According to global property consultant CBRE, Tokyo's All-Grade office vacancy rate fell by 0.2 points to 4.7% in Q4 2022, representing the first q-o-q decline in almost three years since Q1 2020. Take-ups by relocations aimed at upgrading or expansion outpaced new vacancies.
An increasing number of companies are looking to improve their office environments in order to encourage office attendance and for employee retention. The Grade A vacancy rate fell by 0.5 points to 3.3%, marking the sharpest q-o-q fall and the lowest vacancy rate among the three grades. Demand, though, has yet to fully recover.
While net absorption has been on the increase since Q1 2022, the figure for Q4 2022 remained at around 20,000 tsubo, well below the quarterly average of the past 10 years of roughly 40,000 tsubo. It should also be noted that the primary cause of the fall in vacancy rate in Q4 2022 is the fact that new supply for the quarter consisted of a mere 6,000 tsubo, well below the 10-year quarterly average of approximately 40,000 tsubo. Meanwhile, 2023 is expected to see 240,000 tsubo of new supply, some 30% above the annual average across the past decade, with Grade A office space accounting for 80% of total. With interest in new office space dwindling from foreign companies, previously key drivers of demand, pre-leasing progress is sluggish, with many buildings expected to enter operation with vacant space remaining. The vacancy rate is therefore expected to rise again in the coming periods.
Grade A rents fell by 0.1% q-o-q to JPY 34,700 per tsubo. While asking rents continue to be lowered to attract demand, the rate of decrease has become more moderate since Q1 2022. However, with the vacancy rate expected to rise going forward, the rate of rent reductions should widen again. CBRE forecasts Grade A rents to drop by 3.2% over the next 12 months.