by developing rental housing and logistics facilities using real estate owned by the Obayashi Group or by participating in land readjustment projects.

It was under these circumstances, in March 2018, that Obayashi-Shinseiwa Real Estate Corporation acquired land in Konan 2-chome, an area which is expected to bring in stable revenue thanks to its location close to Shinagawa Station in Tokyo—itself currently under development. The land was acquired for the purpose of developing a rental office building. The external thermal load of the building currently under construction on the land (which is scheduled for completion in July 2022) has been reduced by 21 percent by attaching external walls directly to the building structure to improve thermal insulation, in addition to limiting sunlight exposure with the use of an uneven facade. Moreover, overall energy consumption has also been reduced by 58 percent by installing high-efficiency appliances (packaged air conditioners, LED lighting) and a variable air volume control system. In March 2021, the building was certified as ZEB Ready under the BELS certification system. Through this project, the company is expanding its office leasing business and pushing forward with initiatives for achieving a decarbonized society (carbon neutrality by 2050).

Meanwhile, in 2020, Obayashi Properties UK Limited was established in the United Kingdom. In addition to Bracken House, which Obayashi Corporation owned, in the city of London the company newly acquired partial ownership of 20 Gracechurch Street, a property situated in central London, from AVIVA Life & Pensions UK Limited, a U.K.-based real estate investment company, and subsequently transferred them to Obayashi Properties UK Limited. This established a structure for promoting the real estate development business in the United Kingdom.

From 2020 onward, the business environment has continued to change dramatically as companies have begun implementing remote work and other measures in quick succession in response to the spread of COVID-19. The demand for office buildings in urban areas accordingly remains difficult to predict.

Thai Obayashi’s Entry into the Development Business

Thai Obayashi Corporation Limited has become involved in the real estate development business within Thailand, focusing on the area of rental office buildings. In the country’s capital of Bangkok, a demand for new-build offices following a period of economic growth saw a downward trend in vacancy rates of leased office spaces. There were also very few plans for providing new office buildings right in the city center. In particular, demand was expected to exceed supply for large office buildings with good transportation access and a wide floor area on each floor. Thai Obayashi therefore decided to utilize the technology and expertise that it had acquired over the years in the construction business to construct a high-grade building and launch its leasing business.

About 7,000 square meters of land was acquired directly adjacent to Nana Station on one of the lines of the BTS Skytrain (elevated rapid transit system) and located in the heart of Bangkok. The company began construction at the site on O-NES TOWER, a building primarily made up of offices with 29 floors above ground and 5 underground floors, in March 2019 (scheduled for completion in 2021). Spanning a total floor area of about 85,000 square meters, this state-of-the-art, environmentally friendly smart building will be the largest rental property owned solely by the Obayashi Group when completed. By adopting a hybrid structure of reinforced concrete (RC) core walls and a steel frame, the company was able to achieve a column-free space with a depth of about 20 meters. Combined with features such as individual air conditioning systems that allow for precise control of the air conditioning, it offers office spaces with a level of comfort unparalleled in Thailand. The company is also in the process of acquiring LEED and WELL certifications for the building and is currently considering the introduction of a building management system (BMS) that will provide a variety of services using ICT.

Thai Obayashi has been steadily increasing its presence in Thailand—the country with the second-largest economy among ASEAN countries, and one that continues to show stable economic growth—by working to strengthen initiatives in the real estate development business, along with deepening and expanding its business domains.

Trends in the Redevelopment Business

Obayashi Corporation is contributing to the development of attractive communities that are designed to facilitate efforts toward environmental protection, disaster prevention, and business continuity across an entire region and its surrounding areas. Contributions are being made through participation in various development and redevelopment projects, for example, as the company undertakes environmentally friendly development projects that utilize state-of-the-art construction technologies to reduce energy consumption and carbon dioxide emissions.

During the Akashi Station South Ward Urban Redevelopment Project, which was completed in 2017, the company promoted the project in the role of specified business agent, working to redevelop the ward as the new gateway to and face of the city of Akashi with the aim of revitalizing the entire neighborhood and its surrounding areas.

One large-scale development project currently underway is the Umekita 2nd Project Development, which follows the development of the priority development area in 2013 (Grand Front Osaka). Both fall under the larger Umekita Project, which is progressing on the former site of the freight yard on the north side of JR Osaka Station. A nine-company joint venture led by Mitsubishi Estate Co., Ltd. was selected as the developer of the project in July 2018. Obayashi Corporation is also participating in the project in the roles of developer, architect, and contractor.

The project is being promoted through public-private partnerships from the previous development project, and its aim is to bring to life a new urban model that incorporates concepts such as the New Normal/Next Normal, Society 5.0, and SDGs under the philosophy of creating urban spaces where MIDORI (greenery) and innovation are in harmony. Divided into the three zones of South District, Urban Park, and North District, the area will house state-of-the-art offices, commercial facilities, international hotels, MICE facilities, and high-end condominiums within the north and south districts, which are linked together by the Urban Park to create a large, all-encompassing green space: MIDORI. A partial advance opening which includes a part of each of the district areas and urban park is scheduled to take place in the summer of 2024, with the entire Umekita 2nd Project area opening up in 2027.

Meanwhile, a corporate group comprising Obayashi Corporation and three other companies, Yamaha Corporation, Keikyu Corporation, and Nippon Steel Kowa Real Estate Co., Ltd. (the Japanese trade name was changed in April 2019), was selected in March 2019 as project developer for the Minato Mirai 21 Central Zone District 53 project. The land is located within the Greater Tokyo Area and owned by the city of Yokohama. Situated close to the Shin-Takashima Station on the Minato Mirai Line and only an eight-minute walk from Yokohama Station, which itself is a thirty-minute ride away from Haneda Airport via the Keikyu Line, the block of land is very conveniently located in terms of accessibility and transportation. This project will see the development of large-scale complexes (EAST and WEST Buildings) centered on high-quality offices and will also include commercial facilities, hotels, entertainment facilities, open innovation spaces, and more. There are further plans to extend the pedestrian deck from Yokohama Station, in addition to developing an integrated common space where events can be held. This large-scale project, the first of its size for which Obayashi Corporation will serve as the project consortium representative, began construction in April 2021, and is scheduled for completion in March 2024.