In the Japanese office market in 2014, net absorption was positive in all 13 cities surveyed, and vacancy rates declined year-on-year across almost all cities. Based on the number of tenant inquiries made to CBRE, the percentage wanting to relocate to smaller offices has been declining since 2009. More than 50% of inquiries made in 2014 were for positive reasons including expansion and new office openings, mainly led by the IT industry (including data processing services and software developers), as well as the finance & insurance sector, and the service sector including staffing agencies, advertising agencies, etc.
The Tokyo office market is particularly tight, with the vacancy rate at around 4% for all grades at the end of 2014. Since owners are prioritizing higher rents in buildings nearing completion, there may still be unlet space at completion, but the resulting rise in vacancy rates is likely to be only short-term. On the back of the tight supply-demand balance, Grade A assumed achievable rents (for new tenants on a face rent basis) are forecast to rise by around 17% over the next two years to the end of 2016.
In Osaka, demand came to a standstill for a period in the second half of 2014, but the main reason for this was the very limited choices apart from the priciest buildings. In 2015, around 10,000 tsubo of relatively new, quality space is expected to become available when a major corporation completes its own building. This is likely to put life back into the market by meeting buoyant demand. Nevertheless, Grade A rents are already high and the rising trend is likely to be a gradual one.
In Nagoya, there is almost no space available in existing Grade A buildings. Two prime buildings are scheduled for completion in 2015 in the Nagoya Station area, which are expected to stimulate recent latent demand on account of lacking supply. At the same time, there is concern that secondary vacancies will arise in other areas as a result of this new supply, and building owners are therefore somewhat cautious about raising rents.
In other regional cities, there is strong demand from companies relocating for expansion or location upgrades. However, demand has been put on hold in some areas as no new supply is expected to come online, and there are fewer large spaces available in existing buildings. In addition to areas within Greater Tokyo, Sapporo, Sendai, Kanazawa, Hiroshima, Takamatsu, and Fukuoka can expect to see rents gradually rising.
Real estate investment activity in 2014 continued to be led by the office sector. Several of the deals, which transacted at amounts exceeding JPY100bn, led office investment activity as well as overall investment volume in 2014, which recorded JPY4.7trn, up 3.5% year-on-year. Against this background of low inflation and low interest rates worldwide, money is likely to continue to flow into the real estate market in search of yield in 2015. With better rent growth prospects in Japan, both overseas and domestic investors are likely to maintain their interest in the market.
For details, please see CBRE’s “Japan Office Market Outlook 2015”
About CBRE Group, 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 52,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 370 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.
Official Twitter account for Japan: @cbrejapan
DISCLAIMER: Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
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About CBRE Group, 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.
Official Twitter account for Japan: @cbrejapan
Disclaimer
Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.