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Japan's Office Vacancy Under 1 Percent in 8 Major Cities

Japan's Office Vacancy Under 1 Percent in 8 Major Cities


According to CBRE, Tokyo's All-Grade office vacancy rate was unchanged at 0.7% in Q3 2019. Secondary vacancy arose at some existing buildings; while a small amount of vacant spaces remained in three out of the 10 new buildings completed this quarter. The period also saw several large units being filled by group companies consolidating premises and by companies establishing new offices. Coworking operators were also active, securing space totaling over 8,000 tsubo.

While there remains strong demand among companies to relocate to larger premises and to establish new offices, CBRE has also observed some tenants considering relocation to relatively inexpensive areas/buildings to avoid substantial rent hikes upon renewal. Several examples of this was seen this quarter. At the same time, in areas where rents are comparatively high, space vacated by tenants have begun to appear on the market. In the Marunouchi/Otemachi area, the Grade A vacancy rate rose by 0.6 points q-o-q.

Tokyo All-Grade office rents rose 1.7% q-o-q to JPY 22,870 per tsubo and Grade A rents also rose by 1.1% q-o-q to JPY 38,350. Although rents are rising in areas where they are lower than prevailing market levels, rents were flat in the Marunouchi/Otemachi area.

Around 200,000 tsubo of new Grade A office space is scheduled for completion in 2020. As of September 2019, pre-leasing was progressing well, with the tenant prelease ratio exceeding 80%. However, many tenants signing pre-leases are relocating from existing buildings. Amid growing risk of a slowdown or downturn in the domestic economy, secondary vacancy has already started to emerge, a trend that is expected to continue in future. CBRE therefore expects Grade A rents to decline by 2.9% over the next year.

Takashi Katono, executive director of CBRE's Advisory & Transaction Services (Office), commented: "Buildings where tenants have decided to relocate to a new property have seen a lull in existing tenants taking up the vacant space. Landlords of buildings with a less central location or average facilities are now offering reasonably long rent free periods to secure replacement tenants."

Osaka Market

The Osaka All-Grade vacancy rate stood at 0.9% in Q3 2019, the first time it has fallen below 1% since CBRE's surveys began recording this figure in 1993. The quarter saw many tenants looking to secure a space, regardless of location or grade. As a result of the increasingly tight market conditions, All-Grade rents rose to the JPY 13,500 - JPY 14,000 level for the first time since 2008, and are now not far from the historical high of JPY 14,080 recorded in Q1 2008.

The Osaka Grade A vacancy rate rose by 0.1 point q-o-q to 0.3%. Despite the slight q-o-q increase, tenant enquiries are extremely brisk at present, with vacancy that arose this quarter expected to be filled quickly. Osaka Grade A rents rose by 1.8% q-o-q to JPY 25,650 per tsubo. Amid tightening supply-demand conditions, rents are likely to climb further in the coming quarters. CBRE forecasts an increase in Grade A rents of 4.3% over the next year.

Hideo Oue, senior director of CBRE's Advisory & Transaction Services (Office), Kansai office, commented: "Several new development plans have emerged in recent months, with building completion scheduled around the mid-2020s. While this will not alleviate demand from tenants with immediate space requirements, this comes as good news for tenants planning their long-term Osaka office strategy. Until recently, there had been no prospect of the current space shortage being resolved, but there are now signs of change."

Nagoya Market

The Nagoya All-Grade vacancy rate was unchanged at 0.9% in Q3 2019. Several small-scale units became vacant, while at buildings with large units available, space was filled by tenants consolidating premises or being obliged to vacate their existing building. While there is strong demand among tenants to upgrade facilities and move into larger premises, there remains a shortage of available space. As a consequence, buildings completed this quarter opened at almost full occupancy. Even at one building where the lease of a large unit was terminated due to the tenant relocating to a company-owned building, potential tenants were quick to respond to the availability.

Nagoya All-Grade rents rose by 2.8% q-o-q to JPY 13,480 per tsubo this quarter. Grade A rents rose by 1.5% q-o-q to JPY 27,300 per tsubo, with the historical high of JPY 27,350 set in Q4 2007 likely to be surpassed within the year.

Since there will continue to be very little new supply in Nagoya, market conditions are poised to remain tight. CBRE therefore expects a 2.6% rise in Grade A rents over the coming year.

Junichi Miyazaki, director of CBRE's Advisory & Transaction Services (Office), Nagoya office, commented: "Occupier demand remains solid. When the occasional space opens up and enters the market, multiple tenants are quick to respond and competition is fierce."

 
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