Net absorption outperforms expectations

• ​​According to the Tankan Survey in September, the diffusion index of large manufacturers was in line with the previous quarter at 13. The index of large non-manufacturers was 34 and rose for the first time in two quarters.​
• Relocation demand among companies has been strong. Net absorption in the Grade A office market in Tokyo was 91,300 sqm in Q3 2024. By industry, the figure was driven by information and communications, manufacturing, and finance and insurance.

Vacancy rate falls to the low 3% range

• One Grade A office building entered the market in Q3 2024, namely Toda Building (NLA: 34,500 sqm), increasing stock by 0.3% q-o-q.
• Tokyo’s vacancy rate in the Grade A office market in Q3 2024 averaged 3.1% and fell 50 bps q-o-q and 160 bps y-o-y. However, by submarket, the vacancy rate rose slightly in Otemachi/Marunouchi, while it vastly improved in Akasaka/Roppongi.

Rents continue to rise for three consecutive quarters

• Rents in Tokyo’s Grade A office market averaged JPY 34,610 per tsubo, per month, up 1.1% q-o-q and 3.1% y-o-y by end-Q3 2024. Rents rose in both Akasaka/Roppongi and Otemachi/Marunouchi as vacancies filled, particularly in Akasaka/Roppongi.
• Capital values in Q3 2024 rose 1.4% q-o-q and 4.8% y-o-y, supported by a rise in rents and unchanged cap rates. Notable transactions included Nomura Real Estate Master Fund’s disposition of Harumi Island Triton Square Office Tower Y (strata title) for JPY 23 billion.

Outlook: Rents and capital values to rise into year-end

• According to Oxford Economics’ forecast as of September 2024, the GDP growth for the end of 2024 is 0.2% and the CPI is 2.3%. Risks include higher inflation, volatility in financial markets and political uncertainty.
• Tenants are expected to relocate to more competitive buildings with more available opportunities,which will contribute to further rent growth. Capital values are expected to rise into year-end due to rising rents, and cap rates to remain unchanged.