TOKYO (Reuters) - Land prices in Japan's three largest metropolitan areas rose in the 12 months to July 1, driven by investments in office properties and housing demand, but prices in most smaller cities kept falling, a government survey showed.
Commercial land prices for metropolitan areas surrounding Tokyo, Osaka and Nagoya rose 1.7 percent in the year to July 1, a much faster pace than the previous year's 0.6 percent gain, according to the Ministry of Land, Infrastructure, Transport and Tourism.
Residential land prices in those regions rose 0.5 percent, the first increase in six years, the ministry said.
"Office vacancy rates have been falling and demand for property investments has been improving," the ministry said in a statement.
Healthy demand for housing is also buoying commercial land prices as more of such space is being converted for residential use, it added.
In Tokyo, property owners have put prime properties up for sale to take advantage of strong demand from investors.
Last month, privately-held Japanese developer Mori Trust Co bought a Tokyo office complex and wedding venue from U.S. investment fund Lone Star for around 130 billion yen (736 million pounds).
Singapore's sovereign wealth fund is in talks to buy a Tokyo office tower for about 170 billion yen in the largest property transaction since the financial crisis.
In contrast, land prices in 80 percent of Japan's smaller cities fell in the period, the ministry said.
While the downward trend for local cities continues, commercial land prices in the area around the train station in Kanazawa city in central Japan rose 15.8 percent, the largest gain in the commercial land category in the country.
The jump was driven by expectations that demand for commercial land will increase as the city will be directly connected with Tokyo by bullet trains in 2015, the ministry said.
Land prices in a small Kutchan town in Hokkaido island near the famous Niseko ski resort surged 50 percent due to demand from foreigners for mountain properties, and backed by the weakening yen, the ministry said.
Reporting by Junko Fujita; Editing by Kim Coghill