Tokyo facing office space shortage in prime buildings

Office vacancy rates in central Tokyo’s business districts continue to shrink with Jones Lang Lasalle reporting almost no vacancies in the main office buildings in the Marunouchi district. After reaching a high of 9.43% in mid-2012, vacancy rates in Tokyo’s central five business districts were down to 3.03% last month – a level last seen in April 2008.

It’s not just Marunouchi that is suffering from a dire shortage in available office space, with prime high-rise buildings in Nihonbashi, Shinjuku and Shibuya also seeing demand outstrip supply. Tenant demand is being supported by improved business earnings and company growth, resulting in a need for larger office space to accommodate growing staff numbers.

Last month, software developer Saison Information Systems relocated their head office from Ikebukuro to the newly built Akasaka Intercity Air building in Minato-ku. Several of the company’s departments will now be located in the one building, allowing easier communication between staff. Although the rent is higher than their Ikebukuro office, the company decided it was a necessary investment in order to attract and retain talent.

In early 2017, there was a general consensus that office rents would peak by the second half of the year. However, rents have continued to increase with the average rent in November up 3.18% from last year and the 47th month in a row to record a year-on-year increase.

While there may be a number of large-scale office buildings due for completion in central Tokyo in 2018, some are already filling up with pre-bookings from tenants. With the current low vacancy rates, many share the viewpoint that rents may continue to show signs of increasing for the near future.

Sources:
The Nikkei Shimbun, December 7, 2017.
Miki Shoji.