CBRE issues Q4 2014 report on office market trends in 13 cities
Market headlines
- Vacancies in all major cities records a q-o-q decline
- Tokyo Grade A vacancy rate down 0.7 points q-o-q to 4.1%
- Osaka Grade A vacancy down 0.1 points q-o-q to 8.1%
- Nagoya all-grade vacancies fell below 6.0% for the first time in 6.5 years
Tokyo Grade A vacancies fell to 4.1% in Q4 2014, marking the first quarter-on-quarter decline in three quarters. Assumed achievable rents increased 0.9% q-o-q to \32,200 per tsubo. The Nissay Marunouchi GardenTower, which was completed during the quarter, is fully occupied by Mitsui & Co., and is leasing the property while it redevelops its headquarters in Otemachi. Vacant space in other recently completed buildings and existing buildings was also leased-up this quarter, further contributing to the drop in vacancies. Grade-A rents in Marunouchi/Otemachi, which are the highest in Tokyo, were up 1.9% q-o-q, reflecting the tight availability of space in the market. This increase is likely to have a knock-on effect on rents in other sub-markets in the coming quarters.
Tokyo all-grade vacancies were down 0.3 points to 4.1% during Q4 2014. Net absorption remained positive following a number of tenant moves involving consolidation and expansion. However, the lack of available space, particularly of entire floors, limited the number of large-size transactions. Two new medium-sized office buildings were completed during the quarter. Both buildings were fully let on delivery, mainly due to the lack of buildings in surrounding areas with similar size and specifications. Some existing buildings lost tenants to the new stock but there remains very little space sized at 1,000 tsubo and greater. Available space is being taken up either by existing tenants in the same building or by tenants relocating from secondary locations/buildings.
“There were fewer transactions this quarter compared to the first half of 2014 and this could be due to the slowdown in the broader economy following the consumption tax hike in April, as well as some uncertainty in the run up to the general election in December,” said Hideki Maruyama, executive director of CBRE’s Brokerage Services division. “That said, underlying demand for office space remains strong and the perceived rental gap between tenants and owners is narrowing in existing buildings as well in buildings slated for completion this year. There is likely to be an increase in tenants searching for space during the first three months of the year, which is traditionally a busy period for the office leasing market.”
Osaka
Grade A vacancies in Osaka stood at 8.1% this quarter, a decline of 0.1 points q-o-q. The fall in Grade A vacancies have been accelerating since peaking at 18.2% in Q1 2013, but the rate of decline slowed considerably this quarter, due to few large transactions taking place. Grade A assumed achievable rents were up 0.5% q-o-q to \19,300 per tsubo. Osaka all-grade vacancies fell 0.4 points q-o-q to 6.4%, driven by new openings, expansions and upgrades by small to medium-sized companies.
“The rate of decline in Grade A vacancies slowed this quarter, but Grade B vacancies continued to steadily diminish,” said Takashi Katono, CBRE Kansai branch manager. “The main drivers of demand in early 2014 were big companies moving to large-size buildings but SMEs are now becoming more active, suggesting that demand for office space is broadening.”
Nagoya Grade A vacancies rose 0.2 points q-o-q to 2.6% in Q4 2014. This was mainly due to an increase in vacant space after a number of companies relocated for cost reduction purposes. Occupier activity was generally subdued due to the limited availability of space in the market. Grade A assumed achievable rents were largely unchanged at \21,500 per tsubo, representing a slight increase of \50 q-o-q.
All-grade vacancies in Nagoya dropped 0.5 points q-o-q to 5.7%, falling below 6% for the first time since Q2 2008, just before the onset of the Global Financial Crisis. Demand was mainly driven by expansions; relocations due to the redevelopment of older buildings; and some companies moving into central areas from suburban locations.
“Demand for office space remains stable,” said Takahiro Fujimoto, CBRE Nagoya Branch Manager. “The market will be closely watching the performance of new buildings slated for completion this year as well as the performance of existing buildings, which may lose some of their tenants to the new supply.”
Nationwide
All 13 cities covered by CBRE Research recorded a decline in vacancies during Q4 2014. Tenants continue to show strong enthusiasm for location upgrades and/or expansions, a trend which is resulting in resilient office demand. Main demand drivers in regional cities include relocations from suburbs to CBDs or to areas with better access to public transportation, as well as expansions within existing premises. Available space is becoming scarce in many markets, leading to an increase in leasing transactions involving new tenants pre-committing to space immediately after the previous tenant has opted to leave. An increasing number of occupiers are also searching for satellite offices close to their current premises which have insufficient space to meet demand. There is concern that relocation demand could be suppressed in cities which saw little or no new supply in 2014 and expect a slim pipeline of new stock in 2015.
Assumed achievable rents rose q-o-q in nine of the 13 cities tracked by CBRE. Tokyo recorded a rental increase across all grades, while other cities in Greater Tokyo including Yokohama and Saitama also continued to record steady rental gains. Other regional cities, where rents are relatively low, have begun to see rents trend upwards alongside the decline in vacancy. One such market is Sapporo, which recorded a rental increase of 4.0% q-o-q during the quarter.
Vacancy rate and Assumed Achievable Rents
Tokyo
Osaka
Nagoya
Other regional market vacancy rates
Other regional market average assumed achievable rents
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): | Grade A As a general rule, buildings located in regions (*) with a high concentration of office buildings that fulfill the following conditions: typical floor plate of 350 tsubo or more (500 tsubo or more in Tokyo), net floor area of 6,500 tsubo or more, total floor space of 10,000 tsubo or more, and age of less than 11 years. (*) Regions with a high concentration of office buildings: Tokyo – centered on the central 5 wards; Osaka – centered on Kita, Chuo and Yodogawa wards; Nagoya – centered on Nakamura, Naka, Higashi and Nishi wards. Grade A – Minus (Tokyo only) As a general rule, office buildings located in regions with a high concentration of office buildings that fulfill the following conditions: typical floor plate of 250 tsubo or more, net floor area of 4,500 tsubo or more, total floor space of 7,000 tsubo or more, and structure based on new earthquake resistance standards. Grade B As a general rule, office buildings located in regions with a high concentration of office buildings that fulfill the following conditions: typical floor plate of 2,000 tsubo or more (in Tokyo, typical floor plate of 200 tsubo or more and total floor space of less than 7,000 tsubo), and structure based on new earthquake resistance standards. All-Grade Rental office buildings within the office area comprising 13 cities nationwide set independently by CBRE, as a general rule with a total floor space of 1,000 tsubo or more and structure based on the new earthquake resistance standards. |
Grade A buildings in sample as of December 2014: Tokyo – 77 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 Q4 2014 Japan Office MarketView released on January 29th. 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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