Strong corporate performance keeps demand for office solid; net absorption falls slightly due to lack of stock in the quarter

• Net absorption for Tokyo Grade A office fell to -5,800 tsubo in Q2 2026. While office demand continues to remain strong due to good corporate performance, there was no new supply this quarter, which resulted in negative net absorption.
• While office demand continues to remain strong due to good corporate performance, there was no new supply in the quarter, which resulted in negative net absorption. By industry, demand was driven by scientific research, professional and technical services and manufacturing.

Vacancy rate rises q-o-q to 0.8%

• Tokyo’s vacancy rate in the Grade A office market in Q2 2026 was 0.8%, up 0.1 pp q-o-q, and down 1.7 pp y-o-y.
• Tight vacancy was seen due to delay in the completion of new supply caused by soaring construction costs, with very limited availability of vacant space.

Average monthly rent per tsubo in the second quarter was 42,109 yen, up 4.6% qoq and 16.4% y-o-y

• The average monthly gross rent per tsubo was JPY 42,109, up 4.6% q-o-q and 16.4% y-o-y in 2Q26. By submarket, rents continued to increased in both the Otemachi/Marunouchi and the Akasaka/Roppongi submarkets, with rental growth particularly seen in the Otemachi/Marunouchi submarket, supported by its low vacancy rate.
• Capital values in Q2 2026 rose 6.9% q-o-q and 21.1% y-o-y, accelerating from the previous quarter, due to strong momentum in rents and stable cap rates. There were no Grade A transactions completed in the quarter.

Outlook: Further rise in rents and capital values are projected while vacancies are expected to fall into next year

• In the office leasing market,  there is very limited amount of vacant space in existing buildings and projects scheduled for completion in the second half of 2026 are nearly fully leased with take-up for new supply that will enter the market in 2027 are seeing good progress.
• With delay in projects scheduled for 2029 materializing due to rising construction costs, tight supply-demand conditions are likely to continue in the foreseeable future. Key risks to the outlook include rising government bond yields and inflationary pressure from yen depreciation for the investment market.