Xymax Real Estate Institute

Office Market Report
Tokyo | Q3 2019
November 6, 2019

Summary

In Q3 (July–September) 2019, the Tokyo 23 Wards’ office market saw a drop in vacancy rate for the firsttime in two quarters as demand for office space remained strong and existing vacancies were filledpromptly. The rising trend of new contract rent has continued.



The vacancy rate was 0.79%, down 0.08 points from the previous quarter. In terms of the increase anddecrease in vacancies, the decrease exceeded the increase for the first time in two quarters, as 77,000
tsubo (1 tsubo = 3.3 sqm) increased and 86,000 tsubo decreased. The vacancy turnover ratio, the rate ofdecrease in vacant office stock, dropped 1.0 point from the previous quarter to 49.7%.

The new contract rent index, the level of new lease rent, was 135, +8 from the previous quarter. The
contract rent diffusion index, calculated by subtracting the percentage of buildings with a new rent
decrease from that of buildings with a new rent increase, remained above zero for the eighteenth
consecutive quarter at +40.

The paying rent index, which includes both new and existing rents, was 98, +2 from the previous quarter.



The average free rent months of lease with free rent was 1.6 months and ratio of free rent offered was
45.9%, indicating that free rent has become common in the market.

Office Market Report | Tokyo | Q3 2019
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 © 2019 Xymax Corporation. All rights reserved.

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Vacancy

Figure 1: Vacancy Rate (by Area)

Figure 1 shows the vacancy rates in the Tokyo 23

Tokyo 23 Wards
Tokyo 5 Central Wards
Tokyo 18 Peripheral Wards

10%

Wards, five Central Wards (Chuo, Chiyoda, Minato,

8%

Shibuya, and Shinjuku Wards), and 18 Peripheral

6%

Wards since 2011. The rate in Q3 2019 dropped 0.08

4%

points in the 23 Wards to 0.79%, rose 0.03 points in2%

the five Central Wards to 0.62%, and dropped 0.41

0%points in the 18 Peripheral Wards to 1.36%.
Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Tokyo 23 Wards

1.10%

0.87%

0.81%

0.87%

0.79%

Tokyo 5 Central Wards

0.84%

0.69%

0.55%

0.59%

0.62%

Tokyo 18 Peripheral Wards

1.92%

1.46%

1.65%

1.77%

1.36%

Companies’ needs for expanding their offices
remains high, leading to record low vacancy rates in
the 23 Wards and the 18 Peripheral Wards.
The reasons for the drop in vacancy rates include
demand for office space regardless of location or

Figure 2: Vacancy Rate (by Size)
All Buildings

Large Buildings

age and formerly occupied spaces being filled from

Small & Medium Buildings

within the building without going on the market.

12%

10%
8%
6%

Figure 2 is the vacancy rates of all sizes of4%

buildings, large buildings (gross floor area (GFA):

2%5,000 tsubo or more), and small & medium buildings

0%(GFA: less than 5,000 tsubo) in the Tokyo 23 Wards
since 2011. In Q3 2019, the rate dropped in both
Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

All Buildings

1.10%

0.87%

0.81%

0.87%

0.79%

Large Buildings

0.86%
1.36%

0.70%
1.06%

0.68%
0.95%

0.79%
0.96%

0.73%
0.86%

Small & Medium Buildings

large buildings and small & medium buildings
quarter on quarter by 0.06 points and 0.1 points to
0.73% and 0.86%, respectively.

Figure 3: Increase and Decrease in
Vacancies (23 Wards, All Sizes)(tsubo)Increase

Decrease

Vacancy Rate (right scale)

4000009%3500008%3000007%6%2500005%2000004%1500003%100000

2%

50000

1%

0

0%

Figure 3 shows the increase and decrease invacancies. The increase was 77,000 tsubo and thedecrease was 86,000 tsubo in Q3 2019. The decrease
exceeded the increase for the first time in twoquarters, as vacancies of existing properties werealso promptly filled.
Both increases and decreases in vacancies werelarger than the previous quarter as several large
office buildings were completed in Q3 2019 andwere fully occupied at the time of completion.

