- Changes in the investment-grade office market have been moderate, with rents rising year-on-year (YoY) in Nagoya but contracting YoY in Osaka and Fukuoka. Meanwhile, vacancy loosened in Fukuoka and Nagoya, but tightened in Osaka.
- All-grade office rental performance was largely positive over the past year. Rents in Sapporo increased by a notable margin, while all other regional markets experienced moderate increments.
- Osaka and Sendai saw further cap rate compression in 2H/2023, and all other regional submarkets remain relatively tight.
- Year-to-date (YTD) investments in office assets as of Q3/2023 declined by nearly 40% compared to the same period in 2022, while overall transaction volumes also contracted at a milder rate of 20%.
- New supply has been moderate across most submarkets, but absorption appears to take more time. This was especially the case in Fukuoka, which welcomed particularly large amounts of new office space in 1H/2023.
- The spotlight will be on Osaka in 2024, with massive amounts of new office supply scheduled for completion. A majority of upcoming developments will have high target rents, and observers should expect noticeable fluctuations in the Osaka market.
Moderate growth to continue, with some weaknesses in absorbing upcoming supply
The performance of regional office markets in Japan continues to improve as overall business sentiment recovers and office participation increases. However, some concerns persist regarding the strength of leasing demand in certain markets, given the lukewarm absorption of some pricey new additions and the incoming large office supply in 2024, which may cause some disruptions in the market.
Savills Research & Consultancy