Kyoto’s shortage of office space is becoming critical as vacancy rates drop below 1%. With a booming tourist industry, developers have been focusing on building hotels, leaving very little supply of new offices.
In 2020, the city is expected to have over 53,000 hotel rooms, up from 30,000 hotel rooms in 2015. Meanwhile, there have been no new large-scale office buildings built since 2011. CBRE reported that Kyoto’s office vacancy rate in March 2019 was sitting at just 0.5%. Office rents have continuously reached new highs since 2017. Current monthly rents are around 4,326 Yen/sqm, a 26.5% increase over the past three years.
The owner of eight office buildings in the city centre reports a vacancy rate of 0% and a waiting list of future tenants. A property manager of two office buildings reports that any vacant spaces are quickly filled up before they even hit the market. In many cases, the tenants are existing companies in the same building that are looking to expand their floor space.
It’s not just Kyoto that is dealing with an office shortage. Miki Shoji reported that the vacancy rate in Tokyo’s central business districts was 1.64% in May – the lowest level seen in 29 years. Osaka had a vacancy rate of 2.45%, while Nagoya’s was 2.11%.
Kyoto City is looking at encouraging more office development through some potential height limit relaxations. One of the possible recipients of this height limit allowance is the area near Kyoto Research Park and Tambaguchi Station. If certain conditions are met, building heights for office and research buildings may be raised to 31 meters from their current limit of 20 meters.
A district south of Kyoto Station may also receive a boost in floor-area ratios of between 100 ~ 200% to encourage larger developments. This district is home to Kyocera and Nintendo headquarters.
The time required in developing new office space means that any increase in supply is not expected to come online for another two or three years. For the Shijo and Karasuma district, intense competition from corporations and a lack of new supply means the supply-demand balance is not expected to improve anytime soon.
The Nikkei Shimbun, June 17, 2019.
The Kyoto Shimbun, November 16, 2018.
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