Tokyo’s residential rent decline in Q4 2022 explained

Average rents declined 2.9% to JPY 3,933 per sqm.

According to a report from Savills, average rents in the Tokyo 23 wards (23W) saw a notable decline of 2.9% quarter-on-quarter (QoQ) and 0.7% year-on-year (YoY) to JPY3,933 per sqm, following sound increments in the previous quarters. 

“While the rental growth seen in the previous quarter appears to have stemmed from a large increase in the number of newly constructed units with above average rents, especially in the C5W, strong leasing demand in Q4/2022 seems to have paradoxically resulted in a contraction of average listed asking rents,” the report said.

Here’s more from Savills:

Indeed, as normalcy returns and demand, particularly from overseas residents, picks up, many of those newly completed premium units from the recent quarter have been taken up, while a below average number of new units have arrived to the market. 

Although a contraction in asking rents might appear to be a cause for concern at first glance, the contraction this quarter is more likely a positive demonstration of a recovery in leasing demand in the 23W from the difficult situation during the pandemic. 

The 23W has continued to see positive population growth between September and November 2022, in contrast to the same periods in 2020 and 2021 which saw the population decline. Like the previous quarter, this growth was mostly supported by a sizable increase in the foreign national population, which increased by about 16,000 people. On the other hand, the Japanese population of the 23W shrank by around 8,000 people. 

Overall, while the population of the 23W increased by 8,000 people, the number of households increased by 12,000 over the same period. This suggests that a majority of those moving out of the 23W are families, while many singles, both Japanese and non-Japanese, are moving in. Overall, this increase in population, and increase in the number of households is a strong sign for the 23W residential market, which traditionally catered to single-occupier households. 

The number of available listings has declined by more than a third - a notable drop from the previous quarter. When taking this into consideration with the rental decline observed, this suggests that the demand for quality units has likely seen a robust increment. 

In conjunction with the population that is likely to continue growing moderately over the next few months on the back of foreign nationals moving to Japan, overall residential demand should prove strong.