Osaka office rents decline by 2.9% in Q3

There is significant supply expected by next year, causing rents to trend lower.

Average monthly rents per tsubo in Osaka’s office market were JPY 22,524, a decrease of 0.3% q-o-q and of 2.9% y-o-y in 3Q23.

According to JLL, the trend of lower asking rents in some buildings was brought about in anticipation of significant supply in 2024.

Here’s more from JLL:

Capital values decreased 1.6% q-o-q and 4.7% y-o-y in 3Q23. Rent declines resulted in a capital value decrease. Cap rates remained stable. A notable transaction included The Sankei Building Co., Ltd.’s acquisition of a 1.55% quasi-co-ownership interest in BREEZE TOWER (Kita-ku, Umeda) from Sankei Real Estate Inc. for JPY 620 million, and the estimated NOI cap rate was 3.7%.

Large companies’ business sentiment remains strong

The Tankan Survey in September, released by the Bank of Japan Osaka Branch, showed that the diffusion index for current business in large manufacturing companies remained at 6 points, unchanged from the previous survey in June. Large non-manufacturing companies improved by one point, reaching 25.

Net absorption totalled 24,500 sqm in 3Q23. The demand for expansion and location improvement led to a decrease in vacancy, due to active interest in capital investments. The manufacturing, real estate and service sectors experienced demand expansion.

Vacancy rate declines to 2.7%

No new projects entered the market in 3Q23.

The vacancy rate in 3Q23 dropped to 2.7%, a decrease of 110 bps q-o-q and 120 bps y-o-y. The quarter saw more buildings recording a decreasing vacancy rate than those with an increasing vacancy.

Outlook: Domestic investors expected to increase presence

According to the Oxford Economics forecast as of September, real GDP of Osaka City is expected to grow by 1.9% in 2023 and by 0.9% in 2024. Downside risks include the weakened demand for exports due to the deceleration of the global economy.

In the rental market, there is considerable demand for buildings that are lowering rents, while interest in forthcoming supply with expensive rents remains weak. In the investment market, while foreign investors appear to be declining due to the global economic slowdown, demand for good properties by domestic investors has been firm. Cap rates are expected to remain stable through 2024.

Note: Osaka Office refers to Osaka's 5 Kus Grade A office market.

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