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- Investment-grade offices have seen sound rental growth, rising half-year-on-half-year (HoH) in Osaka, Nagoya, and Fukuoka. Vacancy also saw some improvements, falling in all markets.
- The all-grade office market performed well in 2H/2024, with rental growth experienced in all regional markets, as well as vacancy decreasing moderately in all markets aside from Sapporo.
- Grade A office cap rates stayed flat over the past half-year, but tightened slightly in Nagoya, Sendai, and Sapporo on an annual basis. Overall, cap rates remain relatively tight across all regional submarkets.
- Overall investment volumes as of Q3/2024 lag those of the same period in 2023 by nearly 20%. Nevertheless, the appetite for office space remains firm, with a 15% increase in office investments over the same period.
- Osaka, Fukuoka, and Sapporo have welcomed elevated levels of new office supply in 2024. Strong demand for modern office space in prime areas has contributed to sound absorption with limited issues.
- New supply in 2025 will be moderate overall, which should cause minimal fluctuation in the market.
- Heightened construction costs and labour shortages have caused some delays to new office developments, which should limit incoming supply, and help to stabilise the market further.
Elevated office supply in 2024 received well, raising prospects
Positive business sentiment and strong hiring needs continue to support office demand. The decrease in vacancy rates due to corporate expansion led to a reduction in availability, creating a scarcity and accelerating the absorption of vacant space. Despite the notable influx of new office space in 2024, regional markets responded well, ensuring only limited fluctuations. New supply will be limited in 2025, which bodes well for market stability moving forward.
Savills Research & Consultancy