CBRE releases Q2 2014 market report for office buildings in 13 cities across Japan

Office rents rising nationwide - Tokyo vacancy rate falls below 5.0% for the first time since Q3 2009

CBRE today released today its Q2 2014 market report for office buildings in 13 cities across Japan.

Noteworthy Trends

• Tokyo Grade A vacancy rate rises marginally but assumed achievable rent records 2.8% q-o-q increase
• Osaka Grade A vacancy rate down 0.9 points q-o-q to below 10%
• Nagoya all-grade vacancy rate drops to 7.0%, down 8.2 points from 2010 peak
• Assumed achievable rent rises in nearly all regional cities

Tokyo 23 Wards

The Tokyo Grade A office vacancy rate stood at 4.8% in Q2 2014, a rise of 0.1 points q-o-q, the first such increase in three quarters. Grade A assumed achievable rent increased 2.8% q-o-q to ¥31,650 per tsubo, the largest rise since Q3 2007. Four new buildings were completed this quarter, of which two were fully let upon completion.

The rise in the vacancy rate this quarter was primarily due to two newly completed buildings coming to market not fully let. The landlords of these buildings deliberately opted not to fully pre-lease their property ahead of completion. Given that demand continues to strengthen, the landlords believe they can secure higher rents for the remaining space by leasing it out in forthcoming quarters. The fall in vacancies is providing additional momentum to the upturn in rents, which is likely to accelerate further.

The vacancy rate for Tokyo’s 23 wards for all-grade offices declined by 0.3 pts q-o-q to 4.8% this quarter. Large vacant spaces are being filled by demand for office consolidation and/or group restructuring by companies taking advantage of stronger corporate earnings. Smaller tenants also continue to relocate in order to improve the location and standard of their office. Overall corporate office demand is robust.

"Tenants have already been secured for an average of around 80% of the space in the buildings which came online this year. This demonstrates the current strength of office demand for Grade A buildings”, said Hiroshi Koizumi, executive director of CBRE's Office Service team. “With fewer available spaces in newly constructed buildings, companies looking to relocate to larger premises in tandem with business expansion are increasingly looking to properties planned for future construction. Spaces that will become available following tenant relocations to these planned new buildings are likely to become a good option for relocation."

Osaka

Grade A vacancies in Osaka fell 0.9 pts q-o-q to 9.4% in Q2 2014. After peaking at 18.2% in Q1 2013 following the completion of a large volume of new supply, the vacancy rate has progressively fallen. However, the average assumed achievable rent for Grade A buildings was flat q-o-q at ¥19,000 per tsubo. Although options open to tenants are narrowing as the available space reduces on the back of buoyant demand, companies continue to adopt a cautious approach to costs. Therefore, it may take a little longer for rents to rebound. The Osaka all-grade vacancy rate fell 0.4 pts q-o-q to 7.5% this quarter. Business expansion, underpinned by the economic recovery, is now clearly being reflected in the office market. Activity can be seen from companies across various sectors. Leasing transactions include relocation for location/facility upgrades, floor space expansions, new office openings and expansion within existing premises.

"This quarter saw large-scale relocations for location upgrades as well as a succession of tenants relocating to increase their floor space or taking up more space within their existing premises for business expansion,” said Takashi Katono, head of CBRE’s Kansai Office. “Available space is steadily being taken up and companies who wish to increase floor space or relocate are advised to speed up their decision making processes."

Nagoya

Grade A vacancies in Nagoya fell 0.1 pts q-o-q to 3.3% in Q2 2014. This was partly due to a relocation by a major housing company for office consolidation and an expansion within an existing premises by a major telecommunications firm. Assumed achievable rent fell by 0.7% pts q-o-q to ¥21,300 per tsubo. This was due to declining rents at some buildings where available space has been vacant for an extended period, which pushed down the overall average. The all-grade vacancy rate in Nagoya fell 1.1 pts q-o-q to 7.0%, marking an 8.2% point drop from the peak recorded in 2010. The fall in vacancies is being led by demand for office expansion on the back of the recovery in corporate earnings as well as relocations for office upgrades (location and/or facilities).

"We are seeing an increase in the volume of requirements for corporate relocation in Nagoya,” said Takahiro Fujimoto, head of CBRE's Nagoya branch. “At the same time, as space in existing buildings is limited, companies considering relocation are also thinking of moving into buildings which are currently under construction."

Nationwide

During Q2 2014, vacancy rates fell q-o-q in nine out of the 13 surveyed cities nationwide. While a couple of cities including Yokohama saw vacancy rates rise due to new supply, companies continue to seek out office space across the board. Activity was seen across a wide range of sectors including manufacturing and telecoms and services. Leasing deals involved new office openings, expansion within existing premises and relocation to larger spaces. In some cities, the supply of large-scale floor plates is shrinking and hopes are being pinned on new supply stimulating relocation demand. Assumed achievable rents rose q-o-q in almost all regional cities. Led by the fall in vacancy rates, rents now appear to have bottomed out and are moving upward.

Note: Previously, CBRE compiled rents for Grade A offices in Tokyo, Nagoya and Osaka based on the assumed achievable rent (inclusive of service charges). From this quarter, CBRE has listed assumed achievable rents for Grade B offices (Grade A– in Tokyo only). Please refer to the survey outline attached for details of the applicable buildings and complilation method.

For further details of the market data in each city and an overview of market conditions please refer to the Q2 2014 Japan Office MarketView released on August 4th.

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.​