Tokyo office leasing volume set to be robust for the rest of the year

Rents are also expected to continue to rise. 

According to Oxford Economics’ forecast as of June 2024, the GDP growth for 2024 is 0.4% and the CPI is 2.2%. Risks include volatility in financial markets and the upward pressure on investment yields caused by an interest rate hike by the BOJ.

JLL expects leasing volume in Tokyo to be robust despite the few scheduled projects remaining for completion in 2024. Capital values are expected to rise and cap rates remain stable, though a hike in the risk-free rate is expected in the latter half of the year.

Here’s more from JLL:

According to the Tankan Survey in June, the index of large manufacturers was 13 and has recovered over two consecutive quarters. While the index of large non-manufacturers was 33 and fell for the first time in four years due to inflation caused by the weak yen.

Steady demand for both new and existing offices was seen. Net absorption in the Grade A office market in Tokyo rose to 119,000 sqm in Q2 2024. By industry, the figure was driven by information and communications, energy, and finance and insurance.

Vacancy rate continues to improve

Two Grade A office buildings entered the market in Q2 2024, namely Shibuya AXSH (NLA: 24,960 sqm) and Akasaka Green Cross (NLA: 35,320 sqm).

Tokyo’s vacancy rate in the Grade A office market in Q2 2024 averaged 3.6%, down 60 bps q-o-q and 120 bps y-o-y. However, by submarket, the vacancy rate rose slightly in both Otemachi/Marunouchi and Akasaka/Roppongi due to new supply.

Rents rise for two consecutive quarters for the first time since COVID-19

Rents in Tokyo’s Grade A office market averaged JPY 34,224 per tsubo per month, rising 1.1% q-o-q and 0.9% y-o-y by end-Q2. Rents rose in Akasaka/Roppongi and Otemachi/Marunouchi submarkets, showing the rent increase has expanded to the entire CBD.

Capital values in Q2 2024 rose 1.8% q-o-q, and 1.9% y-o-y. This reflected the positive rent growth. Notable Grade A office transactions in this quarter include FPG acquired Roppongi Hills Mori Tower (18th and 21st floors) for JPY 2.8 billion.