Tokyo Class A Office Vacancy Rates Dip for First Time in a Year

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According to CBRE, demand for office space in Tokyo remains stable across a wide range of sectors in 2017. One Grade A building was completed during the second quarter, with several large units still available. However, large floor plates were filled in the existing Grade A, albeit for relatively low priced buildings. As a result, the Grade A vacancy rate fell 0.5 points q-o-q to 3.7%, the first decline in four quarters.
 
CBRE further reports that companies retain a generally cautious stance towards rental levels. As a result, among precompleted Grade A buildings, some owners keen to raise occupancy by completion, have recently been more compromising on tenancy terms.
 
Meanwhile, in some new buildings that were completed with a relatively high level of occupancy, take-up for the remaining space is slow as the owners decided to be somewhat more aggressive on rent. That said, Grade A assumed achievable rents rose 1.0% q-o-q to JPY 36,300 per tsubo, as some of the buildings that were previously priced below the market average decided to raise their asking rents.
 
Grade B market remains buoyant. Grade B vacancy rate declined 0.4 points q-o-q to 1.7%, falling below 2% for the first time since March 2008. Grade B assumed achievable rents rose to JPY 21,000 per tsubo, recovering to levels last seen in Q3 2009.
 
Leasing is brisk at some soon-to-be-completed buildings. However, many pre-contracted tenants are relocating from existing buildings, which could be the cause of the overall rise in vacancy. Indeed, this was the main reason why the Grade A-Minus vacancy rate rose - albeit by just 0.1 points q-o-q - to 1.9% this quarter. With the high volume of new supply over the next couple of years, the buildings that are slow to let may have to lower their terms.
 
CBRE forecasts that Tokyo's Grade A office rents will peak in second half of 2017 and to gradually fall thereafter. Grade A rents as of the end of 2018 are forecast to be 4% lower than Q2 2017.