APPD Market Report Article


May 26, 2024

Takeshi Akagi, Head of Research, Japan


JPY 33,860


Positive net absorption continues

  • According to the Tankan Survey in March, the diffusion index of large manufacturers was 11, the first decline in three consecutive quarters due to stalled production from auto makers. The index of large non-manufacturers was 34 and increased for the eighth consecutive quarter to a 33-year high as inbound demand and economic recovery continued.
  • Even though there were no completions, the strong demand pushed net absorption in the Grade A office market in Tokyo to 49,700 sqm in 1Q24. By industry, the figure was driven by information and communications, energy and finance and insurance.

Vacancy rate continues to improve

  • No Grade A office buildings entered the market in 1Q24.
  • Tokyo’s vacancy rate in the Grade A office market in 1Q24 averaged 4.2%, a 40-bps q-o-q decrease and unchanged on a y-o-y basis. This was the second quarterly improvement in vacancy rates. By submarket, the vacancy rate fell in Otemachi/Marunouchi and was unchanged in Akasaka/Roppongi.

Increase in rents for the first time in four years

  • Rents in Tokyo’s Grade A office market averaged JPY 33,860 per tsubo, per month, at end-1Q24, rising 0.9% q-o-q and falling 1.3% y-o-y. Rents rose for the first time in 15 quarters in Akasaka/Roppongi and fell for the 16th consecutive quarter in Otemachi/Marunouchi as vacancies were filled. 
  • Capital values in 1Q24 rose 2.1% q-o-q for the first time in four quarters and was down 1.4% y-o-y. This reflected positive rent growth, while cap rates remained stable. Notable Grade A office transactions that closed in the quarter included the strata titled Toranomon Hills Business Tower, acquired by United Urban Investment Corporation for JPY 2.3 billion.

Outlook: Rents and capital values to improve gradually

  • According to Oxford Economics’ forecast as of March 2024, the GDP growth for 2024 is 0.5% and the CPI is 1.9 %. Risks include interest rate hikes by the BOJ (although the pace of increase is expected to be marginal), a downturn in overseas economies, inflation and volatility in financial markets.
  • Leasing volume is expected to slow from the prior year as relatively few projects are scheduled for 2024. However, as a large amount of new supply is expected next year, leasing volume is expected to recover in the latter half of the year. Capital values are expected to increase slightly as rent recovery is expected throughout the year, while cap rates remain unchanged. 

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

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