With office vacancy rates in the 2% range, commercial tenants in Kyoto are reporting difficulty in finding new office space as the city’s supply of office buildings dwindles.

This year, parts of Higashiyama, Nakagyo and Shimogyo saw rosenka land values increase by over 20%. Rising land values are being supported by the city’s booming tourist industry which is causing real estate companies and hoteliers to aggressively seek sites to develop hotels and high-end apartments. With a scarce supply of vacant sites, office buildings are being torn down and replaced with hotels, shrinking office inventory.

Companies looking to set up branch offices in Kyoto are now having trouble sourcing available office space. Electronics company Ricoh, who is looking for office space for up to 200 staff for their Kyoto branch, recently reported not being able to find any suitable vacancies in central Kyoto. The company had to relocate from their current office in Shimogyo as the building is being demolished to make way for a new hotel. As a stop-gap measure, the company had to split the office staff over three different locations, each about a 15 ~ 20 minute walk from each other.

According to office brokerage Miki Shoji, the office vacancy rate in central Kyoto has gone from over 12% in 2010 to a current level in the 2% range. Rising land prices mean that office developments are less profitable and new office buildings are not being built. The historic city also has strict height limits and zoning regulations in place that limit the potential that can be obtained from a site.

Meanwhile, with an economic recovery underway companies are seeking to expand their office space and open up new branches, which is pushing up demand from office tenants. As a result, landlords have started to increase office rents.

Source: The Kyoto Shimbun, July 3, 2017.

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