Japan Office MarketView Q2 2024

Tokyo: Market polarization continues

The All-Grade vacancy rate fell for the third straight quarter in Q2 2024, slipping by 0.2 pp. q-o-q to 4.1%. Net absorption remained robust at 50,000 tsubo, roughly 20% above the previous quarterly average, with the period witnessing significant vacancies filled in buildings completed within the last year. Rents rose across all grades for the third consecutive quarter as long-term vacancies were filled and an increasing number of landlords sought to return rents to their pre-pandemic levels.

Osaka: Rents rise despite new supply pushing up Grade A vacancy

The Grade A vacancy rate rose by 0.7 pp. q-o-q to 6.5% due to vacant space remaining in new supply completed during the quarter. However, several large vacancies in this grade were filled in recently completed buildings. Combined with the absorption of vacancies in smaller buildings, the All-Grade vacancy rate remained unchanged on a q-o-q basis at 3.5%. All-Grade rents rose by 0.1% from the previous quarter, with owners of properties in prime locations and those whose rents had lagged market rates hiking asking rents.

Nagoya: Grade A rents rise for fourth straight quarter

The All-Grade vacancy rate for Q2 2024 slid by 0.6 pp. q-o-q to 5.2%, largely due to a significant decline of 1.7 pp. to 7.1% in the Grade A segment. During the quarter, significant vacancies were filled in recently completed buildings. Net absorption for the period reached approximately 6,000 tsubo across all grades, just under double the previous quarterly average. Average rents rose across all grades for the second consecutive quarter, with asking rents raised in several buildings, particularly those attracting significant tenant interest.

Regional cities: Rents continue to rise moderately as owners of underpriced properties raise asking rents

All-Grade vacancy for the quarter fell q-o-q in six of the 10 surveyed cities; remained unchanged in one; and rose in the remaining three. In Yokohama and Fukuoka, large vacancies were absorbed by tenants expanding, relocating, or upgrading in multiple large properties completed within the last year. All-Grade rents grew on a q-o-q basis in eight of the 10 surveyed cities, remaining unchanged in the other two. Rental hikes were observed across the country in cities with buildings whose asking rents had fallen below current market rates.