Despite a spike in Grade A office supply across central Tokyo, average rents for high-end workspace climbed by 0.5 percent quarter-on-quarter at the end of 2023, according to Savills.
As office tenants paid average monthly rents of JPY 9,872 ($69) per square metre for premium deskspace in Tokyo’s central wards, vacancy for Grade A offices tightened to 3.2 percent at the end of December, dropping 0.2 percent from September.
“Moderate improvements to rents and vacancy were observed over the quarter in both Grade A and Grade B office markets. There were limited issues with absorbing the large office supply in 2023, and the modest incoming supply in 2024 bodes well for the additional stability of the market,” the property consultant said in a recent report.
With developers launching over 595,041 square metres (6.4 million square feet) of Grade A office space in central Tokyo last year, the level of new supply surpassed the 5-year average by around 36 percent, according to a report by Colliers. The Canadian firm’s analysts predict that another 264,463 square metres will be rolled out in 2024.
Shibuya Leads Growth
Among Tokyo’s five central wards, Shibuya recorded the largest rental increment at JPY 10,806 per square metre at the end of last year, up by 1.9 percent from September. That rise in rents took place despite the commercial hub also seeing vacancy rise to 1.6 percent in December for a 0.5 percent uptick since the end of the third quarter.
Financial services firm Broad-Minded revealed in November that it is relocating its headquarters to the newly-completed Shibuya Sakura Stage complex to lease 1,640 square metres of office area. That relocation was the largest office movement to Shibuya announced in the fourth quarter of 2023.
The only other ward to see improved rental performance was Shinjuku, where average rents reached JPY 8,131 per square metre in December for a 0.9 percent increase from September. Elsewhere, Chiyoda and Minato rents remained steady, while Chuo experienced a rental contraction at 0.2 percent in the same time frame.
Developers are set to launch over 661,157 square metres of Grade A office space in Tokyo’s five central wards during 2025, a third above the average annual supply from 2019 through 2023 and the largest crop of new workspace in the coming half-decade, according to data from Colliers. With that flood of supply on the way rents are likely to come under pressure, Savills noted in their research.
One of the largest development projects slated to be completed in 2025 is the Takanawa Gateway City complex in Minato ward. Located near the local train station, the East Japan Railway Company project includes three high-rise towers, offering a total of 816,636 square metres of offices, retail and parking, along with other facilities.
Savills’ requires office buildings to have at least 30,000 square metres of gross floor area to qualify as Grade A and be less than 15 years in age. Colliers emphasises that the properties have floor plates of at least 992 square metres.
Rents in Tokyo inched up despite the country’s office sector seeing the largest decline of all real estate asset classes during the first nine months of 2023, according to MSCI Real Assets. Investors committed JPY 1 trillion to buying income-earning office properties in Asia’s second-largest economy from January through September last year, which was down 35 percent from a year earlier.
Ramping Up Commitments
Tenants leasing space in central Tokyo’s top buildings showed a strong preference for new stok last year, Colliers highlighted. In 2023, office projects set to be completed in six months time averaged pre-committed occupancy of 47 percent, which was up 29 percentage points from 2022.
Kohei Kawai, Colliers Japan’s head of research, said that tenants are prioritising newly built workspaces thanks to recovering office attendance in Tokyo.
“In Tokyo, 80 percent to 90 percent of office workers have already returned to office-based work. Consequently, the consensus formed early 2023 between landlords and tenants to continue using offices in the long term became a significant factor in the improved leasing of new offices,” said Kawai.
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