Tokyo Grade A office rents rise for fourth straight quarter in Q2

Rents increased by 1.9% YoY during the quarter.

The Tokyo Grade A office market continues on a growth trajectory, as Savills noted in a report that the market posted its fourth consecutive quarter rental increment, while vacancy has tightened over three consecutive quarters as of Q2/2024, an indication of the ongoing early stages of recovery. 

Average rents in the central five wards (C5W) strengthened across all constituent wards on both a quarterly and annual basis, climbing by an average 1.1% QoQ and 1.9% YoY to JPY33,000 per tsubo. Overall, rental growth was spread out fairly evenly across the C5W. 

Here’s more from Savills:

The average vacancy rate for Grade A offices in the C5W decreased nominally by 0.1ppts QoQ to 2.9%. Shibuya and Chuo saw vacancy rates decrease by 0.5ppts QoQ to 1.2% and 0.4ppts QoQ to 5.5%, while vacancy in Minato and Shinjuku increased by 0.4 ppts and 0.1ppts QoQ, respectively. 

Elsewhere, Chiyoda remained flat over the quarter, staying the lowest in the C5W. However, given the lingering flexible work arrangements, full recovery to the ultratight pre-pandemic levels will likely take some more time. 

Strong corporate profits have contributed to greater levels of floor space expansion to accommodate proactive hiring activity and growing headcounts, which in turn has driven demand for office space. Furthermore, many companies have capitalised on the comparatively looser office market, implementing long-overdue relocations and expansions in accordance with new office requirements and layouts. 

Moreover, the new office supply forecast in 2024 will be relatively modest compared to previous years, which should provide more room for the absorption of existing vacancies from last year’s large new supply as well as secondary vacancies. All in all, this raises prospects for steady recovery over the rest of the year. 

Nevertheless, a significant amount of office supply is expected in 2025, and competition for tenants is likely to intensify, especially for landlords with large existing vacancies and older offices in less accessible locations.