Strong competition for space is driving vacancies down to near pre-pandemic lows.

• Both Grade A and large-scale Grade B offices have enjoyed steady improvements in rent and vacancy rates and are gradually inching towards pre-pandemics lows.
• Average Grade A office rents in the C5W rose by 3.2% quarter-on-quarter (QoQ) and 10.8% year-on-year (YoY) to JPY36,882 per tsubo per month.
• The average Grade A office vacancy rate in the C5W tightened by 0.8 percentage points (ppts) QoQ and 2.4ppts YoY to 0.7%.
• Average large-scale Grade B office rents rose by 4.6% QoQ and 11.1% YoY to JPY27,957 per tsubo per month.
• Vacancy rates in the large-scale Grade B market increased marginally by 0.1ppts QoQ but decreased 1.4ppts YoY to 1.5%.
• Large new supply is being met with strong demand, with large completions entering the market at high or full occupancy due to strong pre-leasing activity.
• As the availability of new modern offices becomes limited, leasing for upcoming large completions should stay strong, drawing tenants to the lagging bay areas.
• Spillover demand for office space into Tokyo's 18W and the Greater Tokyo area is expected to drive rental growth, albeit at a more moderate pace.