Tokyo Grade B office buildings to perform well in 2022

They are expected to stabilise earlier than their Grade A counterparts.

Tokyo’s Grade B market loosely mimics the performance of the Grade A market in Q4/2021. Specifically, Savills says the market experienced a rental decrease of 2.2% QoQ and 8.4% YoY to JPY25,532 per tsubo. 

Furthermore, vacancy increments were similar to what the Grade A market saw, with a loosening of 0.3ppts QoQ and 1.9ppts YoY to 3.6%. 

Here’s more from Savills:

Shinjuku saw the largest rental decline in the Grade B market, shrinking 3.1% QoQ, while Minato and Chuo had the steepest vacancy increments of 0.8ppts QoQ. Most of this deterioration was from buildings that are located comparatively further from stations and those built prior to 2000. 

On the other hand, newer buildings with more convenient access are holding well. Indeed, Shinjuku and Chiyoda have seen decreases in vacancy this quarter. Elsewhere, Shibuya saw the mildest contraction in rents, decreasing 1.0% QoQ. 

Looking ahead, most new Grade B buildings in 2022 look set to perform well given their proximity to stations, such as Yanmar Tokyo which is located just outside Tokyo station, and T-Lite which is located next to Toranomon Hills station. Additionally, the Grade B market should stabilise before the Grade A market. 

Unlike Grade A tenants, Grade B tenants do not typically have the resources and capital to implement firm-wide remote work and are therefore more likely to keep their office space. Medium-sized and small-sized companies have a lower implementation rate of telework compared to their larger counterparts. 

In addition, Grade B offices generally have an easier time filling office space given the much larger potential tenant pool of the Grade B market and the greater flexibility of dividing up floor plates in Grade B buildings.