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Increase

126,000

88,00098,00063,00077,000Decrease

147,000

113,000

106,000

60,00086,000Vacancy (right scale)

1.10%

0.87%

0.81%

0.87%

0.79%

Office Market Report | Tokyo | Q3 2019
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 © 2019 Xymax Corporation. All rights reserved.

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Figure 4 shows the vacancy turnover ratio (four-

Figure 4: Vacancy Turnover Ratio(4-quarter moving average)

quarter moving average), the rate of vacancies
leased to tenants during the quarter to all the vacant

50%
40%

Q3 201949.7%

30%

office stock (vacant office stock at the start of thequarter + vacancies added during the quarter).

20%

Although the ratio in Q3 2019 was down 1.0 point

10%

quarter on quarter to 49.7%, it remains at a high0%level. With the ratio trending at around 50% over the
past year, vacancy turnover in the office market still

Vacancy TurnoverQ3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

49.6%

53.6%

53.6%

50.7%

49.7%

New Contract Rent

Figure 5: New Contract Rent Index

Figure 5 is the new contract rent index, the index

Q2 2008
161

180
160

of new lease rent levels. The index for Q3 2019 was
Q3 2019
135

140
120

Q1 2010
100

100
80

135, up 8 points from the previous quarter and up
13 points year on year. New rent has been risingsince Q2 2012. Due to an extremely low vacancy ratein the Tokyo 23 Wards and a shortage of vacant

Q2 201276

60

seems to be active.

office stock in the market, some borrowers evenoffered to pay a level of rent that was higher than

New Contract Rent Index

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

122

123

123

127

135

Figure 6: New Contract Rent Index (by Size)
200

the asking price to secure office space for which
several tenants had applied to rent.
Figure 6 shows the new contract rent index bysize of building. The index for large buildings with a
GFA of 5,000 tsubo or more rose 9 points to 127,

180

160

while that for small & medium buildings with a GFA

140
120

of less than 5,000 tsubo rose 10 points from the100

previous quarter to 135. The rising trend since Q280602012 has continued in both sizes of buildings.
Small & Medium (GFA less than 5,000 tsubo)

Large (GFA 5,000 tsubo or more)

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Large Buildings

124

118

119

118

127

Small & Medium Buildings

124

123

122

125

135

Office Market Report | Tokyo | Q3 2019
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 © 2019 Xymax Corporation. All rights reserved.

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Figure 7 is the contract rent diffusion index (DI)Figure 7: Contract Rent DI(the percentage of buildings with rent rises minus

Rent increased (percentage of buildings) (left scale)
Rent decreased (percentage of buildings) (left scale)the percentage of buildings with rent declines),

Contract Rent DI (right scale)Contract Rent DI (four-quarter moving average) (right scale)

100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
-80%
-100%

100
80
60
40
20
0
-20
-40
-60
-80
-100

Q3 201940

Q3 200751

Q2 2009-75

Contract Rent DI

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

23

23

19

34

40

Figure 8: Paying Rent Index
120

there were more buildings with a higher new rent
from six months ago than those with a lower rent.
The DI has remained above zero for 18 consecutive
quarters.

includes both new lease rents and existing lease rents.
The index in Q3 2019 was 98, up 2 points from Q2Q1 2010100

2019 and up 7 points year on year. The upward trend

80

since Q3 2013 has continued. There continue to be

Q3 201377

70

points from the previous quarter. This indicates that

Figure 8 shows the paying rent index, which

Q3 201998

100
90contract rents. The DI in Q3 2019 was +40, up 6

Paying Rent

Q1 2009
105

110

which indicates the direction of changes in new

many lenders that aggressively raise rent when the60

contract is renewed on the back of a shortage of
Paying Rent Index

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

91

91

94

96

98

vacancies in the market and rises in new rent.

