Global property consultant CBRE is reporting this week that Tokyo's office vacancy rate was up 0.3 points quarter-over-quarter reaching 3.9% in Q4 2021. The primary factors were an increase in vacancies in existing buildings as a result of relocations to newly completed properties, as well as consolidations and partial cancellations implemented as cost-cutting measures.
Higher grade buildings, however, saw less significant rises, with the Grade A vacancy rate rising by just 0.1 points. The quarter saw an increase in relatively large-scale relocations aimed at expansion, or locational and/or building upgrades.
Most of this new demand was absorbed by more competitive large-scale buildings in the area, in which significant vacancies were filled. New supply in 2022 across all grades is limited to 100,000 tsubo, 40% below 10-year historical average. While this may cause a temporary fall in vacancy, over the longer term the vacancy rate should continue to climb owing to the significant supply of 240,000 tsubo slated for 2023.
Although increases in the vacancy rate were smaller in higher grade buildings, rents fell more sharply in these properties, with Grade A rents dropping by 1.7% from the previous quarter. The major reason for vacancy rates being kept in check appears to be the fact that landlords have adjusted rents downwards in order to secure tenants ahead of the completion of large-scale supply in 2023. Rents are anticipated to continue to slide as the supply-demand balance softens further in the coming quarters. CBRE forecasts Grade A rents to decline by 5.1% over the next 12 months.