Tokyo office rents continue downward streak for eight consecutive quarter

Rents slipped 1.2% in Q1 2022.

Office rents in Tokyo fell 1.2% q-o-q and 6.5% y-o-y to an average of JPY 35,843 per tsubo per month in the first quarter of 2022. 

JLL notes that this marked the eighth consecutive quarter of decrease, but its pace of decline continued to slow down compared with the previous quarter. The market consistently saw negative growth, particularly in sub-markets where a number of buildings hold above average vacancy.

Here’s more from JLL:

Capital values decreased 2.1% q-o-q and 2.6% y-o-y in 1Q22, turning negative for the first time in two quarters. The increase reflected rent decline; cap rates were stable. Notable transactions in the quarter included Nippon Building Fund’s acquisition of Iidabashi Grand Bloom (strata title) from its sponsor, Mitsui Fudosan, for JPY 36.2 billion or at an NOI cap rate of 3.5%.

Net absorption returns to positive territory

According to the Tankan Survey in March, the index of large manufacturers was 14, decreasing for the first time in seven quarters. This reflected the impact of surging raw material prices and rising geopolitical risks on corporate sentiment. The figure for non-manufacturers also decreased for the first time in seven quarters.

Net absorption was 48,000 sqm in 1Q22, recovering positive territory for the first time in three quarters. Demand from information and communications, services and manufacturing industries absorbed supply.

Vacancy rate decreases in Akasaka/Roppongi submarket

No new supply entered the market in 1Q22.

The vacancy rate stood at 3.0% at end-1Q22, decreasing 50 bps q-o-q and 140 bps y-o-y. The vacancy rate decreased for the first time in nine quarters. Akasaka/Roppongi fell to below average levels of sub 3%; Otemachi/Marunouchi saw a slight rise, yet remained well below the average at 1% levels.

Outlook: Rent fall to decelerate and capital values to increase in 2022

According to Oxford Economics as of March 2022, Japan’s real GDP growth forecast was revised downwards to grow by only 2.3% in 2022; the CPI was also revised downwards to be stable in 2022. The economy is expected to pick up on the back of recovering domestic activities and overseas economies. Risks include supply-side constraints and rising geopolitical risks.

In 2022, the vacancy rate is expected to rise slightly, although it remains relatively low at below 4%. Rents might see further correction as buildings holding vacancy offer tenants affordable prices. Capital values may experience increases as further cap rate compression is possible.

Note: Tokyo Office refers to Tokyo's 5 Kus Grade A office market.