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- Investment-grade offices in most markets have seen rents fall and vacancy rates rise, albeit at moderate levels.
- Rental growth in all-grade offices has flattened. Meanwhile, vacancy rates have noticeably loosened, though not to the extent seen in Tokyo.
- Affected by the pandemic, investment volumes in 2020 were 9% lower than those of 2019. Similarly, investment flows during Q1/2021 were limited, though this should increase as the economy recovers.
- Japan’s economy saw growth in Q4/2020 before contracting slightly in Q1/2021. With the acceleration of the vaccination program, however, a recovery is in sight.
- The pandemic has clearly shifted demographic trends, and as a result, fewer people are moving to central areas than in previous years. The full impact on the office market remains to be seen, however.
- The supply pipeline differs greatly from city to city. While the prospect of substantial supply exists, the presence of weak demand does not bode well for rental growth.
Regional markets have softened, but a turnaround is in sight
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GRAPH 1 | Investment-grade Office Performance, 1H/2021
COVID-19 has taken its toll on regional markets, with many seeing weakening rents and rising vacancy. That said, the expedited vaccination rollout should help spark an economic recovery later this year and increase demand for office space. For now, the prospects for each region will depend on demand and supply fundamentals.
Savills Research & Consultancy