Whilst quarterly rental growth turned negative for the first time in almost a decade, most of this market weakness is centred in Shibuya

• In the central five wards (C5W), some weakness in the office market has emerged. Rents have contracted slightly and vacancy rates have expanded, led mostly by adjustments in Shibuya. Yet, the gravity of these changes remains manageable.
• Average Grade A office market rents in the C5W fell 1.1% quarteron-quarter (QoQ) but maintained growth of 2.8% year-on-year (YoY) and now stand at JPY37,421 per tsubo1 per month.
• The average Grade A office vacancy rate in the C5W slightly increased to 0.7% in Q3/2020.
• Average large-scale Grade B office rents declined to JPY28,511 per tsubo per month – a contraction of 0.5% QoQ, but growth of 2.2% YoY.
• The average vacancy rate in the Grade B market lies at 1.0% following a loosening of 0.3 percentage points (ppts) QoQ and 0.7ppts YoY.
• The material changes in the working environment may have taken some of the attention away from the potential economic hardships on the horizon. Nonetheless, for the time being, established Japanese corporates should have enough cash, and therefore time, to draw up a thorough office strategy.
• Going forward, flattish rental movement is expected to continue as both tenants and landlords maintain their waitand-see approach. Yet, we could see significant developments in 1H/2021 amid financial reviews in preparation for the new fiscal year, including leasing strategies.