Office demand expands due to active capital investment by companies, vacancy absorption progresses

• The September Tankan Survey for Greater Osaka showed that business sentiment rose to 14 points from 10 for large manufacturers, and that of large non-manufacturers was unchanged at 33 points.
• Net absorption totalled 16,000 sqm in Q3 2024. Companies with strong performance relocated to improve building grade for recruitment and efficiency. Relocations were seen in manufacturing (e.g., chemical industry), information and communications companies (e.g., software development), and wholesale and retail trade sectors.

Focus on leasing trends for newly constructed buildings with high rent levels

• There was one new completion in Q3 2024, PRIME GATE UMEDA (Kita-ku). Located near the Umekita area (Northern Umeda and Osaka Station), it is a 12-storey building with a total floor area of 15,000 sqm.
• The Q3 2024 vacancy rate declined to 3.8%, a decrease of 30 bps q-o-q but an increase of 110 bps y-o-y. Absorption was seen in new high-quality and relatively inexpensive existing properties.

Investment in Osaka is booming, and continued growth of the transaction volume is expected

• The average monthly gross rent per tsubo was JPY 22,935, an increase of 1.1% q-o-q and 1.8% y-o-y. Affordable buildings are seeing upward rent revisions due to high demand.
• Capital values increased 0.2% q-o-q and 1.6% y-o-y in Q3 2024, due to current rent trends. Cap rates were stable from the previous quarter.

Outlook: New buildings with high rents to influence the market

• According to Oxford Economics forecast as of September, Osaka City’s real GDP is expected to grow by 0.4% in both 2024 and 2025. In the rental market, solid domestic demand and the upcoming Kansai Expo contribute to positive corporate sentiment and strong demand for office space.
• However, few large companies can afford high rents, and some new high-spec and high-rent buildings have substantial vacancies. Tenant attraction progress for upcoming large properties may pressure existing high-rent properties. Gradual rent decline and rising vacancy rates are expected from Q3 2024 to Q3 2025. In the investment market, the Osaka area is booming, particularly in the hotel and office sectors. Solid investment appetite stimulated by robust rental demand was evident in large-scale property transactions. Continued growth in investment volume is expected.