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Greater optimism for gradual recovery

Conditions are picking up in the post-pandemic market, but further recovery may take time

Rental contractions have been gentle over the quarter, and vacancy has been low overall.
Average Grade A office rents in the C5W decreased by 0.7% quarter-on-quarter (QoQ) to JPY32,549 per tsubo per month, falling 2.2% year-on-year (YoY).
The average Grade A office vacancy rate in the C5W tightened by 0.9 percentage points (ppts) QoQ, but rose 0.3ppts YoY to 3.0%.
Average large-scale Grade B office rents increased slightly by 0.1% over the quarter to JPY24,483 per tsubo per month, translating to a decline of 2.6% YoY.
Vacancy rates in the Grade B market rose moderately by 0.4ppts over the quarter to 4.1%, to a yearly increment of 0.5ppts.
Small and medium-sized offices comprise a significant proportion of the market, and demand from tenants has remained mostly stable. Given that many such properties are likely in need of renovations, there should be multiple opportunities for savvy investors to enter the market.

Overall, the office market continues to see steady improvement going into 2023. Rental corrections have been gentle, and vacancy rates have dropped across the C5W. Indeed, pre-leasing activity has been firm, and some Japanese companies are expanding their office footprints. That said, some foreign companies are looking to return floor space, and the large amount of new supply might dampen recovery going forward.
Savills Research & Consultancy