Post: Wednesday May 25, 2016
Demand for Office space in Tokyo continues to be high. Office relocation and floor space expansion needs remain brisk and owners of large scale buildings which are new or relatively new remain confident with their rental pricing and are not negotiating down so much. The index for average rents of new buildings (no more than one year old) in Tokyo is higher than the same period a year ago, making it 2 consecutive years of increase while the same index of existing buildings (more than 1 year old) has resulted in 5 consecutive years of increase. The vacancy rate in central Tokyo is continuously on a decreasing trend. For example, in Minato-Ku and Shinjuku-Ku a couple of large scale buildings have been completed one after another increasing the supply, however due to steady demand the vacancy rates remain low in these areas.
Another increasing trend is more consideration by tenants about the preparation for disasters. More corporations are establishing BCP (business continuity planning) and are asking for a secure power supply in times of disasters and storage of emergency supply stockpiles.
According to the office rent survey in April by Nihon Keizai Shimbun, Inc., the index for rents of new buildings (no more than 1 year old) in Tokyo in the first half of 2016 has exceeded the same period a year ago, making it 2 consecutive years of increase and resulting in the highest level of rents since the first half of 2008 before the collapse of Lehman Brothers. The same index of existing buildings (more than 1 year old) has resulted in 5 consecutive years of increase. The survey is made by calculating the office rent which owners advertise to tenants and it is based on an Office Rent Index with Feb. 1985 set as 100. Tokyo's new buildings are at 160.00, which is a 18.93 point rise from the same time last year, while existing office buildings more than 1 year old is 138.97, which is a 9.07 point rise from the same time last year. More companies are continuously willing to expand their office space, and buildings with larger floor spaces are gaining increasing popularity; thus the building owners are raising the office rents. Some tenant companies have come to accept a rent revision higher due to the stable demand in spite of the new additional supply of large scale office buildings.
The office vacancy rate in Marunouchi and Otemachi is particularly low. The rate is said to currently be between 1.0% - 1.5%, which is a further decrease from the same period last year when it was between 1.5% - 1.9%. Prominent companies are concentrated in this area, making business more efficient, and the good transportation access increases the popularity of the area. Office demand in other areas of Central Tokyo also remain high. The average vacancy rate in the end of March in the 5 wards of central Tokyo (Chiyoda, Chuo, Minato, Shinjuku, and Shibuya) is 4.34%, which is a 0.96% decline from the same time last year. The average asking price in the same 5 wards is 17,973Yen per Tsubo (=3.3sqm), which is 0.4% increase compared to the last month and is now 27 months of consecutive increase. Compared to the same month last year it is 4% higher.
A good example of new supply in the market is the large scale office building "Otemachi Financial City Grand Cube" by Mitsubishi Estate Co., Ltd. which has been completed in April. The standard floor area of the office building is about 4,300sqm which is one of the largest spaces per floor in the Otemachi area, but almost all the floors have been occupied before its completion. In March a couple of large scale office buildings with per-floor area over 700sqm were completed one after another in Shinjuku-Ku and Minato-Ku. The largest one among them is Sumitomo Fudosan's Roppongi Grand Tower with office spaces over 3,300sqm per floor. Occupancy of the building is currently at about 60% but the building owner is still patient.
Otemachi Financial City Grand Cube
Corporate earnings have improved due to high stock prices and the weak yen brought by Abenomics which began in 2012. Expectations of a recovery in Japan remain overriding the continuing uneasiness brought by the international economy overall, and many companies are still expanding their business, and hence their office space. But there are some concerns in the market. There are some opinions that the domestic economy is gradually slowing recently, and it will become harder in some areas in Central Tokyo to close contracts at the current rent level. Other concerns observed are the opaque factors such as slowdown of the overseas economy and blunting of the corporate earnings by the correction of weak yen. These factors could weaken the demand for office space. Since office rent is a fixed-expense, if tenant companies become more budget-minded it is expected that they will become more selective, and office buildings without the competitiveness will have a very tough road ahead.
* Reference source: 2016/05/05 NIKKEI Newspaper
Research for Office Rent as of the end of March (2016/05/05 NIKKEI Newspaper)
|Rent in 2015|
|New||40 - 50||-||-||400 - 576||Full occupancy expected on buildings planned for completion in 2016.
Continuous rise of rent
|Exist||35 - 55||20 - 55||360 - 660|
among existing buildings
|Exist||17 - 40||22 - 37||149 - 480|
|New||30 - 33||-||-||300 - 330||Slow fluctuation, but decreasing vacancies little by little|
|Exist||6 - 30||9 - 26||32 - 360|
|New||30 - 40||20 - 33||350 - 380||New planned redevelopments in the Yaesu area creating relocation interest|
|Exist||11 - 40||10 - 43||99 - 480|
|New||-||23 - 30||-||-||Decreasing vacancy rates in the area. New supply is few.|
|Exist||7 - 30||7 - 30||-||70 - 360|
|Ginza||New||30 - 35||-||-||300 - 372||Tight supply-demand on existing buildings.
Attention goes to the buildings planned for completion in 2017
|Exist||10 - 35||10 - 37||80 - 420|
|Hachobori, Kayabacho||New||-||-||-||-||Decreasing vacancy due to lower rent.
Increasing relocation of small‐to‐medium‐sized companies.
|Exist||7 - 24||7 - 20||45 - 288|
|New||-||18||-||-||Stable rent in the whole area instead of tight supply-demand.|
|Exist||8 - 24||6 - 25||60 - 288|
|New||28 - 33||24 - 42||280 - 360||Not high occupancy on new buildings with floor space of 100-200 Tsubo, but interest is high.|
|Exist||9 - 45||8 - 40||54 - 540|
|New||33 - 38||28 - 35||330 - 420||Building owners are positive about raising rent due to low vacancy.|
|Exist||11 - 40||9 - 39||70 - 480|
|New||38 - 40||-||-||380 - 456||New vacancy is filled by floor expansion demands of the tenant in the same building. The rents are going higher.|
|Exist||10 - 45||9 - 42||66 - 540|
|New||23 - 25||18 - 22||230 - 250||Low rental prices, but a slow pace of new contracts.|
|Exist||11 - 33||10 - 30||77 - 396|
|New||-||18 - 32||-||-||Vacancy is gradually reducing in new large buildings. Demand is high especially in Konan area|
|Exist||8 - 34||6 - 32||51 - 408|
|New||35||-||-||420||Increasing demand due to lower rents. Moderate recovery of the area rents.|
|Exist||7 - 30||6 - 30||70 - 360|
|Shibuya, Harajuku||New||35||-||-||420||Vacancy is continuously low. Up-ward trend of the area rents.|
|Exist||12 - 35||12 - 31||50 - 420|