APPD Market Report Article


August 26, 2022

Takeshi Akagi, Head of Research, Japan


JPY 35,415


Net absorption turns negative

  • According to the Tankan Survey in June, the index of non-manufacturers outperformed manufacturers for the first time since December 2020. This reflected the receding impacts of the spread of COVID-19 on non-manufacturers and surging raw material prices on manufacturers.
  • Net absorption recorded at -35,000 sqm in 2Q22, turning negative for the first time in two quarters on the back of increasing vacancy and no new supply additions. On the other hand, tenants from industries including manufacturing, information and communications, and finance and insurance took advantage of lower rents to secure high-quality space as well as committing to upcoming supply.

Vacancy rate rises in Otemachi/Marunouchi submarket

  • No new supply entered the market in 2Q22.
  • The vacancy rate stood at 3.4% at end-2Q22, increasing 40 bps q-o-q and 100 bps y-o-y. The vacancy rate increased for the first time in two quarters. Otemachi/Marunouchi saw an increase of more than 100 bps q-o-q, while Akasaka/Roppongi saw a decrease of 50 bps q-o-q.

Capital values increase reflecting cap rate compression

  • Rents averaged JPY 35,415 per tsubo per month, at end-2Q22, decreasing 1.2% q-o-q and 5.9% y-o-y. This marked the ninth consecutive quarter of decrease. The pace of decline was mostly in line with the previous quarter. Decreases in rents were observed, in particular, for submarkets where a number of buildings hold above-average vacancy.
  • Capital values increased 2.6% q-o-q and decreased 0.7% y-o-y in 2Q22, turning positive for the first time in two quarters, reflecting cap rate compression as rents continued to decline. Notable transactions confirmed in the quarter included a SPC with Taisei, Fuyo General Lease and Development Bank of Japan as equity investors acquired Otemachi Nomura Building (ownership portion) in March.

Outlook: Rents expected to bottom out in 2022

  • According to Oxford Economics as of June 2022, Japan’s real GDP growth forecast was revised downwards to grow by 2.0% in 2022; the CPI was revised upwards to 2.1% in 2022. The economy is expected to pick up as socio-economic activities normalise. Risks include supply-side constraints and persistent geopolitical risks.
  • The vacancy rate is expected to rise slightly in 2022, although remain relatively low at less than 4%. Rents are expected to bottom out and turn around on the back of limited space for further correction and as the pre-commitment rate of future supply continues to increase. Capital values will likely remain stable as cap rates are also expected to remain stable.

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

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