UPDATE 1-Japan's Mori Building to spend $3.7 bln in Tokyo redevelopment

* Plans 3 new skyscrapers in central Toranomon district

* Part of 10-year, $9 bln plan to redevelop ageing area

* Mori to finance project with debt, may seek partner

* Office rents face squeeze in pre-Olympics building spree (Adds CEO comments, background)

By Junko Fujita

TOKYO, April 13 (Reuters) - Japan’s Mori Building Co said on Wednesday it would spend about 400 billion yen ($3.7 billion) on constructing three high-rise towers as part of a grand plan to redevelop a central Tokyo district, and may seek a partner to fund the project.

The development is part of Mori’s 1 trillion yen plan to redevelop the Toranomon area over about 10 years. Lesser known than districts like Nihonbashi and Marunouchi, Toranomon sits among government, business and retail centres, with ageing infrastructure offering prime redevelopment opportunities.

Two of the skyscrapers will be office space and one a residential tower, and Mori expects two will be completed by 2019. The new projects add to an already full pipeline of office space under construction in the capital, potentially hurting rental prices as Japanese developers aggressively turn old buildings into new towers ahead of the Tokyo Olympics in 2020.

“This area is scattered with smaller and older buildings and tenants have left for other areas in Tokyo,” the Tokyo-based developer’s Chief Executive Officer, Shingo Tsuji said at a briefing. “But we will redevelop this area to help Tokyo become the world’s best city.”

Mori will finance the project with debt but it may seek a partner, which could be a financial investor, Tsuji said. The new towers will be constructed around Toranomon Hills, a 52-storey office and retail tower that the developer completed in 2014.

In 2018 and 2019, more than 1.6 million square metres of new space will be provided in central Tokyo each year, according to the Urban Research Institute, a real estate think-tank. Tokyo has only experienced such a plentiful supply of new property in 2007 and 2012 - both year when the economy was in growth phases.

“Now the economy is not in a healthy condition and it is expected to slow down if the consumption tax rate is increased next year,” said Shigeo Hirayama, managing executive officer for the Urban Research Institute. “A big supply in office space could hurt the property market.”

Already rents for Tokyo’s prime office buildings are growing only slowly. In March, average office rents were 17,973 yen per 3.3 square metre of space, the standard measure in Japan, just 778 yen more than a year earlier, according to broker Miki Shoji. Between March 2007 and March 2008, rents grew 2,510 yen.

With many new office buildings already opening, average vacancy rates for prime offices in Tokyo have risen for two consecutive months, Miki Shoji said. The vacancy rate for March was 4.34 percent, compared with 4.01 percent for January.