Misplaced optimism: Tokyo’s residential recovery is short-lived

Occupancy rates are down to an 11-year low of 95.4% in Q2.

Since the onset of the pandemic, average occupancy rates in the 23W have declined from the all-time highs seen in Q1/2020. According to Savills, looking back, having reached the lowest point since 2014 in Q4/2020, average occupancy rates in the 23W showed signs of recovery in Q1/2021, driven by net positive migration into the region.

“This optimism appears to have been short-lived, however, with rates in Q2/2021 decreasing by 0.8ppts to a new low of 95.4% – a level not seen since 2010. A similar dynamic has also played out in the C5W. To wit, occupancy levels in central areas, having perked up somewhat in Q1/2021, fell to new lows this quarter, contracting 1.3ppts to 94.3%.”

Here’s more from Savills:

Occupancy levels also fell in every other submarket in the rest of the 23W over the quarter with a similarly temporal tightening in March followed by a deterioration in April and May. The number of people moving into Tokyo during this period has halved compared to previous years, and the inflow of new residents was not enough to counterbalance the outflow, hence reducing the demand for housing in the region. 

Furthermore, the prolonged state of emergency has likely caused residents to forego the renewal of their leases or take the opportunity to move somewhere else. Considering the current situation, it is clear that the 23W has lost some of its shine, partly as a result of the higher prevalence of remote work policies in Tokyo. In truth, the occupancy rate in the 23W may take time to recover if the pandemic, and the subsequent uptake in remote work policies, linger. That said, the accelerated pace of vaccinations in Japan should further fuel the optimism that a post-pandemic era should be swiftly approaching

Note: In order to illustrate trends in the central Tokyo residential market, Savills has segmented Tokyo’s 23 wards (23W) into seven distinct geographical areas: Central (or “central five wards”), South, West, North (Inner and Outer) and East (Inner and Outer).