APPD Market Report Article


November 29, 2022

Takeshi Akagi, Head of Research, Japan


JPY 35,002


Net absorption recovers on the back of new supply

  • According to the Tankan Survey in September, the index of manufacturers saw deterioration in business confidence for the third consecutive quarter due in part to rising raw material prices that weighed on profitability, while that of non-manufacturers improved for the second consecutive quarter as COVID-19 restrictions continued to be relaxed.
  • Net absorption recorded 42,000 sqm in 3Q22, recovering to positive levels for the first time in two quarters, on the back of a new building entering Yaesu, a submarket adjoining Otemachi/Marunouchi. Its occupiers came from the manufacturing, finance and insurance, and wholesale and retail trade industries.

Vacancy rate rises to 4% for the first time since 3Q13

  • Total stock increased 1% y-o-y in 3Q22. The Tokyo Midtown Yaesu Central Tower is an office-led, mixed-use, super high-rise 45-storey building above ground, recording 127,000 sqm (office NLA). Located east of and linked directly to Tokyo Station, it entered the market with a healthy forward commitment rate.
  • The vacancy rate increased for the second consecutive quarter and reached 4% for the first time since 3Q13, recording 4.2% at end-3Q22, which was an increase of 80 bps q-o-q and 110 bps y-o-y. This was due in part to increased partial cancellations on the back of the work-from-home trend, and a vacant area of new supply.

Rents and capital values decrease

  • Rents averaged JPY 35,002 per tsubo per month in end-3Q22, decreasing 1.2% q-o-q and 5.2% y-o-y. This marked the tenth consecutive quarter of decrease. The pace of decline was mostly in line with the previous quarter. However, Otemachi/Marunouchi and Akasaka/Roppongi saw declines accelerating compared to the previous quarter.
  • Capital values decreased 1.6% q-o-q and increased 0.5% y-o-y in 3Q22, turning negative for the first time in two quarters. This reflected rent decline and stable cap rates. No Grade A office transactions were closed in the quarter. A portion of Otemachi Place (strata title) is scheduled to be acquired by Tosei Asset Advisors in November 2022 for an undisclosed price.

Outlook: Rents and capital values expected to decrease

  • According to Oxford Economics as of September 2022, Japan’s real GDP growth forecast was revised downwards to grow by 1.4% in 2022 and 1.7% in 2023. The CPI was stable at 1.7% in 2022, followed by a decrease of 0.8% in 2023. The economy is expected to pick up, but downside risks include the impact of global monetary tightening on overseas economies.
  • The vacancy rate is expected to rise slightly in the next 12 months, with increases expected for both existing and new supply buildings. Meanwhile, rents are expected to decrease as owners compete to attract occupiers given the major supply scheduled in the pipeline. In tandem with the decrease in rents, capital values are expected to decline.

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

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