Which Tokyo submarket saw the biggest Grade B office rental growth in Q2?

The average rents for Grade B office grew by 2.1% YoY during the quarter.

The large-scale Grade B market in Tokyo continues to recover along with the Grade A market, with average rents rising by 0.5% QoQ and 2.1% YoY to JPY25,012 per tsubo, according to data from Savills. 

Chuo and Shinjuku saw the largest rental growth at 1.0% QoQ and 0.8% QoQ, respectively. 

Here’s more from Savills:

Meanwhile, Shibuya saw rents increase 0.3% QoQ, while Chiyoda and Minato saw mild upticks of 0.1% QoQ. Similar to the Grade A market, bifurcation persists within the surveyed submarkets, with modern offices in prime locations generally continuing to experience rental increments with virtually no vacancies, while older offices in less accessible areas continue to experience persistent elevated vacancies. 

Average Grade B vacancy tightened for the third consecutive quarter, dropping by 0.8ppts QoQ to 2.6%. Minato and Chuo, which have the highest vacancy rates, saw the greatest tightening by 1.4ppts QoQ and 1.3ppts QoQ, respectively. Grade B office vacancy in Shibuya fell below the 1% mark for the first time since the onset of the pandemic, tightening by 1.2ppts QoQ to 0.3%. Elsewhere, Shinjuku recorded a modest decrease of 0.4ppts QoQ while Chiyoda increased slightly by 0.3ppts QoQ. 

In March 2024, a survey conducted by the Tokyo Metropolitan Government revealed a declining trend in remote work implementation by companies, with the proportion decreasing from 63% in March 2022 to 52% and 43% in the same month of 2023, and 2024, respectively. 

Furthermore, smaller companies, particularly SMEs which are typically Grade B tenants, are even less inclined to implement remote work options compared to larger companies, and this trend should theoretically drive more demand in the Grade B office market. 

Overall, Japanese corporations have been performing well, and the competitive and tight labour market should incentivise more companies to prioritise quality workspaces to attain a better edge in talent acquisition and retention.