APPD Market Report Article


February 22, 2024

Yuto Ohigashi, Senior Director - Research, Japan


JPY 22,497


Positive net absorption continues

  • The December Tankan Survey for Greater Osaka showed that business sentiment rose to 12 points from 6 for large manufacturers, and to 33 points from 25 for large non-manufacturers.
  • Net absorption totalled 7,000 sqm in 4Q23 and 34,000 sqm for the full year. As the economy continues to pick up, it stimulates demand for expansion, relocation to better locations and upgrades, resulting in an active market.

Vacancy rate reaches 2.5%

  • No new projects entered the market in 4Q23. For the full year, two buildings offered a total of 18,000 sqm (NLA). Scheduled new supply for 2024 is expected to be the largest in the past 20 years, totalling 260,000 sqm.
  • The 4Q23 vacancy rate dropped to 2.5%, a decrease of 20 bps q-o-q and 70 bps y-o-y. The increase in expansion demand led tenants to secure low-priced space in existing buildings before the large supply in 2024 arrives.

Rents and capital values decline slightly

  • Average monthly gross rent per tsubo was JPY 22,497, a decrease of 0.1% q-o-q and 1.8% y-o-y in 4Q23. Some existing buildings competing with new supply in 2024 reduced rents, while a few others increased them.
  • Capital values decreased 0.6% q-o-q and 3.2% y-o-y in 4Q23, due to the rent decline. Cap rates remained stable. A notable transaction was Japan Excellent Inc.’s acquisition of a co-ownership interest in Grand Front Osaka from Nippon Steel Kowa Real Estate for JPY 8.3 billion. The estimated NOI yields were 3.5% for the South building and 3.6% for the North building.

Outlook: Unprecedented new supply is expected to raise vacancy rates

  • According to Oxford Economics’ forecast as of December, Osaka City’s real GDP is expected to grow to 2.1% in 2023 and to 0.3% in 2024. Downside risks include weakened demand for exports due to the deceleration of the global economy.
  • Rent levels for projected new supply in 2024 are higher than the market average, causing many vacant spaces to be added to the market. We expect that existing buildings will reduce rents to keep tenants. Transactions in the investment market are expected to increase amid the low-cost financing environment, compared to those overseas, and also due to the supply pipeline that has recently increased.

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

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