Market Conditions

In Japan, the national average of residential and commercial land prices as of January 2008 increased for the second consecutive year. However, factors such as the impact of the subprime mortgage crisis and the revision of the Building Standard Law blunted the increase in land prices in the second half of 2007. After several years of bullish trends, the number of negative signs is increasing in Tokyo’s condominium market. For example, supply decreased significantly in 2007 and the monthly contract ratio for new condominiums fell below 70 percent. As a consequence, the polarization of demand based on property characteristics became more pronounced.

On the other hand, the office market remained robust. As a result of tight supply and the scarcity of prime properties, the vacancy rate of the five central wards in Tokyo remained below 3 percent, but the growth rate of average rent nationwide slackened.
 

Performance*

During the fiscal year ended March 31, 2008, contract awards on a non-consolidated basis decreased 33.9 percent compared with the previous fiscal year to ¥65.9 billion. Revenues decreased 8.4 percent to ¥134.4 billion, and gross profit decreased 20.1 percent to ¥18.9 billion. The year-on-year decrease was a consequence of strong performance in the previous fiscal year that exceeded initial projections.

GranTokyo South Tower, part of the large-scale Tokyo Station Yaesu Area Development Project, was completed in October 2007 and began operating the following month. This means that our three major office and commercial building projects, including Akihabara UDX and Toranomon Towers Office, have moved into the operation stage. With excellent locations and high-quality construction, they will contribute to our overall performance during the fiscal year ending March 31, 2009 as a steady source of income. In the condominium business, sales were steady at Masterview Residence and Kaga Residence, both located in upscale residential areas of Tokyo.

We also have a number of real estate projects in the pipeline, such as the Minami Aoyama 2-Chome Office Building Development Project. Moreover, the demolition work for our former headquarters is in progress, and the site will be redeveloped into a large-scale property for lease.

Strategies and Initiatives

The slowdown of the residential market, including condominiums, which began in the previous fiscal year, is expected to continue. We are carefully selecting and acquiring land based on market trends.

Although demand for leased office space in metropolitan Tokyo and other urban centers has softened, it is still strong. Our intention, therefore, is to continue developing well-planned office building projects that reflect our unique strengths in areas where we can fully demonstrate our technological capabilities such as high-end downtown locations and transportation hubs.

We are approaching an era in which only those developers that are able to create and add value to real estate will survive. By leveraging the experience and expertise cultivated in our numerous businesses, we continue to strengthen real estate development business as our second core business segment.