Tokyo office rental decline to reach an equilibrium soon: Savills

Grade A office rents declined 1.4% in Q2.

Tokyo Grade A office rents contracted 1.4% QoQ in Q2/2022 to JPY32,809. Savills notes that the rental decline appears to have softened and may soon reach an equilibrium. 

In addition, although vacancy rates remain 1.2ppts higher than one year ago, they have only seen a small uptick of 0.3ppts QoQ since Q1/2022 to 3.0%, which is another encouraging sign for the market. 

Here’s more from Savills:

According to Google Mobility Reports, attendance in the workplace has increased from around 80% to above 85% over the past quarter, demonstrating that companies are increasingly welcoming employees back into the office. Indeed, the sentiment in the office market appears to be improving overall. 

At the submarket level, Minato and Shibuya saw vacancy levels improve, with rates tightening 0.7ppts and 0.1ppts QoQ, respectively. On the other hand, Chuo saw a notable jump in vacancy of 1.6ppts QoQ. Regarding rents, Shinjuku observed the largest decline of 3.3% QoQ. As mentioned in the previous quarter’s report, many offices further away from the main station in Shinjuku appear to be suffering, and some have had to lower rents in order to attract tenants. 

Q2/2022 saw the announcements and completions of multiple large leasing transactions. In general, mixed trends have been observed in the market. Some companies appear to be downsizing their floor space, while others are moving to larger offices. 

As society progresses toward an endemic state, companies are likely to have an idea of the amount of floor space needed to implement their respective ideal work models, including potentially foregoing remote work altogether. It will likely take time for the dust to settle as companies deliberate on their best course of action, and it is possible that some will end up in inaction. Overall, demand is expected to recover gradually and steadily. 

The most notable move in this quarter was Sony moving out of Shinagawa Seaside TS Tower, where it previously leased all floors totalling 9,300 tsubo. Part of its business will be moved to Yokohama Grangate, which it has already leased in its entirety. The largest project of 2022, Tokyo Midtown Yaesu, is scheduled to open in August, and has managed to secure major tenants such as Sumitomo Life and Mitsui Chemicals despite its somewhat bullish asking rents.