APPD Market Report Article


December 1, 2021


JPY 23,591


Positive demand observed for the first time in six quarters

  • According to the September Tankan survey for Greater Osaka, the sentiment among large manufacturing businesses was 17, increasing six points compared to that from the previous survey in June, and an improvement for the fifth consecutive quarter. The sentiment in large non-manufacturing businesses increased by three points to a negative three points.
  • Net absorption totalled 200 sqm in 3Q21, marking a positive absorption figure for the first time in six quarters, although vacancy rates still rose due to new supply additions. Occupier demand was observed in the information and communication, manufacturing and services industries.

Vacancy rises to 3.0%

  • One new supply addition entered the market in 3Q21; namely, the Hommachi Sankei Building. Offices occupy the 5th to 21st floors of the 21-storey building, with a total floor area of 30,000 sqm. Only one building is due for completion in 2021.
  • The vacancy rate stood at 3.0% in 3Q21, increasing 100 bps q-o-q and 170 bps y-o-y. The increase in vacancy rate expanded due to the low occupancy rate of the new supply, although the increase in vacancy in existing buildings was limited. This was the first time the vacancy rate rose to 3% levels since 2Q17.

Rent and capital value declines slow

  • Gross rents averaged JPY 23,591 per tsubo per month, at end-3Q21, decreasing 0.6% q-o-q and 2.5% y-o-y. Rental decline slowed in line with the slower rise in vacancy rate of existing buildings.
  • Capital values decreased 1.0% q-o-q and 3.6% y-o-y in 3Q21. The decline was in line with the rent decreases despite flat cap rates. There were no transactions for Grade A office buildings during the quarter.

Outlook: Rents continue to fall and reflect in capital values

  • According to the Oxford Economics forecast as of September, Osaka’s real GDP is forecast to grow by 1.5% in 2021. Downside risks include the delay in domestic and global economic recoveries due to the prolonged pandemic and supply-side constraints.
  • Due to the limited new supply through the spring of 2022, vacancy rates are expected to continue to rise, yet only moderately, and rents are slated to gradually decline. Meanwhile, investor appetite remains high and cap rates are expected to be flat, thus capital values are likely to be almost flat despite rental declines.

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

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