Tokyo Grade A office rents rise by 4.2% YoY in Q4 2024

Shinjuku, Shibuya, and Chuo saw strong rental growth.

In a recent report, Savills said improvements continue in the Tokyo Grade A office market as economic growth and positive business sentiment spur corporate expansion and relocations.

“Average office rents increased in the C5W by 2.0% QoQ and 4.2% YoY to JPY33,947 per tsubo in Q4/2024, and continues to gradually progress towards the pre-pandemic peak rental figure. All C5W showed rental increases, with growth particularly strong in Shinjuku, Shibuya, and Chuo over the quarter,” the report added.

Here’s more from Savills:

Average market vacancy saw similar improvements, decreasing by 0.8ppts QoQ to 2.3%, translating to an annual decline of 0.9ppts. All constituents made some progress in reducing vacancies this quarter, with the largest improvement seen in Minato. A large influx of new supply over recent years has caused some instability in Minato, not to mention the enormous volume scheduled to arrive in the coming year, and vacancy rates have been slightly elevated as a result.

That said, many new arrivals in 2023 and 2024 have enjoyed sound leasing activity and have filled up with limited issues, in addition to firm interest from potential tenants for upcoming office developments. Similarly, while the situation is generally stable in Chuo, a handful of struggling buildings have raised the average vacancy rate, and the completion of a handful of major developments in Chuo over the next few years might cause some temporal hiccups.

Modern Grade A offices have been in high demand among tenants, which has helped to stabilise the market against the backdrop of large amounts of new office supply. Indeed, a September 2024 survey carried out by Mitsubishi Real Estate Services demonstrates a trend for tenants to relocate to newer properties in 2024. Out of the surveyed tenants that were relocating, only 25% were previously located in buildings under 20 years old, but over 60% had either moved to buildings under 20 years old or are scheduled to move to offices currently under development.

The labour shortage appears to be a key driver of this trend, with a survey by Teikoku Databank in October 2024 noting that over half of responding companies identified regular employee labour shortages as an issue for business operations. As such, modern offices with premium amenities that both increase productivity and offer more attractive working environments with convenient access for employees have been in strong demand from tenants.

Moreover, a growing sense of scarcity of premium offices should accelerate the uptake for such spaces, which bodes well for incoming supply even at high rental levels, and should usher in stability over the coming years.