APPD Market Report Article


September 4, 2023

Yuto Ohigashi, Senior Director - Research, Japan


JPY 22,374


Net absorption increases slightly

  • Business sentiment in Greater Osaka improved in the second quarter, as shown from the Osaka branch of the Bank of Japan. The diffusion index for current business conditions rose from 2 points to exceed 6 points for large manufacturers, and from 18 points to 24 points for large non-manufacturers. 
  • Net absorption totalled 600 sqm in 2Q23. A return to normal activities in the post-COVID-19 era stimulated demand for office spaces, especially among the manufacturing, wholesale and retail trade, scientific research, and professional and technical services industries. On the other hand, government-related tenants terminated space that was used to satisfy temporary demands during the pandemic. 

Vacancy rate remains stable at 3.4%

  • No new projects entered the market in 2Q23.
  • The vacancy rate remained at 3.4% in 2Q23, unchanged q-o-q and decreasing 10 bps y-o-y. For some buildings, despite the lower vacancy in some buildings due to the increase in tenant leasing activities, large vacancies were observed in others.

Cap rates remain flat while rent declines slightly

  • Gross rents averaged JPY 22,374 per tsubo, per month, at end-2Q23, decreasing 0.2% q-o-q and 2.2% y-o-y. Some landlords lowered asking rents to achieve higher occupancy more promptly. 
  • Capital values decreased 0.2% q-o-q and 3.4% y-o-y in 2Q23, reflecting the rent decline. Cap rates were flat. There were no transactions for Grade A office buildings during the quarter.

Outlook: Rents slightly decline while cap rates hold flat

  • According to the Oxford Economics forecast as of June, Osaka’s real GDP is expected to grow by 0.8% in 2023. Downside risks include weak global demand affecting Japanese exports and manufacturing.
  • The vacancy rate is expected to rise moderately with a slight decline in rents as no new supply is due in the latter half of 2023, while large supply in 2024 is expected to cause vacancy to rise and rents to drop sharply. Despite the falling rents, cap rates are projected to remain almost flat as strong demand is concentrated on good properties that sell well.

Note: Osaka Office refers to Osaka's 2 Kus Grade A office market.

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