Tokyo office market outlook remains optimistic despite some volatility ahead

The volatility from the influx of new supply in 2025 is not a major concern.

The Tokyo Grade A and large-scale Grade B office markets continue to recover in Q2/2024 according to a Savills report, with both average rents and occupancy experiencing steady improvements from the previous trough seen between late 2022 and late 2023. 

The large supply of office space in 2023 was uneventfully absorbed, owing to strong corporate performance and the increasing return to offices. With limited supply in 2024, the Tokyo office market should continue to perform well for the remainder of the year. 

Here’s more from Savills:

Companies have been gradually phasing out flexible work arrangements since 2022, and with Japan’s work culture generally advocating in-person attendance, this trend is likely to continue. However, some flexible work arrangements are likely to linger, driving demand for offices equipped with private booths and modern meetings rooms to facilitate seamless communication. 

Additionally, companies are also increasingly enticed by larger and high-quality offices to gain an edge in talent acquisition in a competitive labour market. Therefore, the bifurcation between modern buildings in prime locations and older, less accessible buildings with poor amenities is likely to remain or even widen for the time being. 

Looking ahead, the significant influx of new office supply forecast for 2025 may introduce some volatility to the market but should not be a major concern given the overall sound demand, with greater confidence stemming from the uneventful uptake of the large supply in 2023 as well as encouraging pre-leasing activities already observed for the incoming supply. 

Despite potential challenges such as labour shortages and construction cost inflation, the overall outlook for the Tokyo office market remains optimistic backed by increasing demand. Projecting further ahead, notable completions such as the TAKANAWA GATEWAY CITY project in 2025 and the iconic Torch Tower in 2028 are set to transform the office landscape in Tokyo, driving further demand.