What does the future hold for Tokyo’s office market?

Heightened supply is expected in 2025 and 2028.

Japan has transitioned to a growth trajectory, and the current situation looks positive. In a report, Savills said the strength of Japanese corporate performance in 2023 has supported a return to growth for the office market, despite some concerns regarding the recent large influx of office supply. 

“The coming year will provide a brief pause, which should set the stage for further improvements in terms of rental growth, as well as a further tightening of vacancy. Meanwhile, although flexible working arrangements look likely to linger and slightly dampen office demand in some cases, this should also spawn new demand for flexible workspaces, especially in convenient, central locations,” the report added.

Here’s more from Savills:

Looking ahead, a period of heightened supply from 2025 onwards, particularly in 2025 and 2028, may present some challenges. Around half of the new office supply will be in Minato, which is still dealing with the large influx from 2023. Some areas with poor proximity to public transport hubs as well as older properties are also likely to struggle moving forward. Indeed, vacancy and secondary vacancy may temporarily increase as a result, although we anticipate rental growth regardless. 

Nonetheless, modern offices located near public transport hubs should thrive and face fewer difficulties with absorption, particularly those with premium amenities that facilitate employee communication and wellbeing. In addition, renovations and conversions of struggling properties may improve their competitiveness, which would also reduce vacancies in the market overall and usher in further stability. 

Mixed-use projects have been established as the preferred choice for large-scale projects, given their ability to attract a wide range of tenants and clientele and offer diversified revenue streams and greater amenities. Tokyo will welcome a series of such mixed-use projects, including Tokyo Torch and Jingu Gaien, among others, many of which will combine premium offices with retail and luxury residential space, while providing many public amenities, including schools, parks and public transport infrastructure, and should help to polish the image of the surrounding area. These integrated features will likely make commuting and working more comfortable, and will improve the value of office space to tenants, which should be well received.