Xymax Real Estate Institute

Office Market Report
Tokyo | Q4 2017
February 7, 2018

Summary(1 tsubo = 3.3 sqm)

In the December quarter, the Tokyo 23 Wards’ office market remained tight with the vacancy rate dropping
below 3% to the 2% level. Some of the new contract rent indicators showed a slowdown, requiring
attention to future developments.

The vacancy rate was 2.96%, down 0.32 points. The Decrease in Vacant Space was 197,000 tsubo, while theIncrease was 163,000 tsubo; decrease exceeded increase. The Vacancy Turnover Ratio (the ratio of vacant
space leased during the quarter to all the vacancy stock) is rising.

The New Contract Rent Index (the level of new lease rent) was 106, down 3 points. The Contract Rent
Diffusion Index, calculated by subtracting the percentage of buildings with a rent decrease from thepercentage of buildings with a rent increase, rose by 4 points over the quarter to +17.

The Paying Rent Index (the level of new lease rent and the level of existing lease rent combined) dropped 3points to 89.

The Average Free Rent Month of Lease with Free Rent was 3.6 months, an increase by 0.3 months.
Although the Ratio of Free Rent Granted increased in all segments, the percentage of free rent for 6months or more was small.

Office Market Report | Tokyo | Q4 2017
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 © 2018 Xymax Corporation. All rights reserved.

1

Xymax Real Estate InstituteFigure 1: Vacancy RateVacancy

10%

Figure 1 shows the vacancy rate in the Tokyo 23

8%Wards since 2011. The vacancy rate in Q4 2017

Q2 20129.27%

6%dropped by 0.32 points quarter-on-quarter to 2.96%.
The rate, which has been declining since the Q3 2012,4%

has now dropped below 3% to the 2% level.

2%

Q4 2017
2.96%

0%Vacancies of a reasonable size and price range forcompanies are quickly filled, resulting in scarce

Vacancy Rate

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

3.85%

3.76%

3.66%

3.28%

2.96%

Source: Xymax Real Estate Instituteavailable space in the entire market. Many officespaces that do become available are often taken byother tenants in the building and never exposed toFigure 2: Increase and Decrease in Vacant Space(tsubo)

Increase

Decrease

the market, indicating that the strong demand for

Vacancy Rate (right scale)

600,000

10%

office space continued.

9%500,000

8%

400,000

7%

300,000

5%

6%
4%

200,000

3%

100,000

2%

00%

1%

Figure 2 shows the quarterly increase and decreasein vacant space (Increase and Decrease in VacantSpace). The increase was 163,000 tsubo and thedecrease was 197,000 tsubo; decrease exceeded
increase for 12 consecutive quarters since Q1 2015,
contributing to the constant decline in the vacancy

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Increase

210,000

258,000

217,000

189,000

163,000

Decrease

238,000

276,000

232,000

241,000

197,000

3.85%

3.76%

3.66%

3.28%

2.96%

Vacancy (right scale)

Source: Xymax Real Estate Instituterate.
The volume of both the increase and decrease in Q42017 was smaller than the volume in the previousquarter. This is due to the fewer vacant spaces in theFigure 3: Vacancy Turnover Rate (4-quarter moving average)
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

market.
Figure 3 shows the Vacancy Turnover Ratio

Q4 2017
38.1%(four-quarter moving average), which is the ratio ofvacant spaces leased to tenants during the quarter toall the vacant office stock (vacancy at the start of thequarter + vacancy added during the quarter).
The ratio in Q4 2017 was 38.1%, a slight rise

Vacancy TurnoverQ4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

35.2%

36.9%

35.6%

37.5%

38.1%

Source: Xymax Real Estate Institutequarter-on-quarter. A modest rise continued,indicating that vacant spaces in the market continue
to be steadily leased up by new tenants.

Office Market Report | Tokyo | Q4 2017
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 © 2018 Xymax Corporation. All rights reserved.

2

Xymax Real Estate Institute

New Contract Rent

Figure 4: New Contract Rent Index
180

Figure 4 shows the New Contract Rent Index (TokyoQ2 2008
16116023 Wards), the index of new lease rent levels. Theindex for Q4 2017 was 106, a 3-point drop from 109

140

Q4 2017106

Q1 2010100

120

fluctuating up and down since 2017.

10080

Q2 201276

60

in the previous quarter. New contract rent has been

Figure 5 shows the New Contract Rent Index by Sizeof Building. The index for small & medium buildings
with a gross floor area (GFA) of less than 5,000 tsubo

New Contract Rent Index

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

107

108

104

109

106

Source: Xymax Real Estate Institute5,000 tsubo or more was 108, both a 3-point drop.
New contract rent was weak in all building sizes.

Figure 5: New Contract Rent Index by Size of Building
200

190

180

Figure 6 is the Contract Rent Diffusion Index (DI)

160
140
120

108

79

146100

was 106 and that for large buildings with GFA of80

1067660(Tokyo 23 Wards), which shows the direction ofchanges in new lease rents. The DI in Q4 2017 rose 4
points over the quarter to +17. An above-zero DI
means the number of buildings with a rent increase
exceeded those with a rent decrease. Q4 2017

Small & Medium (GFA less than 5,000 tsubo)
Large (GFA 5,000 tsubo or more)

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Small & Medium Buildings

107

107

103

109

106

Large Buildings

109

109

107

111

108

Source: Xymax Real Estate Institutemarked the eleventh consecutive above-zero DI.
The New Contract Rent Index dropped even in a tightmarket with hardly any vacant offices. While therising trend of lease rents has been long-standing,Figure 6: Contract Rent DI (Tokyo 23 Wards)

the level of rent has remained low, with vacant offices
at high price ranges having difficulty in finding

Rent increased (percentage of buildings) (left scale)
Rent decreased (percentage of buildings) (left scale)tenants. There has been no surge in rent as in theContract Rent DI (right scale)Contract Rent DI (four-quarter moving average) (right scale)

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

Q4 2017
100
1780
60
40
20
0-20
-40
-60
-80
-100

Q3 200751

Q2 2009-75“fund bubble” era. On the other hand, the fact thatContract Rent DI, which is based on the number ofincreases and decreases in rent, remains above zeroindicates a continued mild rent increase in themarket as a whole. Some tenants intend to relocate
after determining the impact of future mass supply.

