Office demand nationwide continues to expand to a wider range of buildings and industries, Tokyo Grade A vacancy rate falls below 5% for first time in 2.5 years

CBRE releases first quarter 2014 market trends for office buildings in 13 cities nationwide

CBRE today released updated market trends for the Japan office market for the first quarter of 2014.

Hot Topics

• Tokyo’s Grade A vacancy rate declined by a sharp 2.4 points quarter-on-quarter (q-o-q) to 4.7%
• Osaka’s Grade A vacancy rate declined 1.8 points q-o-q to 10.4% despite a large new supply
• Nationwide, demand is increasingly being driven by companies expanding and opening new offices
• In addition to Tokyo, some regional cities are also seeing signs of assumed achievable rents bottoming out

Tokyo 23 Wards

In Tokyo’s Grade A vacancy rate declined by a sharp by 2.4 points q-o-q to 4.7%, while Grade A assumed achievable rents rose 0.5% q-o-q to JPY30,800 per tsubo. A new building which came online during the quarter was nearly 100% filled before completion, and buildings completed last year have seen further leasing progress. Large spaces were also leased at existing buildings in submarkets including Marunouchi and Roppongi, contributing to the large decline in the vacancy rate. The vacancy rate in Tokyo’s 23 wards also declined 1.1 points q-o-q to 5.1%.

Demand was led by companies expanding their offices or moving to improve the location of their office, with particularly notable activities coming from B-to-C businesses, including department store operator, and general and apparel retailers, among other industry segments. Telemarketing and staffing agencies were also expanding, as these types of companies have been seeing an increase in number of orders from their clients, suggesting that the economic recovery is spreading to a wider range of businesses.

“We are seeing office demand spreading to all types of industries, on the back of business expansion plans as well as the anticipation for higher rents,” said Hiroshi Koizumi, executive director of CBRE’s office Services team. “While the demand for central locations remains high, we are also seeing demand for offices in relatively inexpensive adjacent areas, coming from companies requiring large amount of space at a reasonable cost. With a large portion of the new supply coming line in 2014 already leased, choices are becoming limited for companies seeking to consolidate their offices. Landlords are starting to get the upper hand in negotiations, and the pace of rental increases is likely to accelerate.”

Osaka

Osaka’s Grade A vacancy rate declined 1.8 points q-o-q to 10.4% despite the over 10,000 tsubo of new supply coming online. Grade A assumed achievable rents increased by 1.1% q-o-q to JPY19,000 per tsubo, due primarily to the new supply being added to the rental basket. The vacancy rate for Osaka overall also declined, falling 1.0 point q-o-q to 7.8%. Through last year, vacant space was mainly filled by large companies making large-scale relocations, but this quarter has seen demand spreading to a wider range of companies, with midsized firms leasing space in mid-sized buildings.

“Midsize firms began to play a more prominent role in the market this quarter.” said Takashi Katono, executive director of CBRE’s Osaka branch. “Even with medium sized buildings, spaces being vacated are being quickly filled as long as they are in relatively new and well equipped buildings, or in good locations. The overall vacancy rate should continue declining for the foreseeable future.

Nagoya

Nagoya’s Grade A vacancy rate declined 0.6 points q-o-q to 3.4%, while Grade A assumed achievable rents fell 1.4% q-o-q to JPY21,450 per tsubo. Several companies, including an IT company, took additional space in their current buildings, which led the vacancy rate to decline below 4%.

Nagoya’s overall vacancy rate also declined q-o-q, falling 0.9 points to 8.1%. With companies relocating to improve the quality and/or location of their buildings, the vacancy rate fell for the first time in three quarters. Office demand continues to expand to a wider range of industries.

“More companies continue to relocate in order to expand their space or to improve their facilities, leading to decline in vacancy.” said Takahiro Fujimoto, executive director of CBRE’s Nagoya branch. “2015 will see large new supply in the Nagoya Station area, but for now, strong demand should further lower the vacancy rate.”

Nationwide

Vacancy rates fell on a q-o-q basis in 12 out of 13 cities. Furthermore, of those 12 cities, four of them had a quarterly decline of more than a percentage point. In addition to companies moving to improve the location or facilities of their office, there are more companies moving to larger spaces, and more new office openings. In areas where high-quality properties are becoming scarce, more companies are choosing to expand in their existing buildings. In these areas, new building developments are eagerly anticipated.

Assumed achievable rents are not just rising in Tokyo, rents are also showing signs of bottoming out in Yokohama and Saitama, as well as regional cities such as Sendai and Hiroshima.

Note: To date, CBRE has provided assumed achievable rents for Grade A rents in Tokyo, Osaka and Nagoya, while providing asking rents for all-grade rents in other areas. From the first quarter, assumed achievable rents will be provided nationwide. We believe this new data set offers a clearer view on changes in the market. For details, please refer to Terms and Definitions table.

For further details of market trends and forecasts as well as market data, please review the Japan Office Market MarketView Q1 2014, scheduled for release on May 9th.

About CBRE Gro​up, Inc.

CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.​