Japan Office MarketView Q2 2023

Tokyo: All-Grade vacancy rate rises after two consecutive quarters of decline

The All-Grade vacancy rate for Q2 2023 rose by 0.3 pp q-o-q to 4.9%, primarily due to new supply coming on stream with significant vacancies. Although vacant space in new supply was equivalent to 0.7% of total stock, the continuing absorption of space in existing buildings ensured the overall increase in vacancy rate was limited to 0.3 pp. All-Grade rents fell by 0.2% q-o-q on the back of the continued lowering of asking rents in buildings with prolonged vacancies.

Osaka: Tenant demand remains robust

The All-Grade vacancy rate rose by 0.1 pp q-o-q to reach 3.7% this quarter due to additional vacancies in existing premises as a result of relocations to buildings completed last year. Demand remained generally strong, however, with vacancies continuing to be filled by relocations from suburban areas, consolidations, and expansions. All-Grade rents were unchanged from the previous quarter, with interest in larger units remaining limited.

Nagoya: All-Grade vacancy rate drops for the third straight quarter

The All-Grade vacancy rate slipped by 0.3 pp q-o-q to 5.2% in Q2 2023, marking the third straight quarter in which it has fallen. Compared to last year, interest is seen not only for small- to medium-sized but also for larger units. With vacancies absorbed in all range of floor space this quarter, the vacancy rate fell across all grades. All-Grade rents rose by 0.4% q-o-q, the first quarterly increase since Q1 2021. During the quarter, several landlords were seen adjusting previously lowered asking rents back up to their original levels.

Regional cities: Absorption of space in existing buildings pushes down vacancy in many cities

All-Grade vacancy rates fell q-o-q in seven of the 10 cities surveyed, rising in the other three. The number of cities with declining vacancy rates increased from five in Q1 2023 on the back of the continued absorption of vacancies in existing buildings. All-Grade rents for the quarter rose q-o-q in seven of the 10 cities surveyed, falling in the remaining three. Cities in which average rents increased saw hikes in asking rates in buildings now seen as offering value for money and in new buildings where leasing is progressing smoothly.