Tokyo C5W’s residential rent premium over 23W widens to 19.5%

The gap is slightly below the peak seen last year.

In a report, Savills revealed that average rents in the Tokyo 23W and C5W saw moderate growth in Q3/2024, returning to a positive trajectory following the slight dip in the previous quarter. 

“The C5W premium over the 23W widened by 0.3ppts to 19.5% - marginally below the previous peak observed in 2023,” the report said.

Here’s more from Savills: 

Meanwhile, the 23W recorded a net migration of over 22,000 new residents between June and August 2024, over 50% of whom were foreign nationals. Net migration figures have increased by 23% compared to the same period in 2023, and by 54% compared to 2019, and have been an increasingly important source of population growth.

The rental market growth is also buoyed by the high residential property prices in the 23W, especially the C5W, sustained by elevated land and construction costs on top of labour shortages, which are unlikely to wane anytime soon. The number of new for-sale condominium units in the first half of 2024 was the lowest in the past three years, contributing to a rise in second-hand condominium prices. 

The overall increase in residential property prices will imply higher rents for newer properties, which should be attainable due to increased demand from those priced out of the for-sale market. Meanwhile, recent robust wage growth should also provide support for sustained residential leasing demand. 

Looking ahead, the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) has revised Japan's Building Energy Efficiency Act to extend regulations to residential buildings from April 2025, meaning that new properties will need to adhere to stricter energy efficiency standards. 

The additional cost of compliance to the energy efficiency standards is modest, and will likely be reflected in residential rents. Nonetheless, recent high utility costs have made energy efficient units popular, and they should be accepted well by the market. 

Note: In order to illustrate trends in the central Tokyo residential market, Savills has segmented Tokyo’s 23 wards (23W) into seven distinct geographical areas: Central (or “central five wards”), South, West, North (Inner and Outer) and East (Inner and Outer).