Not only has Tokyo’s residential market been doing well over the past decade, but Tokyo’s office market is also sizzling and shows no sign of slowing down. According to Savills Japan’s latest office leasing report, rent prices are on a continuous upward trend, while vacancies in central Tokyo remain under the 1% mark — despite supply being at an all-time high and exceeding the historical average.

Tokyo’s office market is at an all-time high

As RETalk Asia reported earlier this year, in late 2018, vacancy rates fell to 0.7% for grade A offices (the highest grade of offices), and under 1% for all grades (usually A, B, and C grade offices are considered in reports on the office market). Newly constructed buildings quickly filled up and existing buildings maintained continuous high-occupancy rates. Rents were forecast to increase another 0.3% for Grade A offices in central Tokyo over the course of 2019.

The Savills Q2 2019 report for Tokyo shows that the forecasts were accurate and that the office market remains tight with strong growth potential. Grade A office space in the C5W (central 5 wards) saw an increase in rent of 7.3% year over year, while grade B office spaces now command 7.8% higher rents in the C5W. Grade A vacancies are almost at zero, while grade B spaces are standing at 0.4% in Q2 of 2019 for the 5 central Tokyo wards inside the Yamanote Line.

According to the Savills report, experts agree that the market may have peaked out now, but is expected to remain at its peak for a least the rest of the year, if not longer. Vacancy rates do not vary much among the five central wards, but rents show a bit of range. Overall, the highest demand is for large, open office spaces, favouring large floor plates..

Meet some of the players

Shared workspace providers like WeWork are among the biggest players in the upward office market trend, according to the Nikkei Asian Review. The company, founded only nine years ago, has seen exponential growth in Japan. Since 2018, the American share office company has opened 29 locations across Japan. Its rapid expansion was made possible by a local partnership with Japanese tech giant Softbank who has poured nearly JPY 1 trillion into the comapny to date. Following the trends described above, WeWork favours setting up its workspaces in large, upscale buildings in central Tokyo, offering a snazzy work environment – albeit at rates often twice as high as some of what its competitors offer. Another winner of the trend is long-established office giant IWG, formerly Regus, who is still the industry’s largest player.

By Mareike Dornhege

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