Vacancy rates declining nationwide backed by firm demand
Vacancy rates declining nationwide backed by firm demand
July 10, 2013
Tokyo Grade A on upturn as assumed achievable rents rise for second consecutive quarter
CBRE today released market trends and forecasts for the Japan office market for the second quarter of 2013.
Tokyo Grade A Vacancy drops 0.5 points quarter-on-quarter to 7.3% while assumed achievable rent rises to 30,600 yen / tsubo, an increase of 500 yen / tsubo q-o-q
Osaka’s vacancy rate improves to 10.0%, a decline of 0.3 points q-o-q
Office net absorption remains high with improving corporate sentiment pushing demand
Rents flat overall while vacancy rate drops in all 13 cities
Tokyo’s 23 Wards
Assumed achievable rents for the Tokyo Grade A market rose for two straight quarters to 30,600 yen / tsubo, which marks the first time in five and half years that rents rose for two consecutive quarters. Additionally, the vacancy rate for Tokyo Grade A buildings also dropped for the fourth consecutive quarter to 7.3% backed by firm demand. Vacant space in various sizes and types of buildings was being filled across Tokyo’s 23 Wards, which pushed the net absorption to 148,000 tsubo in the first half of 2013. This was the largest net absorption on a semi-annual basis since the second half of 2007. Well located, high-specification buildings continued to receive much of the demand as the trend of tenants relocating for BCP purposes, corporate expansion and consolidation continues. However, relatively newer, well priced mid-sized buildings with mid-grade specifications have also begun to attract demand.
“The recovery of the Japanese economy is becoming more evident and tenants from various sectors have become active in the relocation market,” said Hiroshi Koizumi, executive director of CBRE’s Office Services department. “The speed with which companies are making decisions to relocate has accelerated in light of the rents increasing in prime buildings. Incentives such as free rent are decreasing, and more companies are expected to relocate with the sense that rents will continue to rise.”
Demand in Osaka continued to be firm this quarter, with companies relocating to Umeda and the area along Midosuji Boulevard to improve their location and building specification. A large proportion of these companies relocated from suburban owner-occupied buildings. The vacancy rate dropped 0.3 points q-o-q to 10.0%. While Grand Front Osaka pushed up the vacancy rate last quarter, the vacancy rate for Grade A buildings also decreased by 0.5 points q-o-q to 17.7%. However, the assumed achievable rent for Osaka’s Grade A buildings fell by 150 yen to 18,950 yen, after rising 200 yen q-o-q in the last quarter. Therefore, rents are anticipated to remain flat over the next quarter.
“The vacancy rate fell again as expected this quarter, with demand continuing to be firm since last year,” said CBRE Osaka Branch Executive Director Takashi Katono. “Vacancies created by large scale relocations are being filled and the vacancy rate is expected to decline further towards the end of the year.”
The vacancy rate in Nagoya’s Grade A buildings rose 0.9 points q-o-q to 2.5% as one tenant downsized, releasing a portion of their space back to the market. However, demand in Nagoya continued to be firm this quarter as the overall vacancy rate dropped 0.1 points q-o-q to 9.8%. Assumed achievable rents for Grade A buildings remained flat at 22,250 yen / tsubo. The number of tenants moving has increased while at the same time landlords of newer buildings are becoming more positive about the rental market, with rental increases expected through the end of the year.
“The vacancy rate is expected to improve as no new supply is expected until 2015 when a large development project comes online,” said Takahiro Fujimoto, executive director of CBRE’s Nagoya branch. “While there are a lot of inquiries from companies seeking to relocate to better locations or to buildings with higher specification, there is simply little supply of this type, and rents in these buildings are on the verge of increasing.”
Continuing the trend seen in the first quarter, the nationwide vacancy rate improved in the second quarter of 2013 with firm demand backed by improving corporate sentiment and the recovering economy. An increasing number of companies set up new offices or leased more space, and companies moving to improve the location of their office or their building’s specifications are becoming more evident in the market. Throughout the country, there is an increasing scarcity of available space in newer buildings with mid-grade specifications. Demand in some cities may decline with the lack of available space for companies to relocate. Overall, the rate of rental increases outside of markets with extremely low vacancy are anticipated to remain flat in anticipation of an acceleration of the economic recovery.
For further details of market trends and forecasts as well as market data, please review the Japan Office Market MarketView Q2 2013, scheduled for published July 26th.
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.