CBRE Today Released its Q3 2016 Office Market Data in Japan Covering Thirteen Cities

Tokyo All-Grade Vacancy Rate Rises for First Time Since Q4 2012 Vacancy Rates in Sapporo, Kyoto, and Fukuoka Hit Record Lows

​CBRE today released its Q3 2016 office market data in Japan covering thirteen cities.

Highlights

• Tokyo Grade A vacancy rate rose 0.8 points q-o-q to 2.7%, the first increase in six quarters
• Tokyo All-Grade vacancy rate rose 0.2 points q-o-q to 2.6%, the first increase in 15 quarters
• Osaka Grade A vacancy rate stayed flat q-o-q, while Grade B fell 0.3 points to 3.7%
• Nagoya Grade A vacancy rate rose 0.3 points q-o-q to 3.3%
• Rents rose q-o-q in all regional cities

■ Tokyo 23 Wards

In Q3 2016, the All-Grade vacancy rate in Tokyo's 23 Wards increased by 0.2 percentage points (ppt) q-o-q to 2.6%, the first rise in fifteen quarters. The increase was primarily due to one Grade A building reaching completion with spaces still available. This quarter, one which included the summer holidays, also saw a slow-down in occupier leasing activity. This is likely to have had an impact on the vacancy rate as well.

The labor market remains tight and there is still much demand from companies looking for larger offices. However, with earnings expected to shrink because of the stronger yen, companies are taking a more cautious approach to relocations. Fewer leases have been signed particularly in buildings where rents are at the higher end of the spectrum. Nevertheless, in areas where rents are below the market average, a number of companies have moved to larger premises. Some buildings have managed to fill large amounts of space that had been empty for some time.

The Grade A vacancy rate in Tokyo increased by 0.8 ppt q-o-q to 2.7%, the first rise in six quarters. One Grade A building that was completed during the period still had available spaces. Meanwhile, several existing buildings saw spaces being filled, driven by demand for new openings, expansions, and consolidation of multiple offices. Two Grade A buildings are scheduled for completion in Q4 2016. They may also see completion with free spaces and consequently further raise the overall Grade A vacancy rate. While there is still demand for expansions and/or upgrades, tenants have become more cost-conscious as the economic outlook becomes more uncertain

This quarter Grade A assumed achievable rents rose by 1.0% q-o-q to JPY 35,750 per tsubo. In areas which are comparatively cheap, such as Shinjuku, any space that became available was able to find a new tenant immediately. In these areas, owners are bullish and some have increased asking rents.

"There are still plenty of companies looking for high-spec offices with large floor plates," commented Yoshihiro Watanabe, executive managing director of Advisory and Transactions Services (A&T). "However, they tend to take some time deciding whether to move to an office with high rents. Owners of some buildings may need to be flexible, for example, by offering longer rent-free periods in order to let larger spaces."

■ Osaka

The Osaka All-grade vacancy rate declined by 0.3 points q-o-q to 4.6% in Q3 2016. Demand for office space during the quarter was seen from a wide range of companies, from nationwide firms to medium-sized local enterprises. The overall decline in Osaka’s vacancy rate was mainly due to the demand in the Grade B segment. While a large number of companies need more office space, they are attracted to Grade B offices due to their more reasonable prices.

The Osaka Grade A vacancy rate was flat q-o-q at 4.5%. Although vacant spaces rarely become available, Grade A buildings with particularly high rents take time to secure tenants. Assumed achievable rents rose slightly, by 0.2% q-o-q. Both the decline in the vacancy rate and increase in rents for Grade A offices are likely to remain moderate.

"At the start of the year we had expected that more companies would be cautious about relocating, given the uncertain economic outlook," commented Takashi Katono, executive director of CBRE's Osaka branch. "In fact, there does not seem to have been much of a slowdown. That said, the fact that activity has slowed for Grade A, but has remained lively for Grade B, suggests that a lot of companies still require more space but are remaining cost-conscious. Even if there is more caution on the demand side, the downward trend in the vacancy rate should continue in Osaka because there is so little new supply."

■ Nagoya

In Q3 2016, the Nagoya Grade A vacancy rate was flat q-o-q at 4.1%. The period saw large spaces filled by companies across a variety of sectors, including tenants temporarily relocating due to their own office reconstructions and companies moving into central areas from the suburbs. At the same time, vacancy rates rose in several existing buildings after one tenant consolidated its offices into one large new building. There is strong demand from companies wanting to relocate to inexpensive buildings priced at JPY 10,000-JPY 15,000 per tsubo, and the vacancy is likely to gradually fill up even in areas outside the Nagoya Station area.

The Nagoya Grade A vacancy rate increased by 0.3 points to 3.3% in Q3 2016, the first rise in three quarters. There was minimal activity in terms of large tenants moving into existing buildings since two large buildings in the Nagoya Station area are scheduled for completion in 2017. Grade A assumed achievable rents fell by 0.4% q-o-q to JPY 23,550 per tsubo, as some buildings have lowered asking rents in order to increase occupancy.

"There are still companies looking to move to new offices in a wide variety of areas," commented Takahiro Fujimoto, executive director of CBRE’s Nagoya branch. "Although several large buildings will be completed in 2017, we expect the market to remain tight."

■ Nationwide

In Q3 2016, vacancy rates declined q-o-q in seven of the thirteen cities surveyed. The period saw healthy demand for offices, driven by new openings and expansions. Tenants in the suburbs continued to seek a more central location and many tenants were also forced to relocate due to the rebuilding of their existing premises. Because of the lack of large spaces, more tenants are securing multiple spaces in various buildings. In several cities, including Sapporo, Kyoto, and Fukuoka, vacancy rates reached new record lows. In Kanazawa, the vacancy rate fell by 0.6 ppt q-o-q to 9.8%, the first time under the 10% mark since 2003. In the Greater Tokyo area, the vacancy rate in Saitama declined by 0.5 ppt q-o-q to 1.6%, also a record low. However, in Yokohama, it rose by 0.1 ppt q-o-q to 4.5%, as new space became available after tenants relocated.

Assumed achievable rents rose in all ten regional cities in Q3 2016, with Sapporo and Fukuoka recording a q-o-q rise of 1% or more. In other cities, the decline in vacancy rates slowed, primarily due to lack of availability, and therefore rental increases have also slowed somewhat.

Market data and detailed discussion of market conditions for each city can also be found in the Japan Office MarketView Q3 2016 published on October 28 or on the CBRE website. www.cbre.com.

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Press Release
Japan Office MarketView Q3 2016​

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