These new office projects are set to redefine Tokyo’s office market from 2025 and beyond

Mixed-use developments have become a defining standard for larger scale projects.

According to a recent Savills report, the Tokyo office market demonstrated notable resilience, successfully absorbing most of the new office space in 2023. Initial concerns regarding the large supply have been mitigated by strong corporate performance and the return to offices, which have driven demand for the new additions. 

The upcoming new supply in 2024 is relatively limited (Graph 4) which should allow the market to continue its positive trajectory, adds the report, though the office supply forecast in 2025 will be large, particularly in the Takanawa submarket (Graph 5). 

“Despite some observers’ expectations of a potential economic slowdown, optimism prevails in the Tokyo office market, fuelled by sound tenant demand, hinting at further market improvements ahead.”

Here’s more from Savills:

The supply of new office space in 2024 is expected to be moderate, which should provide the market with some breathing room to absorb existing vacant space and facilitate further growth. The sound leasing demand has been evidenced by smooth pre-leasing activities for many incoming properties. 

For instance, SHIBUYA AXSH in Shibuya has seen strong pre-leasing activity, demonstrating the high level of demand for modern office spaces. The shift in tenant preferences towards modern offices, strategically located close to metro stations and public transport hubs, with modern amenities supporting communication, and strong ESG specifications, among others, has led to many tenants being willing to pay a premium for such features. 

Conversely, older and poorly located offices, especially in some areas of Minato and Chuo, continue to struggle. These challenges may be exacerbated by the large incoming supply in these wards over the coming years. 

Looking forward, several significant projects are in the pipeline, set to redefine the Tokyo office market landscape. In 2025, the Takanawa submarket will emerge as a competitive office market with the completion of TAKANAWA GATEWAY CITY project. This mixed-use development, featuring office space, retail, residential units, and an international school, has already garnered strong interest securing large tenants like KDDI. 

The trend towards mixed-use developments has been increasingly popular and has become a defining standard for larger scale projects. Mixed-use buildings offer versatility to meet the evolving demands of tenants, and diversify revenue streams, and hedge against unforeseen circumstances. 

Furthermore, the mixed-use development trend tends to reshape the atmosphere of these buildings and their surrounding areas, creating a city-within-a-city ambiance, ultimately boosting the value of office spaces, and driving up demand for floor space among businesses within these environments. 

Elsewhere, other notable projects slated for completion in 2025 include the Yaesu 1-Chome Project in Nihonbashi & Yaesu and the Shibaura 1-Chome Project South, both of which are already mostly pre-leased, although the former is likely to face a delay in completion until 2026 due to an on-site accident. In 2026, Nihonbashi 1-Chome Naka C Project, and the second phase of TAKANAWA GATEWAY CITY, THE LINKPILLAR II is scheduled for completion. 

Additionally, the redevelopment of the Oimachi station front area will deliver mixed-use towers and public green spaces, further transforming the Takanawa and Shinagawa & Osaki submarkets. 

Looking further ahead to 2028, the Marunouchi & Otemachi submarket will welcome the iconic Torch Tower, the tallest office building in Japan, as part of the Tokyo Torch project. This development is expected to transform the northern edge of Tokyo station and attract high-profile tenants. Other significant projects include the redevelopment of the Tokio Marine Nichido Building and the head office of MUFG, which will add premium modern office space to the market. 

Despite the optimistic outlook, several risk factors could impact the market’s stability. Labour shortages, new regulations on overtime construction work, and inflation may cause delays in delivering new supply and increase construction costs. These factors could also affect tenant relocations, with some companies potentially postponing office moves due to elevated initial moving costs. At the same time, these delays might offer a silver lining by subtly balancing supply and demand. 

Overall, the Tokyo office market is primed for further growth in 2024, driven by moderate supply and sound demand. The shift towards mixed-use developments, coupled with robust corporate performance, is expected to support rental growth and stabilise vacancy rates. While challenges remain, the overall outlook for the Tokyo office market in 2024 and beyond is optimistic.