Tokyo Grade B office rents down 2.1% in Q2

Chiyoda recorded the largest decline of 3% amongst all submarkets.

Data from Savills show that the Grade B office rents in Tokyo have declined 2.1% QoQ to JPY24,627 per tsubo, with Chiyoda observing the largest decline of 3.0% QoQ to JPY27,923 per tsubo – the result of a number of buildings seeing mild corrections. 

All other submarkets also experienced mild corrections over the quarter, with the exception of Chuo, where rents stayed flat. 

Here’s more from Savills:

Vacancy has loosened 0.5ppts QoQ to 4.1%. While Chuo saw a mild improvement in vacancy of 0.2ppts QoQ, all other wards experienced the opposite and saw vacancy rise. Notably, vacancy increased by 0.8ppts QoQ in Shibuya and by 0.7ppts QoQ in Minato and Shinjuku. 

While this trend might appear worrisome, it should be noted that a majority of buildings in the Grade B market are either fully occupied or close to. The upticks in vacancy stem primarily from a handful of buildings that are performing poorly and have large amount of vacant space. Indeed, some buildings that have come to the market recently are almost empty, and distort the market’s average vacancy. 

Many buildings with high vacancy in the Grade B market tend to be older, poorly located, or have other undesirable traits. Unlike pre-COVID times where available office space was scarce, in the current market environment, potential tenants have more options to choose from and can afford to be more picky in finding suitable office space at the right price. This is especially true for Minato, where a handful of buildings are less than half occupied, including a new building with exceptionally high vacancy.