Free Rent
Figure 9: Free Rent
Free Rent Granted(left scale)
Average Free Rent
(right scale)100%

Figure 9 indicates the percentage of new lease
1 day or more (%)

contracts with free rent to all new lease contracts

2 months or more (%)

6 months or more (%)(ratio of free rent offered) and the average free

New lease contracts with free rent (month)
All new lease contracts (month)

7
6
5
4
3
2
1
0

80%
60%
40%
20%
0%

rent period (average free rent months). In Q3 2019,the average free rent months were 3.6 months forleases with free rent, an increase of 0.1 months fromQ2 2019, and 1.6 months for all new leases, 0.1
months shorter than the previous quarter.
The ratio of free rent offered, which had been

Ratio ofFree Rent
GrantedAverage
Free Rent
Months

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

1 day +

50.8%

51.0%

46.3%

47.3%

45.9%

2 mon. +

37.5%

35.3%

31.4%

33.0%

31.0%

6 mon. +

4.2%

7.9%

8.2%

11.8%

12.8%

All

1.5

1.5

1.5

1.7

1.6

w/ FR

2.9

3.0

3.2

3.5

3.6

dropping since 2011, has remained flat since around2016, indicating that the custom of offering free rent
has spread across the market. Furthermore, as rent
levels have continued to rise, some lessors offer freerent for a relatively long period of time as a result of
negotiations.

Office Market Report | Tokyo | Q3 2019
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 © 2019 Xymax Corporation. All rights reserved.

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Xymax Real Estate InstituteMarket Cycle

Figure 10: Market Cycle

Figure 10 plots the vacancy rate on the horizontal

180

140

axis and the new contract rent index on the vertical

Q2 2008160

axis on a quarterly basis. It shows the cyclicality of

Q3 2019

the market, with the chart trending to the lower

Q1 2001

120

right in 2001 (vacancy up, rent down), remaining flat

Q2 2003100

in 2003–2004, then trending to the upper left in

80

Q2 2012

60
0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Vacancy Rate

1.10%

0.87%

0.81%

0.87%

0.79%

New Contract Rent Index

122

123

123

127

135

Note: The vacancy rate before March 2011 is based on data by a major leasing agent.

2005 (vacancy down, rent up) and to the lower rightagain in 2008 (vacancy up, rent down).
The office rental market entered a recovery phasein 2013, with the trend continuing in Q3 2019. The
chart moved to the upper left due to a mild drop in
the vacancy rate and a rise in rent.

Office Market Report | Tokyo | Q3 2019
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 © 2019 Xymax Corporation. All rights reserved.

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Reference
Figure 11: Major Building Completions (Q3 2019)
FloorsName

Total floor

Above Ground /Ward

Address

Completion

Below Groundarea(tsubo)The Okura Prestige Tower

41/1

Minato2-10-4 Toranomon

2019/0746,283

Sumitomo Fudosan Shinjuku Central Park Tower

33/2

Shinjuku 6-18-1 Nishi-Shinjuku

2019/08

18,307

Link Square Shinjuku

16/2

Shibuya

5-27-5 Sendagaya

2019/08

13,237

Sumitomo Fudosan Akihabara Ekimae Bldg.

21/2

Chiyoda 4-2 Kanda Neribeicho

2019/08

9,317

Shibuya Scramble Square East Bldg.

47/7

Shibuya

2019/08

54,7532-24-12 Shibuya

Source: Complied by Xymax Real Estate Institute based on information released by the companies.

Figure 12: Major Office Relocations (Q3 2019)
Company

From

To

Unosawa Tokyu Bldg.

