Tokyo Grade A office vacancy to hit 3% in 2025

The vacancy rate will continue to fall until 2027.

According to a recent Savills report, given the improving economic prospects in Japan, prime office rental growth should continue for the meantime, with prospective tenants willing to pay premium rents for modern offices in convenient locations, especially those with leading ESG features and other amenities, such as IT infrastructure and communication space, as well as disaster-proofing and security features. 

Here’s more from Savills:

In particular, the shortage of skilled workers will force companies to prioritise premium features when choosing offices in order to attract and retain employees. As such, we forecast rental trends as follows - JPY34,000 per tsubo in 2024, JPY34,500 per tsubo in 2025, JPY35,000 per tsubo in 2026, and JPY35,500 per tsubo in 2027. 

Vacancy should also continue to fall as companies continue to confirm their office needs and carry out consolidations and relocations. Indeed, many five-year, fixed-term lease contracts signed prior to the pandemic will be approaching expiration in 2024 and 2025, so observers will likely continue to see heightened relocation activity over the coming years towards office buildings that better suit company needs in the post-pandemic period. 

Also, struggling offices should carry out value-add initiatives such as conversion to other commercial usages. As such, Savills Japan forecasts relatively stable Grade A vacancy performance over the coming years - 2.0% in 2024, 3.0% in 2025, 2.5% in 2026, and 2.0% in 2027.