Japan's Office Rents Continue to Rise in 2018

Reaching Record Highs in Some Japanese Cities

Global commercial property consultant CBRE is reporting this week that grade A vacancy rates haven fallen below one percent in Tokyo, while the cities of Osaka's grade A office rents are now at record high and Nagoya's office market vacancy rates are at a record low.

Tokyo 

Four Grade A buildings were completed this quarter almost fully let says CBRE, driven by demand for consolidation and-or upgrades. Spaces at existing buildings was also taken up during the quarter, and Tokyo Grade A vacancy rate fell 0.5 points q-o-q to 0.9%, dropping below 1% for the first time since Q2 2007.

The All-Grade vacancy rate declined 0.2 points q-o-q to 0.9%, a new record low. Very little space is left in recently completed Grade A buildings or those due for completion in 2018, and more than 70% of the space completing in 2019 is estimated to have been taken.

CBRE has marginally revised up its rental forecast as the pre-leasing ratio for upcoming Grade A buildings is higher than originally anticipated. Grade A rents are now forecast to increase by 1.5% over the next year, but will then decline by around 1.1% in the following year.

Osaka 

CBRE says this quarter saw the completion of one Grade A building in Osaka, which came to market with a high occupancy. Although the Grade A vacancy rate rose due to some vacancy in this building, it remains under 1%. Vacancy for both Grade B and All-Grade are at record lows. Rents continue to rise, with Grade A rents now at the highest since the survey began in 2005, and Grade B rents hitting JPY 13,000 for the first time in nine years. The new building this quarter provided was insufficient to alleviate the tight supply-market conditions. With the next phase of new supply not until 2020, rents are likely to rise even further, with CBRE forecasting a 4.6% rise in Grade A rents over the next year.

Nagoya 

CBRE is also reporting several large units of office space were taken up driven by expansionary moves and upgrades from the suburbs. Tenants also continued to expand within their existing buildings, taking up the little remaining available space.

The Grade A vacancy rate fell to a new record low of 0.6%. Vacancy rates for Grade B and All-Grade were both also record lows. Grade A rents rose by 2.0% q-o-q.

The coming quarters are likely to see some relocations by tenants due to demolitions of buildings for the development of the new linear Shinkansen station. This, combined with the lack of large-scale new supply in the pipeline, is expected to ensure Nagoya remains a landlord's market. CBRE forecasts a 2.8% rise in Grade A rents over the coming year.