Xymax Real Estate Institute

Office Market Report
Tokyo | Q2 2023
July 25, 2023

Summary

In Q2 (April–June) 2023, the office market of the 23 wards of Tokyo (“Tokyo 23 Wards”) remained flat
relative to the previous quarter, with the vacancy rate rising marginally and rent levels declining slightly.

The vacancy rate was 3.71%, up 0.03 pt from Q1 2023. The availability rate, which includes space forwhich a cancellation notice has been given and vacant space currently available (i.e., accepting tenant
applications), was 5.45%, down 0.19 pt from Q1 2023. In terms of the increase and decrease in vacant
space, the increase and the decrease were equal, both at 167,000 tsubo (1 tsubo = approx. 3.3 sqm). The
vacancy turnover ratio, the ratio of vacant spaces leased to tenants, dropped 2.8 pt from Q1 2023 to29.7%.

The new contract rent index, the level of new lease rent, was 89, down 1 pt from Q1 2023. The contract
rent diffusion index, the percentage of buildings with new lease rent that increased minus that ofbuildings with new lease rent that decreased, dropped 3 pt from Q1 2023 to -11, a negative territory forthe eleventh consecutive quarter.

The paying rent index, which includes new and existing rents, was 105, up 2 pt from Q1 2023.

The average number of free rent months among lease contracts with free rent was 3.6 months, theratio of free rent for two months or more was 39.3%, and that for six months or more was 11.5%.

Office Market Report | Tokyo | Q2 2023
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2023 Xymax Corporation. All rights reserved.

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FIGURE 1: VACANCY RATE & AVAILABILITY RATE
（ ALL SIZES ）Vacancy
Figure 1 shows the vacancy rate and theavailability rate.*1*2 The vacancy rate of Tokyo 23
Wards in Q2 2023 rose 0.03 pt from Q1 to 3.71%,
and the availability rate was down 0.19 pt at 5.45%.
The availability rate declined for the fourthconsecutive quarter as the increase in newoccupancy continued to outpace cancellation
notices. However, the change in both the vacancy
rate and the availability rate was small, indicatingthat there was no significant change from Q1 2023.
Since large-scale buildings are scheduled for

FIGURE 2: INCREASE AND DECREASE IN VACANCIES(23 WARDS , ALL SIZES )completion in the near future, we must continue tocarefully watch the impact of these projects.
*1

Availability rate: The sum of currently vacant space,
space for which a cancellation notice has been given,and space that is accepting tenant applications (beforethe previous tenant has left) divided by rentable space*2 For the rates by building size and area, see Vacant Office
Space Monthly Report Tokyo | June 2023, released on July
5, 2023.
https://www.xymax.co.jp/english/research/images/pdf/
20230705.pdf

Figure 2 shows the increase and decrease invacant space. The increase and decrease were equalin Q2 2023, both at 167,000 tsubo. While a chain ofvacancies associated with new supply occurred, suchvacancies were filled by demand for office expansion
FIGURE 3: VACANCY TURNOVER RATIO& relocation and sub-offices as employees began toreturn to offices and by short-term lease for BPO(business process outsourcing) purposes.
Figure 3 is the vacancy turnover ratio, the ratioof vacant spaces leased to tenants during thequarter to the total vacant office stock (vacant officestock at start of quarter + vacant space added
during the quarter). The ratio was 29.7% in Q2 2023,
down 2.8 pt from Q1.

Office Market Report | Tokyo | Q2 2023
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2023 Xymax Corporation. All rights reserved.

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FIGURE 4: NEW CONTRACT R ENT INDEXNew Contract Rent
Figure 4 is the new contract rent index, whichindicates the rent level for new lease contracts. The
index for Q2 2023 was 89, down 1 pt quarter onquarter and up 4 pt year on year. Having been rising
gradually over the past year as the impact of COVID19 abated and people began to anticipate thenormalization of economic activity, new rent
remained flat this quarter due to balanced supplyand demand.

FIGURE 5: NEW CONTRACT R ENT INDEX (BY SIZE )Figure 5 shows the new contract rent index bybuilding size. The index for large buildings with agross floor area (GFA) of 5,000 tsubo or more wasunchanged from Q1 at 88, and that for small &medium buildings with a GFA of 300–less than 5,000
tsubo was down 2 pt at 91. New rent levels for bothlarge buildings and small & medium buildings havebeen rising gradually or trending flat over the past
year, with no difference in trend by the size ofbuilding.
Figure 6 is the contract rent diffusion index (DI)FIGURE 6: CONTRACT RENT DI(the percentage of buildings with new contract rent
that increased compared to six months ago minusthat of buildings with decreased rent), whichindicates the direction of change in new contract
rent. In Q2 2023, the DI was -11, down 3 pt from Q1
and in negative territory for the eleventh
consecutive quarter. A negative DI means there are
more buildings with a rent decrease than those witha rent increase. After recording smaller negative
figures for the last two consecutive quarters, the DI
posted a larger negative figure this quarter. We
believe this to be due to building owners, who had
been raising asking rent, easing the pace of rent
rises as vacancy increases and decreases havebalanced out.

Office Market Report | Tokyo | Q2 2023
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2023 Xymax Corporation. All rights reserved.

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FIGURE 7: PAYING RENT INDEX

Paying Rent
Figure 7 shows the paying rent index, which
includes both new and existing lease rents. The
index lags new contract rent and has less volatility.
The index for Q2 2023 was 105, up 2 pt from Q1.
There were cases where rent rise negotiations weremade at the time of the lease renewal with tenants
who moved in when rent levels were relatively low,such as in 2020 at the height of the pandemic.

FIGURE 8: FREE RENTFree Rent
Figure 8 shows the percentage of new lease
contracts that granted free rent (FR) (ratio ofgranting FR) and the average free rent period(average FR months). In Q2 2023, the ratio ofgranting FR for one day or more was 48.3%, up 0.3
pt from Q1, that for two months or more was 39.3%,
up 0.3 pt, and that for six months or more was11.5%, down 0.7 pt. The average number of FRmonths among lease contracts with FR was 3.6, thesame as in Q1. With no significant changes in thevacancy rate or rent levels, FR also trended flat.

Market Cycle
FIGURE 9: MARKET CYCLE

Figure 9 plots the vacancy rate on the horizontal
scale and the new contract rent index on the verticalscale on a quarterly basis. It shows the cyclicality ofthe market, with the chart trending to the upper left
(vacancy down, rent up) in 2005, moving to thelower right (vacancy up, rent down) in 2008, andreturning to the upper left (vacancy down, rent up)
in 2010. In Q2 2023, both the vacancy rate and thenew contract rent index were flat, with the cycleroughly unchanged from Q1. The office market iscurrently calm, having remained in a range for thepast year since the downward trend that started inQ3 2020.

Office Market Report | Tokyo | Q2 2023
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2023 Xymax Corporation. All rights reserved.

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Reference

Office Market Report | Tokyo | Q2 2023
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2023 Xymax Corporation. All rights reserved.

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Xymax Real Estate InstituteFor further inquiries please contact below:
Xymax Real Estate Institutehttps://soken.xymax.co.jp | E-MAIL: info-rei@xymax.co.jp

Office Market Report | Tokyo | Q2 2023
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2023 Xymax Corporation. All rights reserved.

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