CBRE issues Q3 2014 report on office market trends in 13 cities
October 22, 2014 - CBRE released today its Q3 2014 market report for the office sector in 13 cities across Japan.
Market headlines
- Tokyo Grade A vacancy rate flat q-o-q; new buildings continue to fill up vacant space
- Vacancy rate for Osaka Grade A buildings falls 1.2 points q-o-q; now below 9%
- Nagoya Grade A market remains tight; vacancy rate at 2.4%, down 0.9 points q-o-q
- Assumed achievable rents increase across all cities
Tokyo 23 Wards
Vacancies in the Tokyo Grade A office market were flat quarter-on-quarter at 4.8% in Q3 2014, while assumed achievable rents rose 0.8% q-o-q to ¥31,900 per tsubo. Although the rate of rental growth was lower than the 2.8% seen last quarter, increases are spreading to more buildings, especially those that have been filling their vacancies. With JP Tower, a prime building located in front of Tokyo Station, having reached full occupancy this quarter, the Marunouchi/Otemachi area saw Grade A vacancies drop by 2.7 points q-o-q to 1.6%, the lowest since Q3 2008. The recent rise in rents in the overall Tokyo market has made the rents in this location relatively less expensive, which has enhanced take-up in the area.
The vacancy rate for buildings of all grades across Tokyo’s 23 wards was down 0.4 points q-o-q to 4.4%. This was mainly due to a number of large corporations securing space as significant as 5,000 tsubo, as part of a drive to reorganize and/or consolidate operations. New buildings, including several completed this quarter, set higher asking rents. However, this is not deterring potential tenants, given the interest in high-spec facilities from firms in the IT sector and companies conscious of the need for business continuity planning. During the quarter, vacant space became available at buildings which had recently lost tenants to newly completed supply. However, there are steady enquiry levels being recorded from companies looking to expand their businesses or reorganize their operations, which suggests that the vacant space will be filled without much lead time.
“Although the Grade A vacancy rate this quarter was flat q-o-q, newer buildings are filling their empty spaces at a decent rate,” said Hiroshi Koizumi, executive director of CBRE’s Office Services business in Japan. “Rents are rising across the market, making rents for premium buildings relatively more attractive, as reflected in the significant drop in vacancies in the Marunouchi/Otemachi area this quarter. Moreover, with the labor shortage gradually becoming cause for concern, offices in prime locations are seen as a major draw for new employees. The one Grade A building slated for opening in Q4 2014 is already fully let, while those that opened in recent quarters no longer have much availability. These trends are likely to lead to increased occupier interest in buildings scheduled to be completed next year and beyond.”
Osaka
The Grade A vacancy rate in Osaka is now 10 points below the peak of 18.2% recorded in Q1 2013. The vacancy rate of 8.2% this quarter is at the same level seen prior to the completion of the Umeda Hankyu Building Office Tower in April of 2010. Since 2010, Osaka has seen an unprecedented supply of approximately 140,000 tsubo, but the current level of vacancies implies that this has now more or less been taken up. Grade A assumed achievable rent was up 1.1% q-o-q to ¥19,200 per tsubo. As the decline in the vacancy rate continues to accelerate, more buildings with high occupancy are looking to raise their rents, or shorten their free rent periods. Grade A rents in Osaka are therefore likely to continue their gradual rise.
“This quarter continued to see a number of companies upgrading their locations or moving to larger premises, and since the decline in the Grade A vacancy rate this quarter was quite significant, there is much attention being focused on buildings in this category,” said Takashi Katono, head of CBRE’s Kansai branch. “However, Grade B and other classes are also steadily filling vacancies. We are seeing demand regardless of business size, field or location, which is likely a reflection of the strong earnings performance exhibited by those companies. With little supply in the pipeline and new buildings steadily being leased, the focus is now on whether tenants will expand their search to a wider range of locations and/or buildings.”
Nagoya
The vacancy rate for Grade A buildings in Nagoya was down 0.9 points q-o-q to 2.4%. Numerous expansion deals were recorded, including an IT firm taking up more space within its current building as well as a consulting firm moving to a building in the Mei-eki (Nagoya Station) area for expansion and upgrading. Grade A assumed achievable rent was ¥21,450 per tsubo, a rise of ¥150 q-o-q. The vacancy rate for All-Grade offices in Nagoya was 6.2%, a decline of 0.8 points q-o-q. In addition to companies looking to expand in their current premises, the shrinking gap between rents in the city center and the suburbs is driving more companies into core office areas.
“Demand remains strong as many companies look to expand their office space,” said Takahiro Fujimoto, head of CBRE’s Nagoya branch. “As there are few vacancies remaining in Grade A buildings, tenants looking to move will be forced to consider other building grades or wait for spaces to be vacated by tenants moving to new buildings slated for completion next year.”
Nationwide
Vacancy rates declined q-o-q in 10 of the 13 cities covered by the CBRE survey. A few cities saw an increase in the vacancy rate, mainly due to some buildings which lost tenants to newly completed projects. However, companies continue to search for office space in order to expand their current facilities and relocate from the suburbs. Companies that rely on customer foot traffic are also active and are looking to move into more convenient locations, such as buildings adjacent to train stations.
New supply has generally been limited nationwide in 2014. However, in areas which saw the completion of large new buildings, such as Sapporo and Saitama, the new supply has actually helped latent demand surface.
Assumed achievable rents rose for all of the cities in the CBRE survey. The rate of increase in Tokyo continues to outpace the rest of the country. Other cities appear to have received a boost from the strength of the Tokyo market, as can be seen by the above-1.0% rise in rents in Yokohama and Saitama. Overall, rents are showing clearer signs of increasing on the back of the continuing decline in the vacancy rate.
Main Cities Nationwide: Vacancy Rates

Main Cities Nationwide: Vacancy Rates


Survey Outline
Vacancy Rate | Vacancy is based on the data that was available at the time of compiling the survey |
Assumed Achievable Rent | Assumed achievable rent is based on sample surveys of the applicable buildings (inclusive of service charges; not taking into account incentives such as free rent) |
Definitions of Grades (Tokyo/Osaka/Nagoya) |
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Grade A buildings in sample as of September 2014: Tokyo – 76 buildings; Osaka – 25 buildings; Nagoya – 7 buildings
For further details of the market data in each city and an overview of market conditions please refer to the Q3 2014 Japan Office MarketView released on October 31st. The MarketView will be available on the CBRE website at http://www.cbre.co.jp.
Download a PDF version of the Press Release here.
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