Osaka’s new office space supply this year to hit record highs since 2013

There will be over 40,000 tsubo of Net Rentable Area to be added in 2022.

Osaka is set to see a record amount of new office supply this year. According to Savills, the market looks to add over 40,000 tsubo of Net Rentable Area (NRA), four times larger than 2021’s supply and the largest amount since 2013. 

Despite the relatively poor reception of new offices completed in 2021, Savills says two of the largest buildings that make up most of 2022’s supply, Osaka Umeda Twin Towers South with over 25,000 tsubo of NRA and the Nippon Life Yodoyabashi Building with over 10,000 tsubo of NRA, have seen modest amounts of pre-leasing activity. Furthermore, minimal supply is expected in 2023, which should give the market additional time to absorb the new supply. 

Here’s more from Savills:

However, 2024 looks to add over 60,000 tsubo of NRA to the market – around 50% more than the levels in 2022. The two most notable additions will be the second phase of the Umekita Project and the Umeda 3-Chome Project. 

One concern is that this new supply will be concentrated around the Umeda area, which already will see a large influx in 2022. The submarket might not be ready to absorb the sizable amount of supply in such a short time frame, although it admittedly has three years till then to prepare.

Vacancy 

Investment-grade vacancy rates have increased 1.5ppts HoH to 2.8%. A sizable portion of this increase came from the relatively large building that opened in August 2021, the Honmachi Sankei Building with 5,700 tsubo of NRA, which remains largely vacant. 

All-grade vacancy rates continued their slow upward ascent this half-year to the highest levels seen since 2017. Indeed, vacancy rates have climbed 2.3ppts since the start of 2020 and 1.1ppts YoY to 4.3%. Some smaller new buildings in areas such as Yodoyabashi-Honmachi and Shin-Osaka still sit more than half empty and have contributed to the vacancy uptick.

Rent 

Rents for investment-grade offices in Osaka have decreased 1.1% HoH to JPY22,500. Although the pre-pandemic momentum carried average rents to over JPY23,000, rents have now contracted back to 2019 levels. Specifically, outside Semba which stayed flat at JPY17,500 per tsubo, all other submarkets have seen a decline. 

All-grade rents have also dipped slightly over the past half-year and are currently at levels that were seen right before the pandemic. Specifically, rents in Osaka saw a dip of 1.1% YoY to JPY11,800 per tsubo. At the submarket level, Shinsaibashi saw the largest decline of 4.3% YoY to JPY12,000 per tsubo, and other submarkets saw declines ranging 0.5% to 2.1%. The only member to buck this trend was Shin-Osaka, which saw an increase of 3.6% YoY to JPY11,400 per tsubo due to the PMO EX Shin-Osaka building’s asking rents bringing up the overall submarket average.

Despite the contraction seen over the past year, rental levels are currently overall higher than they were two years ago. Prime assets have maintained stable performances while top rents hover at JPY35,000 per tsubo. Furthermore, Umeda Twin Towers South, which will open in Spring 2022, could reach upwards of JPY38,000 per tsubo, setting a new top rent. In addition, the Umeda 3-Chome project, slated for completion in 2024, is expected to push the ceiling even higher.