Tokyo’s office vacancies hit 27-year low

The average office vacancy rate across central Tokyo’s main business districts dropped to the 1% range in November, according to office brokerage Miki Shoji. This is the lowest rate since the end of the bubble economy in 1991 which saw a vacancy rate of 1.79%.

In November, the average vacancy rate across Chiyoda, Chuo, Minato, Shinjuku and Shibuya was 1.98%, down 1.05 points from last year and down 0.22 points from the previous month. The average rent, meanwhile, is up 8.81% from last year. This is the 55th month in a row to record a year-on-year increase in rent. The current rent is still about half of what it was in 1991.

Shibuya, sitting at 1.06%, has the lowest vacancy rate of the five wards.

With limited vacancies, larger corporations are finding it difficult to secure office space large enough to amalgamate their office functions into one building.

The completion of several large-scale office projects in central Tokyo in 2018 had experts initially forecasting a softening of the market for the year. As much as 600,000 sqm of new office space was supplied in 2018, triple the amount supplied in 2017. These forecasts were wrong with strong tenant demand for more central locations and larger office space requirements outstripping supply. There has also been a noticeable growth in demand from IT-related companies. 400,000 sqm of new office space is expected in 2019. Jones Lang Lasalle reports that as much as 80% of the new office space coming online in 2019 is already under lease.

The typical vacancy rate for a balanced office market in central Tokyo is said to be 5%.

Sources:
Miki Shoji Office Market Data for November 2018.
The Sankei Shimbun, December 14, 2018.
The Nikkei Shimbun, December 13, 2018.