Tokyo Grade A Vacancy Rate Falls Below 4.0% for the First Time Since Q3 2008; Assumed Achievable Rents in Sapporo and Fukuoka Recover to Pre-GFC Levels
Tokyo, January 1, 2016 - CBRE Research released today market trends for office buildings in 13 major cities across Japan for the fourth quarter of 2015.
Highlights:
- Office demand accelerated towards the end of 2015, with Grade A vacancy rate in Tokyo falling 1.2 percentage points q-o-q to 3.3%
- The Osaka Grade A vacancy rate declined 0.1 percentage points q-o-q to 4.5%, recording the eleventh consecutive quarter of decline
- The Nagoya Grade A vacancy rate rose 2.0 percentage points q-o-q to 4.0% following the completion of two new projects
- Supply-demand also remains tight in other regional cities and rents have risen in all 10 cities except Takamatsu
■ Tokyo 23 Wards
The All-grade vacancy rate in Tokyo's 23 Wards declined by 0.6 percentage points q-o-q to 3.0% in Q4 2015, the twelfth consecutive quarterly fall. The period saw an increase in the number of companies securing new offices as many sought to move before the new financial year begins in April. Dwindling vacant space, especially in new buildings, prompted an increasing number of companies that had delayed moves to make a decision. This trend was apparent not in any particular sectors, but across a broad range of companies.
Tokyo Grade A vacancy fell 1.2 percentage points q-o-q to 3.3% in Q4 2015. The main reason for this was that large spaces were let in new buildings that still had space available. In the Yaesu/Nihonbashi area, a significant volume of vacant space was let in a new building to accommodate demand from a tenant relocating during the rebuilding of its head office. In the Toranomon/Shiodome area, too, vacant space was filled in existing buildings by companies moving for a better location. In the Marunouchi/Otemachi area, on the other hand, the vacancy rate rose 3.0 percentage points to 3.2%, as a new building was completed with vacant space remaining.
Grade A assumed achievable rents rose by 1.8% q-o-q to JPY 34,450 per tsubo. In Q3 2015, increases seemed to be subdued, at just 0.7%, but they picked up again this quarter, mainly led by buildings in the Yaesu/Nihonbashi and Toranomon/Shiodome areas, where occupancy has improved.
"This quarter saw a big improvement in the take-up of vacant space in Grade A buildings, triggered by a major tenant signing a lease for its new head office," commented Hideki Maruyama, executive director of CBRE's Building Sales Management department." There was also progress in the letting of buildings scheduled for completion in 2016, such as the JR Shinjuku Miraina Tower. If this trend continues, it will probably not take long to let space even in some of those buildings under construction, where letting has been slower so far."
■ Osaka
In Q4 2015, the Osaka All-grade vacancy rate declined by 0.2 percentage points q-o-q to 5.6%. The period continued to see robust demand for relocation from companies aiming to improve upon the location or grade of their buildings. In Q4 2015 there was stronger demand for Grade B offices than for Grade A properties, which had previously driven the decline in the vacancy rate in Osaka.
The Osaka Grade A vacancy rate declined by 0.1 percentage points q-o-q to 4.5% in Q4 2015. There have now been 11 consecutive quarterly falls, starting in Q1 2013. While Grade A space was filled in the Umeda area this quarter, the vacancy rate saw only a small decline, as vacant space came onto the market in other areas. As there are no large spaces available, it remains the case that, even when a tenant submits a note of lease termination, new tenants are found before the previous tenant actually exits. That said, there is now some variation in the ease with which new tenants are found, depending on a building’s location. Grade A assumed achievable rents rose for the sixth consecutive quarter to JPY 20,100 per tsubo, up 0.5% q-o-q, a moderate rise after a big rise in Q3 2015.
"Grade B buildings performed particularly strong this quarter," commented Takashi Katono, executive director of CBRE's Osaka branch. "Tenants who are keen to expand seem to have widened the scope of their search for new offices in order to secure large spaces. The focus was previously on Grade A and on the Umeda area but vacant space is likely to be filled in a broader range of areas in future."
■ Nagoya
The All-grade vacancy rate in Nagoya declined by 0.1 percentage points q-o-q to 4.3% in Q4 2015, the eighth consecutive quarterly fall. Two large buildings completed during the quarter opened with little space still available. Demand was driven by branch and sales offices of nationwide companies as well as local companies relocating their head office to a larger premise or opening a new office for one of their business functions. Only a limited amount of space is likely to become vacant in existing buildings as a result of these new completions, as an increasing number of companies looking for better locations are seeking space in these buildings.
The Nagoya Grade A vacancy rate increased by 2.0 percentage points to 4.0% in Q4 2015. This was because one of the two large buildings completed during the quarter still had some vacant space. However, given current demand, it seems unlikely that it will take long to secure tenants for the remaining space. Grade A assumed achievable rents rose by 8.9% q-o-q to JPY 23,350 per tsubo. This was primarily because rents for the two new buildings drove up average rents.
"As a result of the completion of two new Grade A buildings, office demand remains buoyant. Nevertheless, as the majority of the spaces have been secured, only a limited amount of space is coming onto the market," commented Takahiro Fujimoto, executive director of CBRE’s Nagoya branch. "Companies that plan to move offices will need to move fast as the market is likely to remain tight for some time."
■ Nationwide
Vacancy rates declined q-o-q in nine of the 13 cities surveyed in Q4 2015, and were unchanged in two. Fukuoka now has the lowest vacancy rate in Japan at 2.5%, down 0.7 percentage points q-o-q, driven by new office openings, relocations to larger premises, or expansion in their existing premises. In Sendai, however, the vacancy rate rose for the first time in 13 quarters, as the city government vacated offices following the completion of its new building. However, corporate demand for office space remains healthy, with many companies opening new offices or taking extra space in their existing buildings. As the limited amount of space available throughout the country makes it difficult for companies to move to larger offices or acquire extra space, an increasing number of firms are letting offices in more than one building.
Assumed achievable rents rose in nine out of ten regional cities, with the exception of Takamatsu. Rents are continuing to rise nationwide. In Sapporo and Fukuoka, where the market is particularly tight, assumed achievable rents reached JPY 11,000 for the first time since the Global Financial Crisis. Although the vacancy rate is still over 5.0% in Kanazawa and Sendai, rents rose by more than 1.0% as the period saw continued demand for new offices.
For further details of market trends and forecasts as well as detailed market data by area, please refer to the Q4 2015 Japan Logistics MarketView, scheduled for release on January 28. The MarketView will be published on the CBRE Japan website at http://www.cbre.co.jp/EN/research/Pages/MarketViews.aspx.
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