Full recovery still far off on the horizon for Tokyo’s office market 

Multiple uncertainties are delaying the progress.

According to a Savills report, recovery appears to be progressing steadily in the Tokyo Grade A and large-scale B office market in Q4/2023, buoyed by strong economic growth in 2023. Average rents increased moderately in both Grade A and Grade B markets, while vacancies tightened for a consecutive quarter. 

“Indeed, demand among tenants for office relocations has remained firm over the quarter, and a growing number of tenants are actively growing their staff count and looking to increase their office footprints. As such, vacancy rates are noticeably lower now than during the height of the pandemic, and most submarkets are gradually approaching prepandemic levels,” the report added.

Here’s more from Savills:

The Tokyo office market responded well to the large amount of new office supply completed in 2023, which appears to have had limited bearing on the stable recovery seen over recent quarters. This may be serendipitous for the market looking ahead, due to the limited amount of new supply slated for completion in 2024, which should create some breathing room for further recovery and further stabilise the situation overall. 

Pre-leasing activity for new offices in 2024 appears to be progressing, given the strong appetite for modern offices in favourable locations. As such, any notable deviations from the current stable recovery trend are unlikely for the time being, while some submarkets with tight levels of vacancy may experience moderate rental growth over the coming year. 

Nevertheless, the office market still has some way to go until full recovery, and there are still many uncertainties that may delay this progress. Hybrid work arrangements appear to remain a common feature, especially among large companies, as tenants adapt to the newly established roles and functions of their offices in the post-pandemic environment. 

This may result in some limitations regarding future office leasing demand, and will also contribute to the trend of bifurcation in office performance based on location and age, as many tenants clearly favour modern offices with good accessibility and amenities, and modern ESG specifications. 

The influx of a large amount of new supply in 2025 may exacerbate this issue even further, and some older offices with undesirable features will likely continue to struggle, and observers may anticipate an uptick in secondary vacancies going forward. Nevertheless, the market looks to continue improving overall, albeit gradually. 

It remains to be seen how broader economic trends will affect corporate behaviour in the coming year, yet the encouraging performance of the Japanese economy in 2023 is a positive sign for leasing demand moving forward.