The tenant shifts in Tokyo Grade A office have been strong over the last few quarters, and this can be seen in the forward commitment representation of the Gross Leasing Volume (GLV). The GLV totalled 215,000 sqm in 1Q19, increasing 4% y-o-y. Of the total volume, forward commitment represented more than 80%, which totalled 176,000 sqm, an increase of 27% y-o-y. This figure is the second largest since JLL started tracking in 2013.
Figure 1 : Gross Leasing Volume
Source: JLL Apr 2019
Strong tenant activities were backed by continuing economic recovery. Japan’s real GDP growth in 4Q18 was +1.9% (seasonally adjusted q-o-q annualised rate, second preliminary figure). This marked the first positive growth in two quarters, and the upward revision from the first preliminary figure was due to increased capital investment released in financial statement statistics of corporations by industry. The capital investment in 4Q18 for all industries was 5.7% signalling that corporations are expanding their business and personnel.
However, Japan is seeing its unemployment rate trend at the lowest level in about 25 years. The unemployment rate in February was 2.3% while job offer ratio remained flat at a historical high level of 1.63%. The labour market remains extremely tight on a national level, while in Tokyo, it is expected to become even tighter. Unemployment rate in February at South Kanto area was 2.1%, and the job offer ratio in February for Tokyo was 2.13%.
Under the circumstances of favourable economic situation and extremely tight labour market, it has become crucial for corporations to secure a young talented workforce for business expansion. Accordingly, relocation to Grade A new supply has become one of the options. New supply that has bigger floor plate, better Business Continuity Plan (BCP), newer amenities and better working environment can not only attract young talents to join the corporation but also improve the latter’s efficiency and communication.
As a result, the vacancy rate stood at a very low level of 1.0% at end-1Q19. The take-up of existing buildings was limited and demand was absorbed in future supply up to those scheduled in 2022.
Figure 2 : Grade A Office Physical Indicators
Source: JLL Apr 2019
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