With the completion of several large-scale office buildings later this year, the total supply of new office space to hit the market in 2023 is going to be more than double what it was in 2022.
XYMAX Corporation’s research institute is forecasting a supply of 224,000 tsubo (740,000 sqm or 7.9 million sq.ft) of new office space this year. It is still below the peak of 275,000 tsubo supplied in 2020.
Between now and 2026, 75% of the office supply will centered in Chiyoda, Chuo and Minato, aka central Tokyo’s 3 wards. Adding in Shinjuku and Shibuya brings the total share to 86%. The average annual supply over the past 10 years has been around 159,000 tsubo. It is expected to drop to an average of 158,000 tsubo from 2023 to 2026.
Work styles have changed since the onset of the pandemic, and tenants are now favoring buildings that offer a variety of amenities, such as communal lounges and private booths for online meetings. These features are typically not found in older office buildings. Landlords are also mixing up the floor sizes on offer by splitting up some floors to attract small-to-mid sized corporate tenants.
And while the odds of completely leasing out a new building prior to completion may be lower, developers are taking this into account and allowing more time to fill their buildings with the right mix of tenants.
The phenomenon of secondary vacancies, where older buildings see increasing vacancies as the tenants move into newer ones, is starting to become apparent outside of the central 5 wards, with a growing divide between the high-demand buildings in prime locations, and the older, hard-to-fill buildings in second-tier locations.
Sources:
The Tokyo Shimbun, March 14, 2023.
Xymax, January 18, 2023.
