APPD Market Report Article


May 26, 2024

Yuto Ohigashi, Senior Director - Research, Japan


JPY 22,620


Remarkable tenant demand present in the market

  • The March Tankan Survey for Greater Osaka showed that business sentiment dropped to 6 points from 13 for large manufacturers and to 30 points from 35 for large non-manufacturers.
  • Net absorption totalled +95,000 sqm in 1Q24. Robust tenant activity was seen as upgrades, relocations with expansions and in-house expansions drove expanding businesses to fill vacancies.

Vacancy rate increases to 3.1%

  • There were three new completions in 1Q24: Midosuji Daibiru Building (GFA 20,000 sqm), Urbannet Midosuji Building (GFA 42,000 sqm) in Chuo-ku in January, and JP Tower Osaka (GFA 227,000 sqm) in Kita-ku in March.
  • The 1Q24 vacancy rate rose to 3.1%, an increase of 60 bps q-o-q and a decrease of 60 bps y-o-y. Although spaces in existing buildings continued to be filled, some new completions with vacancies drove up the vacancy rate.

Rents and capital values increase

  • Average monthly gross rent per tsubo was JPY 22,620, an increase of 0.5% q-o-q, but decreasing by 0.8% y-o-y in 1Q24. New completions with high rents pushed up the market average.
  • Capital values increased 1.0% q-o-q but decreased 1.6% y-o-y in 1Q24, due to current rent trends. Cap rates remained stable. A notable transaction was Sekisui House Reit’s disposition of Hommachi Garden City for JPY 44.5 billion. The appraisal NOI yield was 3.4%. The purchaser was not disclosed.

Outlook: Rent increases to be temporary before large supply arrives

  • According to Oxford Economics forecast as of March, Osaka City’s real GDP is expected to grow by 0.4% in 2024 and by 0.1% in 2025. Downside risks include the effects of the upward trend of raw material prices and labour shortages on the domestic economy.
  • Although demand is robust, forthcoming new completions with high rents exceeding the market average are likely to have many vacancies due to a scarcity of potential tenants. Therefore, rents are likely to drop as vacancies increase. The investment market is expected to raise liquidity with increased sales activity and investor appetite for competitive assets.

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

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