Signs that office supply shortage concerns in Tokyo are intensifying

Strong pre-leasing activity for buildings in good locations is one.

In a recent report, Savills said the Tokyo office market continues on its growth trajectory, with both Grade A and large-scale Grade B offices experiencing quarterly rental uplifts in all wards while vacancies tighten across most wards. New office supply is forecast to be lower in the next few years after 2026, due to higher construction and land costs, prompting some tenants, particularly those anticipating business expansion or increasing office attendance.

“Indeed, the large new office supply that came to market this year was absorbed uneventfully due to the strong demand, evidenced by the consistent tightening in vacancies,” the report added.

Here’s more from Savills;

Strong pre-leasing activity, especially among buildings in desirable locations with good amenities, signals that a concern over supply shortage is growing stronger and absorption of the new supply is progressing faster than expected.

While less accessible and older buildings, especially those in the bay areas, continue to struggle with elevated vacancies, diminishing availability in newer assets in prime locations may eventually drive demand towards these properties, especially those offering thorough refurbishment and value-add approaches. Strategic asset management and value add initiatives may potentially further enhance their appeal to prospective tenants.

Overall, the Tokyo office market is showing consistent growth and the increasing sense of scarcity among companies vis à vis prime office spaces is expected to sustain or even accelerate the positive momentum going forward.