Osaka gross office rents slip 0.7% in Q1

Rents hit an average of JPY 23,057 per tsubo per month.

The office market in Osaka, Japan recorded net absorption totalling 76,000 sqm in the first quarter of 2022. 

According to JLL, one completion became operational in the quarter with high occupancy, even though existing buildings with unit rents over JPY 20,000 have had limited opportunity to secure new tenants. Occupier demand was observed in electricity, gas, heat supply and water, as well as services and wholesale trade industries.

Here’s more from JLL:

One new supply entered the market in 1Q22; namely, the Osaka Umeda Twin Towers South. The 38-storey building has a GFA of 260,000 sqm, with office space occupying the 11th-38th floors and NLA of 94,500 sqm.

The vacancy rate stood at 3.9% in 1Q22, increasing 80 bps q-o-q and 200 bps y-o-y. Osaka’s largest new office building was completed with some vacant space remaining, which had a large impact on the vacancy rate.

Rent polarisation accelerates slightly

Gross rents averaged JPY 23,057 per tsubo per month at end-1Q22, decreasing 0.7% q-o-q and 3.9% y-o-y. Buildings with vacancies or potential vacancies, as well as buildings with concerns about secondary vacancies due to the completion of the new building, lowered rents.

Capital values decreased 1.5% q-o-q and 6.4% y-o-y in 1Q22. Cap rates were flat. Notable transactions in the quarter included Nippon Building Fund’s acquisition of Nakanoshima Mitsui Building from Mitsui Fudosan for JPY 44.0 billion, or at an NOI of 4.6%.

Outlook: Vacancy to continue to rise along with rental decline

According to the Oxford Economics forecast as of March, Osaka’s real GDP is forecast to grow by 2.0% in 2022. Downside risks include the impact on the domestic economy from the spread of COVID-19, supply-side constraints and surging raw material prices.

Vacancy rates are expected to continue to rise and rents to decline moderately due to roughly 130,000 sqm of new supply for the full year of 2022. Capital values are likely to decline in line with rent decreases, although investor appetite may remain high.

Note: Osaka Office refers to Osaka's 2 Kus Grade A office market.