Tokyo to see new office supply influx in 2025

Analysts expect sound demand in the office market. 

According to a Savills report, the Tokyo Grade A and large-scale Grade B office markets experienced sound growth in Q1/2024, supported by strong corporate performance, one of the key determinants of the office market’s performance. 

This can be seen from a growing proportion of businesses expanding their operations and increasing their workforce, consequently driving demand for larger and higher-quality office spaces. 

Here’s more from Savills:

The overall market has responded well to the large influx of supply in 2023, evidenced by the steadily increasing average rental level and continuous tightening of vacancies since the second half of 2023, which are signs of sound demand and market stability. In addition, the limited new supply expected in 2024 should further drive the ongoing improvement of the office market. 

Bifurcation between modern, well-located buildings and older, less convenient buildings is expected to persist. Despite the steady return to offices, flexible work arrangements remain prevalent in the Tokyo 23W. Hence, large companies, especially those that are performing well, are compelled to invest in larger and higher-quality office spaces with excellent accessibility to encourage employees to return to the office. Japan’s work ethos generally puts emphasis on face-to-face communication and values in-office collaboration. 

Furthermore, high-grade offices are essential for companies to attract and retain skilled talent, which has become scarcer in the market. Therefore, modern and accessible buildings should experience firm demand, whereas older and inaccessible offices are likely to continue facing challenges in this evolving workplace landscape. 

Looking forward, a large influx of new office supply is expected in 2025. Landlords holding significant amounts of vacant office space should proceed with prudence as competition for tenants is expected to intensify later this year. The fact that the large influx of new supply in 2023 was absorbed well, coupled with the sound preleasing activities observed in 2024, signals sound demand in the office market. 

Moreover, the overall office market should perform well going forward, further supported by the sustained improvement in the broader economy, and a steady return to the office.