Take-ups increase with more tenant enquiries nationwide
GDP Growth Q1 5pts BOJ Tankan DI (All Enterprises) Q1
Tokyo Grade A Rent Q1
Tokyo Grade A Vacancy Rate Q1
Tokyo: All-Grade vacancy rate drops for second straight quarter
‒ The All-Grade vacancy rate fell for the second straight quarter in Q1 2023, down 0 1 pp q-o-q to 4 6% While most newly completed buildings commenced operations with some vacancies remaining, vacant spaces in existing properties continued to be filled by tenants looking to upgrade or move to better locations. Net absorption reached 78,000 tsubo, the highest single quarter total since Q2 2020 Nonetheless, All-Grade rents fell by 0.3% q-o-q, with asking rents being lowered in buildings with prolonged vacancies.
Osaka: Vacancy rate projected to remain steady until end of year
‒ The All-Grade vacancy rate rose by 0.1 pp. to 3.6% this quarter. Several of the new buildings completed in Q1 2023 came on stream with significant vacancies, but absorption of vacant spaces in existing buildings ensured overall vacancy did not rise substantially The absence of new supply meant Grade A vacancy fell for the second straight quarter All-Grade rents declined by 0 2% q-o-q, with rents being lowered in buildings with prolonged vacancies.
Nagoya: Vacancy rates fall across all grades
‒ The All-Grade vacancy rate slipped by 0.2 points q-o-q to 5.5% in Q1 2023, the second consecutive quarter decline. The absorption of vacancies in high-end spaces following lowering of asking rents was the primary factor behind this downward trend. As a result of relocations for the purposes of upgrading, expansion, or locational upgrades, vacancy rates fell across all grades. All-Grade rents fell by 0 2% q-o-q because of properties with relatively large vacancies lowering their asking rents.
Regional cities: Vacancy rates rise in cities with new supply
‒ All-Grade vacancy rates rose q-o-q in five of the 10 cities surveyed by CBRE, falling in the other five Other than Kobe, all cities which recorded rise in vacancy rate saw new buildings come on stream at less than full occupancy All-Grade rents fell q-o-q in four of the 10 surveyed cities, remained unchanged in two, and rose in the remaining four. With tenants remaining highly selective, landlords continue to offer rent-free periods or lower asking rents in order to secure new tenants.
Source: CBRE, Q1 2023
Tokyo
All-Grade vacancy rate drops for second straight quarter
The All-Grade vacancy rate fell for the second straight quarter in Q1 2023, down 0 1 pp q-o-q to 4.6%. As was the case in the previous quarter, the fall in vacancy was driven by companies moving to new premises in better locations or higher-grade buildings. New supply this year is slated to reach 240,000 tsubo, some 40% above the annual average over the past ten years. Of this, 69,000 tsubo came on stream in Q1 2023 most of which were left with some vacant space. While existing buildings also saw some new vacancies, net absorption reached 78 000 tsubo, the highest single quarter figure since Q2 2020 The Grade A-minus category saw the strongest absorption of existing vacancies, with vacancy dropping to its lowest level since Q3 2020 This is in line with the fact that Grade A-minus has registered the largest drop in rents over the past year, leading to more buildings now being seen as providing good value While tenants are still highly selective, they retain a robust appetite for new space to improve their office environment, with enquiries on the rise across the board, particularly from domestic companies At the same time, however, the decline in demand for office space among western multinational corporations, which began late last year and had previously been confined to the finance sector, has now spread to other industries including IT Some of these companies are looking to reconfigure their current office footprint or cancel current lease contracts. Pre-leasing of Grade A office buildings which are still under construction, previously driven by strong demand from western companies, has also slowed in recent months. With buildings expected to commence operations with vacancies, CBRE projects vacancy rate to rise again in the coming quarters.
Grade A rents fell by 0 4% q-o-q to JPY 34 550 per tsubo in Q1 2023 on the back of asking rents being lowered in buildings with prolonged vacancies. With major new supply slated for the rest of the year, landlords are likely to have to reduce rents to attract tenants CBRE forecasts Grade A rents to drop by 2.7% over the next 12 months.
