Business expansion leads steady demand

• The June Tankan Survey for Greater Osaka showed that business sentiment rose to 10 points from 6 for large manufacturers and to 33 points from 30 for large non-manufacturers.
• Net absorption totalled +21,000 sqm in Q2 2024. Demand for expansion and higher-quality spaces stayed firm due to the increase in hiring with business expansion plans. Manufacturing, IT, wholesale and retail stood out with active demand.

Modest rise in vacancy rate in spite of large supply of more than 100,000 sqm

• There were two new completions in Q2 2024: Osaka Dojimahama Tower (Kita-ku, GFA 67,000 sqm) in April and Inogate Osaka (Kita-ku, GFA 60,000 sqm) in June.
• The Q2 2024 vacancy rate rose to 4.1%, an increase of 100 bps q-o-q and 40 bps y-o-y. Although there was a wave of new supply in this, the largest-supply year, the rise in vacancy rates stayed low due to beyond-expected demand.

Occupier and investor demand solid but selective

• The average monthly gross rent per tsubo was JPY 22,684, an increase of 0.3% q-o-q and 0.4% y-o-y. New completions with higher rents pushed up the market average for the second consecutive quarter.
• Capital values increased 1.0% q-o-q and 1.0% y-o-y in Q2 2024, due to current rent trends. Cap rates were stable from the previous quarter. There were no Grade A office transactions in Osaka in the quarter.

Outlook: Occupier and investor demand solid but selective

• According to Oxford Economics forecast as of June, Osaka City’s real GDP is expected to grow by 0.6% in 2024 and by 0.2% in 2025. In the rental market, demand for superior office space is solid from companies with aspirations for equipment investment and talent hiring. However, some buildings with high rents, excessive age or undesirable locations struggle to attract demand and hold prolonged vacancies.
• Considering the large supply at the end of the year, the vacancy rate is likely to rise and drive rents lower. In the investment market, investors have priced in supply-demand loosening due to the large supply, and are still actively seeking assets expecting solid demand with good locations and low adjusted rents.