Tokyo Grade A office vacancy rate hits 8-year high in Q3

The vacancy rate rose 1.1ppts to 4.1%, the highest since 2014.

Tokyo Grade A office rents in Q3/2022 remained flat over the quarter at JPY32,817 per tsubo, translating to an annual decline of 4.5%, according to a Savills report. 

While the overall appearance of flat rents was supported by the addition of a few new offices with above average rents, the rest of the market has been lacklustre. 

Here’s more from Savills:

Corrections have persisted in some areas, although a handful of buildings have also seen recovery. The addition of these new offices has also contributed to a notable loosening in vacancy rates, which increased 1.1ppts to 4.1%, and are at their highest levels since 2014. 

At the ward level, Chuo saw the largest changes due to the addition of the large new Tokyo Midtown Yaesu Central Tower - vacancy almost doubled, increasing 4.4ppts QoQ to 9.2%, but the ward also saw its first increase in rent since the pandemic begun, increasing 1.8% QoQ. 

Meanwhile, Minato saw the smallest change in vacancy levels, which increased 0.1ppts over the quarter. Looking at rents, the mild decline of 0.7% QoQ that Chiyoda experienced was the largest in the C5W. 

Going forward, the demand for offices is expected to remain steady, and attendance at the workplace has increased over the past few months. Overall, the office market appears to have attained a reasonable state of stability, and leasing activity for large floor plates has become more active. 

Most of the rental changes this quarter can be ascribed to the new buildings added to the market; in fact, a majority of buildings have not seen any changes in rent. While it might take more time for new supply to be absorbed, the market appears ready to welcome these new additions. Indeed, approximately half of the major supply in 2023 appears to have been pre-leased, hence stabilising the current market sentiment.