Osaka
Vacancy rate projected to remain steady until end of year
The All-Grade vacancy rate was up 0 1 pp q-o-q to reach 3 6% in Q1 2023, largely because of significant vacancies in some of the newly completed buildings At the same time, however, the steady absorption of vacancies in existing buildings ensured that the increase in the vacancy rate was moderate With no new supply completed this quarter, vacancies in the existing Grade A category were taken up, leading to a second straight quarter of drop in vacancy, which slid by 0 1 pp q-o-q to 4 2% Corporate appetite for office upgrading remains strong, with units in buildings across all grades leased by companies looking to improve
both the quality and location of their office. Several cases of companies relocating from ageing self-owned buildings were also observed this quarter, along with relocations for the purposes of expanding office space Units in buildings seen as offering good value for money for their location and those that are able to be subdivided were leased up relatively quickly over the quarter However, other buildings are being left vacant as a result of these relocations With no new supply planned for the rest of 2023, however, vacancies in existing buildings should continue to be filled, ensuring that overall vacancy remains largely unchanged That said, with approximately 100,000 tsubo of new office space across all grades slated for completion in 2024, the vacancy rate should begin to climb again from next year
Average rents for the quarter fell by 0 6% q-o-q to JPY 24,100 for Grade A buildings, and by 0 3% q-o-q to JPY 14,700 for Grade B buildings, with rents continuing to be lowered in buildings with prolonged vacancies. As this trend is set to continue for some time, CBRE projects rents to drop by a further 1.5% for Grade A and by 1.7% for Grade B over the next 12 months
Nagoya
Vacancy falls across all grades
The All-Grade vacancy rate fell for a second straight quarter in Q1 2023 down 0 2 pp q-o-q to 5 5% This was primarily a result of vacancies being filled in higher-end buildings, for which rents have been progressively lowered since the second half of last year, to the point where tenants now believe they offer good value for money. Just one medium-sized building was completed during the quarter, commencing operations at less than full occupancy While some new vacancies also appeared in existing buildings as a result of downsizing, net absorption was sufficiently high to ensure vacancy rates fell across all grades. During the quarter, a comparatively large number of tenants relocated in order to upgrade, expand, or move to better locations. There were also several cases involving companies moving to buildings with significant available space in order to accommodate potential future expansion. However, concerns over a global economic slow down has led an increasing number of corporations to adopt a more conservative stance with respect to their office strategies It is therefore possible that leasing activity may begin to slow in the coming months. With significant new supply due for completion in H2 2023, vacancies are likely to appear in existing buildings. These factors should combine to push vacancy rates up once again.
Rents fell by 0.2% q-o-q to JPY 26,450 for Grade A office buildings, but remained unchanged for the third straight quarter at JPY 14,300 for Grade B buildings. As the supply-demand balance weakens, rents are likely to continue to be adjusted downward for all grades CBRE projects rents to fall by 2 8% in the Grade A category and 1 0% in the Grade B segment over the next 12 months
Regional cities
(Sapporo/Sendai/Saitama/Yokohama/Kanazawa/Kyoto/Kobe/Takamatsu/Hiroshima/Fukuoka)Vacancy rates rise in cities with new supply
All-Grade vacancy rose q-o-q in five of the 10 cities surveyed, and fell in the other five. Other than Kobe, all cities which recorded rise in vacancy rate saw new buildings come on stream at less than full occupancy. Increases of over 2.0 pp. q-o-q were observed in Yokohama and Fukuoka, as a result of both cities witnessing the completion of new supply equivalent to at least 4% of existing stock. While tenant activity remains robust nationwide for smaller units of less than 100 tsubo, interest in larger units is subdued. In Yokohama, the period saw a number of large-scale vacancies arise because of corporate downsizings. In contrast, vacancies in existing buildings in cities without any new supply continued to be filled. In a continuation of the trend from the previous quarter, a number of relocations were recorded in Sapporo for the purposes of floor space expansion or as a result of redevelopment plans. Demand was also observed from call centers and companies relocating from suburban areas As a result, Sapporo’s vacancy rate fell below 1% the lowest among all the cities under our coverage Significant leasing activity was registered in Saitama this quarter, both in terms of new developments and relocations to expand floor space or to move to superior sites Significant vacancies were absorbed in large office buildings, lowering the overall vacancy rate in the city by some 1 1 pp q-o-q
Tenants remain highly selective
All-Grade rents for Q1 2023 fell q-o-q in four of the 10 surveyed cities, remained unchanged in two, and rose in the remaining four In addition to cities such as Yokohama and Fukuoka, where new supply came on stream this quarter, rents also fell in Kanazawa, where significant vacancies continued to be observed in relatively new buildings Although tenant enquiries are up across the country, prospective tenants remain extremely selective with respect to building criteria. Owners are offering rent-free periods or lower asking rents in order to attract tenants. Meanwhile, Sapporo continues to experience a tight supply-demand balance, which ensured rents increased for the sixth straight quarter.
