According to global property consultant CBRE, Tokyo's office vacancy rate rose by 0.3 points quarter-over-quarter in Q2 2022, primarily due to new vacancies emerging as a result of office consolidations, partial cancellations and new hybrid work models.
While there were large-scale relocations relating to redevelopment this quarter, expansionary moves were largely limited to mid-to-small-scale office tenants. Office space contraction due to consolidations, on the other hand, were primarily among larger tenants. As a result of these trends, large-scale vacancies emerged within older Grade A Minus buildings during the quarter, raising the Grade A-Minus vacancy rate by 0.4 points q-o-q, a larger increase than that observed for other grades.
The Grade B vacancy rate remained unchanged q-o-q, temporarily halting the rise which had continued since Q2 2020. With lease cancellations in Grade B buildings being more limited, fewer new vacancies have been observed compared to higher grades. Moving forward, however, the supply-demand balance is anticipated to continue to loosen across all grades.
Two new Grade A buildings are due for completion in Q3 2022, while a total of 240,000 tsubo of new supply is slated for 2023 across all grades, representing a 30% increase over the past annual average. This is likely to lead to vacancies in existing buildings. Recent rise in energy/material costs may suppress appetite for corporate capital investment, raising the possibility of stagnating office demand.
Grade A rents fell 0.7% q-o-q to JPY 34,850 per tsubo, the first time since Q1 2016 that they have dropped below the JPY 35,000 mark. Rent declines are projected to continue as landlords attempt to secure tenants ahead of the new supply in 2023. CBRE forecasts Grade A rents to drop by a further 3.0% over the next 12 months.