Toranomon Towers Office

Shibuya Ward

Minato Ward

Nippon Dry-

Trade Peer Odaiba

Tabata ASUKA Tower

ChemicalMinato Ward

Kita Ward

OKWAVE

Ebisu Prime Square
Scala

Tower
Shibuya WardJapan Tobacco

Shibuya Hikarie
Shibuya Ward

JT Bldg.

Kamiyacho Trust Tower

Minato Ward

Minato Ward

Month
Year
Jan. 2020Feb. 2020Feb. 2020

Jan. 2021

PurposeGreater
efficiency
Greater
efficiency
Floor
consolidation
Greater
efficiencySize(tsubo)
464
650

380

5,800

Source: Complied by Xymax Real Estate Institute based on information released by companies.
The sizes of office space are estimates.

Office Market Report | Tokyo | Q3 2019
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 © 2019 Xymax Corporation. All rights reserved.

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Survey Overview
Increase and Decreasein Vacant Space

Vacancy Rate

Description

Main Point

A quarterly increase and a quarterly decrease The ratio of the vacant space leased during
Office rent index based on new contract rents.
in volume of vacant space in the market.
the quarter to all the vacant office stock in the This index uses a statistical method to remove
market.
property-specific influences such as size andage of buildings.

Supply and demand balance in the market

Supply and demand balance in the market

GFA 300 tsubo or more

GFA 300 tsubo or more

GFA 300 tsubo or more

Every Quarter
Data of available vacant spaces andData of available vacant spaces andData of available vacant spaces andData of new contract rents including CAM
buildings. Independently collected by Xymax. buildings. Independently collected by Xymax. buildings. Independently collected by Xymax. charge. Independently collected by Xymax.
8,496 buildings

4,286 contracts• Vacancy rate
= vacant space ÷ rentable space• Vacant Space
Total available vacant space in completedbuildings as of the time of the research.

How toCalculate

Level of contract rents

Tokyo 23 Wards
GFA 300 tsubo or more

ReleaseData Used in
Recent Quarter

Supply and demand balance in the market

Office Building

MarketData Source

New Contract Rent Index

Vacant space versus total office stock in themarket.

SectorBuilding Size

Vacancy Turnover Ratio• Increase in volume of vacant spacea. Space in existing buildings formerly
occupied by tenantsb. Total rentable area of new completions• Decrease in volume of vacant spacea. Space in existing buildings leased under a• Rentable Space
new agreement
Rentable space of completed buildings as of b. Space in new completions but lease is
the time of the research.
signed prior to the completionc. Space that had been vacant but the owner
Where rentable space is not available, thedecided not to leaserentable space is estimated from the grossfloor area of the building using the formula
Where rentable space is not available, thedeveloped in the joint study with therentable space is estimated from the grosslaboratory of Professor Naoki Kato at Kyoto floor area of the building using the formula
University Graduate School of Engineering.
developed in the joint study with thelaboratory of Professor Naoki Kato at Kyoto
University Graduate School of Engineering.

Contract Rent DI

4,286 contracts

520 contracts• Vacancy Turnover Ratio= Volume of vacant space leased during thequarter ÷ (Initial vacancy + Vacancy added
during the quarter)
Then, compute the four-quarter moving
average amount with the ratio derived fromthis formula.

1) Develop a rolling hedonic model(overlapping period: five quarters) based on
the collected new contract data withproperty-specific factors as variables(location, building size, building age,facilities, date of signing of lease, etc.).

2) Estimate the quarterly contract rent by• Volume of vacant space leased during theassigning the values of a typical building toquarter: Same as the "decrease in volume of the model developed in the preceding step.
vacant space).
• Initial vacancy: Total volume of completed 3) The New Contract Rent Index is the rent
buildings that are available for lease as of the estimated in the preceding step based on Q1start of the quarter.
2010 as the base point (=100).
• Vacancy added during the quarter: Same as
the "increase in volume of vacant space"
This model shows changes in new contract
rents after removing property-specificvariables.

