Lease Office Market Trends in Tokyo the second half of 2018
The office building market in Tokyo is experiencing an unexpectedly steady inflation due to a high demand from companies looking to relocate and expand their office spaces. While the vacancy rate of offices remains at a historically low level, most of the newly constructed building’s office spaces are already completely reserved. Some buildings that plan to be completed in 2020 also have their spaces reserved. The early market forecast in 2018 predicted that a large incoming supply of office buildings and spaces in Central Tokyo would ease the pressures of office demand. Contrary to the early forecast, office demand has remained high since the beginning of 2018, due to the efforts of companies relocating to more attractive buildings to improve their work environment and attract new employees. The rental price of newly built office buildings has risen after an interval of two years (2016 - 2017), while this year is the seventh consecutive year that the existing building’s index has risen.
According to an office rental survey conducted by Nihon Keizai Shimbun, Inc., the index of rental rates for newly built buildings (less than one year old), in Tokyo in the second half of 2018, has exceeded the index of the same period of the previous year (2017) for the first time in two years. The survey results were calculated using the Office Rent Index created in Feb. 1985 (starting at 100) using data from office rental rates owners advertised to tenants. Tokyo’s newly-built buildings–less than 1 year old–are at an index of 168.39, which is a 6.03% increase over the same period from the previous year (2017). For existing office buildings older than a year, the index is at 140.29, which is 0.9% rise over the same period from the previous year (2017), making it the highest index level seen since the second half of 2008. Buildings with larger floor areas or buildings that are well-equipped to continue operating in the event of a disaster-such as emergency power generators-are likely to be popular and attract many applicants.
The average vacancy rate in the end of September in the 5 wards of central Tokyo (Chiyoda City, Chuo City, Minato City, Shinjuku City, and Shibuya City) is 2.33%, which is a two month consecutive record low, since January 2002.One of the contributing factors is an active demand for office space. In an aim for good business performance, many companies creating a strong demand for the relocation and expansion offices. It has been observed that many companies have started to follow the idea that improving their work environment is an investment for future and is more than the cost of management. There are examples of some companies improving their work environment by arranging a place for communication and interaction among employees when relocating, and some companies relocate their offices to famous buildings or newly constructed buildings in order have an advantage in attracting future employees. There is another example of a couple of IT companies consolidating their dispersed branch offices in a building to be constructed in the following year and are someone of the tenants occupying large office spaces contributing to the declining vacancy rate.
Another low vacancy factor is in part due to an increase in shared office spaces called “Co-working space”. According to one of the major real estate service companies, the percent of occupied office spaces being used as shared offices within the 23 wards this year has increased to 7.9% (2018), which is an increase of 5.6% from the previous year’s results of 2.3% (2017). This shows that companies wanting to rent shared office spaces are becoming one of the major lessees of office spaces in Tokyo. The number of satellite office spaces has also been increasing due to the increase of companies using a new working style called teleworking, which means working at home using PC. A major real estate company is currently operating 30-40 places used as satellite offices in Tokyo and the number of contracts is increasing. The market source observes that those players operating with new work styles are increasing demands for securing substantial floor spaces despite a lack of vacant space in the current market.
The rate of “Secondary vacancy”–a vacancy created in an existing building due to the moving-out of its tenants to a new building–currently remains low. According to the aforementioned real estate service company, 80% of office spaces in large buildings within Tokyo due to be constructed in 2019 have already been reserved. For buildings due to be built in 2020, 20-30% of office spaces have already been reserved. The market source forecast is certain that the current steady inflation will at the very least continue for another one year. However, the same real estate service company said that new office spaces of about 700,000m2-which is more than the space provided in 2018-are planned to be available in 2020. As a result, before or after the year 2020, the market may come into a small correction phase of vacancy rate and rental price.
Research for Tokyo Office Rent (September, 2018)
（2018/11/7 NIKKEI Newspaper）
|Rent in 2017
|Marunouchi, Otemachi||New||45||50～55||-14||540||Completion of newly-built large buildings continues having few vacancies.|
|Kasumigaseki, Uchisaiwaicho||New||―||38～40||―||―||There are some vacancies after moving-out of tenants, but there are inquiries of new applicants.|
|Yotsuya, Kojimachi, Bancho||New||27～35||27～28||13||267～350||The supply of newly-built buildings and office spaces will continue, but most of them have been already occupied.|
|Yaesu, Kyobashi, Nihonbashi||New||40||27～40||19||400～480||Newly-built large buildings are almost fully occupied. Many companies which provide coworking space services actively search new office spaces.|
|Nihonbashi-Muromachi, Honcho||New||―||28～31||―||―||Vacancy within the area is on a continuous declining trend as a whole.|
|Ginza||New||―||40～45||―||―||GINZA SIX is fully occupied. The supply-demand balance among the existing building spaces is becoming very tight.|
|Hatchobori, Kayabasho||New||30||25～27||15||360||Large scale vacancies after moving-out of big tenants and advertization for new tenants are expected.|
|Tsukiji, Akashi-cho||New||―||―||―||―||Vacancy is decreasing but the area market is dull.|
|Shinbashi, Nishi-Shinbashi, Toranomon, Shiodome||New||27||25～27||4||250～304||Large buildings to be completed in Toranomon area next year are almost fully occupied. The area’s rent price is on upward trend.|
|Akasaka, Aoyama||New||―||―||―||―||Branch office demands have filled plenty of vacancies. The area rent price is on up-ward trend among mid-size buildings.|
|Roppongi, Azabu||New||30||30||―||300||Large office spaces are becoming occupied and vacancy is fairly decreasing.|
|Shiba, Mita, Takanawa||New||28||16～30||22||280||The supply-demand balance among the existing building spaces is improving and is continuously very tight.|
|Shibaura, Konan||New||―||―||―||―||The area’s supply-demand balance of office spaces is improving but the buildings having vacant spaces are decreasing.|
|Osaki, Gotanda||New||―||―||―||―||The area is attracting attention from IT companies and vacancy is decreasing.|
|Shibuya, Harajuku||New||43||43||―||430||High popularity and few vacancies. Rent price is increasing due to shortage of vacancy and new supply.|
※1 Tsubo = 3.3sqm. “New” meaning Newly-built buildings less than one year old, “Exist” meaning existing buildings more than one year old. “Rent” means the rent which the office rental property owners have advertised to tenants. Rent per month, Deposit center price range per Tsubo.