Tokyo All-Grade Vacancy Rate Begins to Climb; Osaka All-Grade Vacancy Rate Hits Record Low

CBRE today released market trends for office buildings in thirteen cities across Japan for Q1 2017.


  • Tokyo Grade A vacancy rate leapt 1.4 points q-o-q to 4.2%
  • Osaka All-Grade vacancy rate fell to 3.2%, the lowest figure since the survey began in 1993
  • Nagoya All-grade vacancy rate fell 0.2 points q-o-q to 3.9%, a sixteen-year low
  • Tokyo Grade A rents are forecast to peak in Q3 2017.  Over the next year from Q1 2017, we expect rents to fall by 0.1%
  • Osaka Grade A rents are forecast to increase at an accelerated rate because of the tight market and to rise by 5% over the next year
  • Nagoya Grade A rents are forecast to have peaked this quarter.  We expect rents to fall by 1.8% over the next year

■ Tokyo 23 Wards

The All-Grade vacancy rate in Tokyo's 23 Wards increased by 0.1 percentage points q-o-q to 2.4% in Q1 2017, the first increase in two quarters. The main reason for the hike was the completion of several new Grade A buildings with space still unlet. Consequently, the Tokyo Grade A vacancy rate rose for a third consecutive quarter, up 1.4 points q-o-q to 4.2%. Meanwhile, the Grade A-Minus vacancy rate fell by 0.2 points q-o-q to 1.8% - the first time since 2008 that the vacancy rate for this category has been below 2% - and Grade B by 0.4 points to 2.1%. This quarter there were many large spaces being let in buildings with rents below JPY 20,000.

In the Grade A market, with buildings completed in the second half of 2016 seeing slow pace of lease-up, vacancy in newly-built offices is increasing. Owners who are keen to improve occupancy rates sooner rather than later have started to grant extended rent-free periods and/or drop asking rents. Rents have been sluggish overall, and assumed achievable rents for Grade A buildings were unchanged q-o-q at JPY 35,950.

Between 2018 and 2021, there is expected to be at least 150,000 tsubo of new Grade A supply every year. Some of the new buildings scheduled to be completed in 2018 in the Marunouchi/Otemachi area are expected to be fully let, but there are concerns about vacancy in existing properties currently being occupied by tenants planning to relocate to the new buildings. The Grade A vacancy rate is therefore expected to continue increasing. CBRE estimates that Grade A rents will peak in Q3 2017.  Over the next year from Q1 2017, we expect rents to decline by 0.1%.

"Large tenants are taking more time in choosing a building that best suits their needs," said Junichi Taguchi, managing director of CBRE’s Advisory and Transaction Services. "In recent and soon-to-be-completed buildings, occupancy will depend on how flexible the owners are on the terms they offer to potential tenants."

■ Osaka

The Osaka All-Grade vacancy rate declined by 0.7 points q-o-q to 3.2% in Q1 2017, a record low. This quarter saw the completion of Nakanoshima Festival Tower West with almost full occupancy. The majority of tenants have decided to move for one of the following reasons: to relocate from their own obsolete building; to improve their location or the quality of their building; or to provide more space for future expansion.

The Osaka Grade A vacancy rate fell 1.7 points q-o-q to 1.1% in Q1 2017, the lowest level since Q1 2008. With its vacancy rate three to four points lower than in Tokyo or Nagoya, the Osaka market is conspicuously tight. Assumed achievable rents also rose fast, up 2.7% q-o-q, outpacing Tokyo and Nagoya.

"This quarter the vacancy rate declined again by more than expected," commented Takashi Katono, executive director of CBRE's Kansai branch. "Tenants are increasingly worried about being unable to find space because there is so little supply. More tenants are in a hurry to rent, which means the market is bound to tighten further."

■ Nagoya

In Q1 2017 the Nagoya All-Grade vacancy rate declined for the first time in three quarters, down 0.2 points q-o-q to 3.9%. This was the first time in nearly sixteen years that the vacancy rate has fallen below the 4% mark, the last time being Q3 2001. Two Grade A buildings were completed in the Nagoya Station area and a few large tenants relocated in order to bring group companies under the same roof, two examples being an IT company and a financial institution. A lot of companies are opening new offices in Nagoya or are relocating to better locations/buildings in order to better attract talent. Nagoya Station area, where there have been a series of new buildings being constructed, recorded net absorption of 23,000 tsubo this quarter, out of 25,000 tsubo for Nagoya office market as a whole.

The Nagoya Grade A vacancy rate rose by 1.2 points to 5.2% in Q1 2017, the third consecutive quarterly increase, as one of two new buildings completed this quarter had some space still available. However, assumed achievable rents rose by 1.3% q-o-q to JPY 23,800 per tsubo, as new buildings boosted the average.

"The Nagoya market remains tight," said Hidekazu Fujiwara, executive director of CBRE's Nagoya branch. "Although the Grade A vacancy rate has risen, there are plenty of inquiries. Available offices are likely to steadily fill. With some owners trying to increase rents when leases are renewed, it has led to an overall rise in rents."


  • Sendai All-Grade vacancy rate fell below 6% for first time since Q3 2007
  • Yokohama Station area saw a string of companies relocating to larger premises
  • Fukuoka All-Grade vacancy rate fell to a record low of 1.0%

Vacancy rates declined q-o-q in all ten regional cities surveyed in Q1 2017. In Sapporo, Saitama, Kyoto, and Fukuoka, the market was tight and companies continued to search for offices among the little space available. Meanwhile in Sendai, where the vacancy rate used to be higher than the other cities, the vacancy rate fell below 6% for the first time in ten years. This was primarily due to tenants moving to better equipped or better located offices. In Yokohama, the vacancy rate in the Yokohama Station area fell to its lowest level in ten years as a string of companies moved to larger offices.

Assumed achievable rents rose in all regional cities except Kobe. Sapporo, Kyoto, and Fukuoka recorded large q-o-q rises of over 2%. In Fukuoka, in particular, rents rose by almost 3% for the second consecutive quarter.

Market data and detailed discussion of market conditions for each city can also be found in the Japan Office MarketView Q1 2017 which will be published on April 27, or on the CBRE website.

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