Paying Rent Index

Free Rent Granted (%) &Average Free Rent (Month)

Description

Index of changes in new contract rents. Calculated bycounting and comparing the buildings where rent has
increased and those where rent has decreased.

Index of changes in paying rents (new and existing contract Distribution of free rent and average length of free rent
rents).
period. Free rent is the time lag between the start of thecontract and the start of the rent payment.

Main Point

Direction of contract rent trends

Level of rents paid by tenantsTokyo 23 Wards

MarketBuilding SizeAll

Data Used in
Recent Quarter

How toCalculate

GFA 300 tsubo or moreAll

Every Quarter

ReleaseData Source

Market trends that are not reflected in contract rents

Office Building

SectorData of new contract rents including CAM charge.
Independently collected by Xymax.
647 contracts

Data of new and existing contracts signed for buildings
under management by Xymax.
4,078 contracts

Data of new contracts signed for buildings undermanagement by Xymax.
281 contracts

1) Compare the data of new contract rent per tsubo with
1) Calculate the rent per tsubo of each tenant from the data • Free Rent Periodthat in the 6-month prior period in the same building.
of new and existing lease contracts and memorandums.
The period between the start of the contract and the start
Each contract was counted separately into three categories: 2) Develop a rolling hedonic model (overlapping period:of the rent, shown in number of days.
buildings withfive quarters) based on the rents calculated in the• Ratio of Free Rent Granted"rent increase”,
preceding step (the "paying rent") with property-specific
The ratio of contracts with free rent in all the new"no change” orfactors as variables (location, building size, building age,contracts (excl. contracts for expansion within the building“rent decrease”
facilities, date of signing of lease, etc.).
and recontracts)
3) Estimate a quarterly contract rent by assigning the values • Average Free Rent (Month) of All the Contracts2) Calculate the percentage of buildings with “rentof a typical building to the model developed in the
The simple average of the free rent period including leasedecrease” and buildings with “rent increase”.
preceding step.
contracts with no free rent.
4) The Paying Rent Index is the rent estimated in the• Average Free Rent (Month) of Contracts with Free Rent
3) Subtract the percentage of buildings with “rent decrease” preceding step based on Q1 2010 as the base point (=100). The simple average of the free rent period of leasefrom the percentage of buildings with “rent increase”. This
contracts with free rent.
outcome is the Contract Rent Diffusion Index (DI).
With this method, influences from replacement of sample
data and deterioration of buildings over age are removed In some cases, the rent agreed in a lease contract includes
from the result.
CAM charge, and then, for a certain period of time, the rent
is reduced to the CAM charge equivalent or closer level, butsuch contracts are excluded from this research.

Office Market Report | Tokyo | Q3 2019
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 © 2019 Xymax Corporation. All rights reserved.

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Appendix: Xymax REI Research Updates (August – October 2019)
Compilation of Best Practices of Small & Medium-sized Buildings (1)September 24, 2019

・ This report is a compilation of best practices, or examples of prominent initiatives, collected through questionnaires
and interviews with owners of small and medium-sized buildings who lease out their buildings.

Real Trends of Real Estate 2020
・

September 30, 2019

This report features themes that are considered important in the society that surrounds us and examines theirsituations and impact on real estate.

Office Space per Person (2019)
・

October 2, 2019

This report is a summary of the results of a continuous survey of tenant companies of office buildings on the leased
area per user at tenants of general offices, for the purpose of understanding companies’ actual use of offices.

The Effectiveness of Setting Up a Workplace Other than in Central Tokyo
2019

・

October 4,This report examines the effectiveness of having several workplace options mainly from the perspective of location(central Tokyo vs periphery).

Please contact below for inquiries on this report
Xymax Real Estate Institutehttps://soken.xymax.co.jp
E-MAIL: info-rei@xymax.co.jp

Office Market Report | Tokyo | Q3 2019
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 © 2019 Xymax Corporation. All rights reserved.

8