Here’s what to expect from regional Japanese office markets this year

Osaka will be in focus as massive amounts of supply are slated for completion.

According to a Savills report, moderate progress has been made across Japan’s regional office markets over the past half-year, with overall absorption of new supply and rather limited secondary vacancies, aside from a handful of outliers. 

“Japan’s economy remains on a steady recovery trajectory, and office participation rates are expanding. That said, hybrid work arrangements appear to remain as an employee perk at large corporations, and some companies have looked to reduce their office footprints and relocate to more convenient but smaller office spaces as a result,” the report said.

Here’s more from Savills:

Looking ahead, large amounts of new office supply are forecast across the surveyed markets, which is likely to bring about some notable fluctuations, with upticks in both vacancies and rental rates anticipated. 

Furthermore, many large offices with high rents and those that are struggling with persistent vacancies may be required to adjust rents, especially in areas that are set to receive large amounts of new supply, such as Umeda in Osaka. 

On the other hand, rising construction costs and labour shortages will likely continue to delay or compel developers to think twice about development projects over the coming years. Indeed, this may be viewed as a silver lining for regional office markets, giving struggling properties and submarkets some breathing room to deal with existing vacant space. 

Overall, further growth should be anticipated in all regional markets over the coming years. Although the large upcoming new supply may cause some temporary disruptions, these major developments should improve the landscapes of each respective market in the medium- to long-term, which should help to attract businesses and residents, and improve the sentiment of the office sector and wider economic prospects across major cities.