Leasing activity recovering, pace of vacancy increase slows
On May 11, Colliers Japan released "Tokyo Office Market Q1 2022 review and outlook". This report is based on Colliers Japan's analysis of the rental office market and future outlook for Grade A office buildings*1 in the five main wards of Tokyo (Chiyoda, Chuo-ku, Minato-ku, Shinjuku-ku, and Shibuya-ku) based on data collected independently by Colliers Japan.
In Q1 2022, Tokyo’s central five ward rental market was active as relocation and expansion plans begin to progress. However, tenants are leasing less space as hybrid-working takes root, resulting in less space leased. As a result, demand is not yet strong enough to lower vacancy rates.
We recommend landlords and owners, become more flexible in adjusting contract terms, including ancillary terms, rather than simply lowering rents, as occupiers require less space. For occupiers, it is becoming easier to find the ideal offices for their needs. However, as rents have fallen over the past two years, rather than pursuing further discounts, we recommend occupiers reduce costs by adjusting ancillary terms, such as free rent periods and tenant improvements.
Emerging workplace trends suppress demand
While relocation and expansion plans that were pending over the last two years are moving forward and transactions are becoming more active, workplace designs based on a hybrid-working model combining working from home are gaining ground. An increasingly efficient use of office space and shrinking contracted space are also reflected in the slowdown in net absorption.
Vacancy rates levelling off, but demand below pre-Covid levels
Although office demand is showing signs of recovery, the shrinking space requirements have not translated into strong demand growth leaving vacancy rates flat. We forecast the post-Covid demand would be weaker than before due to more efficient use of space prevailing. Rents are falling, but we expect the rate to slow down or flatten, as many landlords are reluctant to further reduce rents and tend to prefer negotiating free-rent periods and other ancillary terms.
The vacancy rate flattens out, but disparity in trends by area become clearer
In general, the rise in vacancy rates has slowed and is levelling off. Rents are falling overall, but the extent of the fall varies from area to area. Marunouchi and Shibuya continue to outperform other areas.
*1 The Grade A office buildings surveyed were selected on our own criteria from office buildings for lease with a typical floor plate of approximately 300 tsubo or more.