Tokyo Grade A
Tokyo Grade A-Minus
Tokyo Grade B
Tokyo All-Grade
Osaka Grade A
Osaka Grade B
Osaka All-Grade
Nagoya Grade A
Nagoya Grade B
Nagoya All-Grade
Building Grade Definition
All-Grade
tsubo or more 7,000 tsubo or more 2,000-7,000 tsubo 2,000 tsubo or more 1,000 tsubo or more
Typical floor plate: 500** tsubo Greater than 250 tsubo Greater than 200 tsubo (except Grade A) (except Grade A & GradeA-Minus) (except Grade A)
Age Generally less than 15 years
Other Landmark status, specifications, etc.
Terms and Definitions
Space Measurement 1 tsubo=3.3058 square meters=35.58 square feet
Surveyed Buildings
Buildings satisfying the 1981 anti-seismic standards
*Central 5 Wards: Chiyoda Ward, Chuo Ward, Minato Ward, Shinjuku Ward, Shibuya Ward **350 tsubo for Osaka and Nagoya
Tokyo
Meiji Yasuda Seimei Building 2-1-1 Marunouchi, Chiyoda-ku
Tokyo
Osaka
Grand Front Osaka 4-20, Ofuka-cho Kita-ku Osaka-shi, Osaka
Sapporo
Nihon Seimei Sapporo Building 4-1-1 Kitasanjonishi, Chuo-ku
Sapporo-shi Hokkaido
Sendai
Kanazawa
Aube II Building 5-177 Kuratsuki, Kanazawa-shi, Ishikawa
Nagoya
Miyuki Building 3-20-27 Nishiki
Naka-ku Nagoya-shi
Aichi
Hiroshima
Shishinyo Building 3-17
Fukuromachi Naka-ku
Hiroshima-shi Hiroshima
Fukuoka
Office buildings for lease located in office markets in 13 major cities nationwide, with gross floor area of 1,000 tsubo or more and compliant with the new earthquake resistance standards.
Surveyed Period Quarterly Vacancy rate: (1) End of March (2) End of June (3) End of September (4) End of December Quarterly Assumed achievable rents: (1) End of March (2) End of June (3) End of September (4) End of December
Vacancy Rate Vacancies are those that are ready to receive tenants at time of survey
Assumed Achievable Rent Assumed achievable rent of floorplate (including common area maintenance fee)
New Supply Net lettable area of buildings completed during each period
Net Absorption Difference between occupied floor space (floor space used by tenants) in a given period and that of the previous period
Number of Grade A Buildings Tokyo: 97 Osaka: 29 Nagoya: 11 (as of Q1 2023)
Contacts
Hiroshi
Yuji
Yoshitaka Igarashi Director yoshitaka.igarashi@cbre.com
Kumiko Ninomiya Analyst kumiko.ninomiya@cbre.com
Sendai Mark One 1-2-3 Chuo, Aoba-ku Sendai-shi, Miyagi
Yokohama
Yokohama ST Building 1-11-15
Kitasaiwai, Nishi-ku Yokohama-shi, Kanagawa
Fukuoka Center Building 2-2-1
Hakata-Ekimae
Hakata-ku, Fukuoka-shi, Fukuoka
To learn more about CBRE Research, or to access additional research reports, please visit the Insights & Research at Insights&Research
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This report has been prepared in good faith, based on CBRE’s current anecdotal and evidence based views of the commercial real estate market Although CBRE believes its views reflect market conditions on the date of this presentation, they are subject to significant uncertainties and contingencies, many of which are beyond CBRE’s control In addition, many of CBRE’s views are opinion and/or projections based on CBRE’s subjective analyses of current market circumstances Other firms may have different opinions, projections and analyses, and actual market conditions in the future may cause CBRE’s current views to later be incorrect CBRE has no obligation to update its views herein if its opinions, projections, analyses or market circumstances later change
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