2024 set to be a ‘quiet year’ for Tokyo’s Grade A office market | Real Estate Asia
, Japan

2024 set to be a ‘quiet year’ for Tokyo’s Grade A office market

A significant supply uptick will not occur until 2025.

Momentum has been positive throughout 2023 in the Tokyo Grade A office market according to a Savills report, with a steady improvement in both rental rates and vacancy levels observed. 

“This trend has continued moving into 2024, and average rents in the central five wards (C5W) experienced a slight uptick on both a quarterly and annual basis in Q1/2024, rising by 0.2% and 0.3%, respectively, to JPY32,656 per tsubo,” the report added.

Here’s more from Savills:

Accordingly, the total rental correction from the peak levels of Q2/2020 decreased moderately to 13.7% for the Tokyo C5W Grade A office market. Rental changes across the C5W were largely positive, albeit nominal, in Q1/2024, and the Grade A office market appears to have attained a greater sense of stability in the post-pandemic era. 

Minato recorded the largest rental growth at 0.5% QoQ, while Chiyoda, Shinjuku and Chuo also witnessed moderate rental growth between 0.3% and 0.2% QoQ. Elsewhere, rents remained flat in Shibuya over the quarter.

Meanwhile, the average vacancy rates for Grade A offices in the C5W tightened further by 0.2ppts QoQ to 3.0%. As with rental growth, Minato witnessed the most significant improvement this quarter, with vacancy rates decreasing by 1.0ppt QoQ to 5.1%, which is a sign of the healthy absorption of the enormous supply introduced in the second half of 2023. Improvements were also seen in Chiyoda and Chuo over the quarter, with vacancy tightening by 0.3ppts and 0.2ppts QoQ, respectively. 

On the other hand, vacancy loosened marginally in Shibuya and Shinjuku by 0.2ppts and 0.1ppts, respectively, albeit remaining at low levels for both wards. Indeed, vacancy rates in the C5W appear to be recovering well, although it will likely take time to return close to pre-pandemic levels, especially with the current prevalence of hybrid work arrangements.

Observers anticipate a quiet year in 2024 due to the limited amount of new office supply set for completion in the C5W, which should provide breathing room for further absorption of existing office space. This is in stark contrast to the large supply introduced in 2023, and to the significant uptick in supply due for 2025. 

Improvements in the first half of 2024 will likely be steady, while many five-year, fixed-term lease contracts signed prior to the pandemic will be approaching expiration over the coming year. 

Indeed, some tenants may choose not to renew or may negotiate more favourable terms due to their changing needs in the post-pandemic landscape, which comes against a background of large new office supply and stronger tenant negotiation power, which might contribute to some persistent vacancies. 

Moreover, hybrid work arrangements appear to persist as a corporate benefit in the longer-term, which may dampen some demand for the meantime, though there has been a noticeable increase in office attendance over the past year. 

Given the large incoming new supply expected in 2025, landlords who currently own large vacant floor space are likely to exercise caution as the office market is poised to become progressively more competitive in the coming year. Nevertheless, the overall market should continue to experience positive momentum in 2024, with prime offices, particularly modern ones with strong ESG certifications, set to perform well, and some rental increments should be anticipated among such properties. 


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