Contract Rent DI

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

18

66

13

17

Source: Xymax Real Estate Institute

While there are currently few factors that would
trigger a significant drop in rent, attention should be
paid to future developments to determine whether
the long rent increase phase is about to peak out.

Office Market Report | Tokyo | Q4 2017
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 © 2018 Xymax Corporation. All rights reserved.

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Xymax Real Estate Institute

Figure 7: Paying Rent Index

Paying Rent

120

Figure 7 shows changes in the Paying Rent Index

Q1 2009
105

110(Tokyo 23 Wards), which covers both new lease rents
Q4 201789100
Q1 2010100

90

and existing lease rents. The index in the fourth
quarter of 2017 was 89, a drop of 3 points from the80

previous quarter. It has remained on a mild rising
Q3 2013777060trend since the third quarter of 2013.

Free Rent
Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

86

88

91

92

89

Paying Rent Index

Figure 8 shows changes in the ratio of new lease

Source: Xymax Real Estate Institutecontracts with free rent to all new lease contracts

Figure 8: Free Rent

(Ratio of Free Rent Granted) and changes in theFree Rent
GrantedAverageFree Rent

1 day or more (%)

average free rent period (Average Free Rent Month).

2 months or more (%)

The average number of months with free rent of all

6 months or more (%)

new lease contracts was 2.6 months for the quarter

100%765432
1080%
60%

40%
20%
0%

under review, an increase of 0.2 months
quarter-on-quarter, while the average number ofmonths of contracts with free rent was 3.6 months,
an increase of 0.3 months.
Although the Ratio of Free Rent Granted rose in all

Ratio ofFree Rent
Granted

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

1 day +65.6%

67.8%

72.3%

73.1%

73.7%

2 mon. +

53.6%

52.1%

56.3%

58.0%

61.4%

6 mon. +

23.2%

14.9%

15.1%

12.6%

14.0%

2.6

2.7

2.4

2.6

3.8

3.7

3.3

3.6

AverageAll
2.8
Free Rent
w/ FR
4.2
Month
Source: Xymax Real Estate Instituteon a quarterly basis. It shows the cyclicality of theQ22008

market, with the chart trending to the lower right in140

2001 (vacancy up, rent down), remaining static inQ3
2001

100Q4Q2
2013

60
1%

2%

3%

2003–2004, then trending to the upper left in 2005

Q22003

800%

4%

5%

6%

7%

8%

(vacancy down, rent up) and to the lower right again

Q2
2012
9% 10%

Q4 2016

Q1 2017

Q2 2017

Q3 2017

Q4 2017

3.85%

3.76%

3.66%

3.28%

2.96%

New Contract Rent Index 107

108

104

109

106

Vacancy Rate

Market Cycle
and the New Contract Rent Index on the vertical axis

180

120

or more is small.

Figure 9 plots vacancy rates on the horizontal axis

Figure 9: Market Cycle

160

segments, the percentage of free rent for six months

Source: Xymax Real Estate Institute（Vacancy rates before March 2011 are based on data by a major leasing agent)in 2008 (vacancy up, rent down).
The market entered a recovery phase in 2013, withthe trend continuing in 2017. During the quarter
under review, the chart moved slightly to the lower
left due to a drop in vacancy rates and a rise in rent.

Office Market Report | Tokyo | Q4 2017
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 © 2018 Xymax Corporation. All rights reserved.

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Reference

Office Market Report | Tokyo | Q4 2017
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 © 2018 Xymax Corporation. All rights reserved.

5

Xymax Real Estate Institute

Office Market Report | Tokyo | Q4 2017
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 © 2018 Xymax Corporation. All rights reserved.

6Xymax Real Estate Institute

Appendix
Xymax REI Research Updates

November 2017 – January 2018TOKYO 23 WARDS | Supply of New Office Space 2018 & Office Stock Pyramid 2018
・December 7, 2017

New supply in 2018–2020 is expected to be relatively large at around 200,000 tsubo per year, while new supply in
2021 is currently forecast at 87,000 tsubo, the smallest since 2008.

・

Average new supply in 2018–2021 is expected to be 180,000 tsubo per year, exceeding 164,000 tsubo, the annual
average of the past 10 years.

・Office stock at end of 2018 is expected to be 12.61 million tsubo on a rentable area basis, with small &medium-sized buildings and large buildings accounting for roughly the same amount:5.94 million tsubo (47%) and6.68 million tsubo (53%), respectively.

OSAKA CITY | Supply of New Office Space 2018 & Office Stock Pyramid 2018
・

December 7, 2017

New supply in 2018–2021 is expected to be an average of 4,000 tsubo per year, less than one-seventh of the annual
average of the past 10 years (31,000 tsubo).

・The average new supply of 4,000 tsubo per year for 2018–2021 is one-forty fifth of average new supply in Tokyo 23
Wards (180,000 tsubo per year).

・

Office stock at end of 2018 is expected to be 2.78 million tsubo on a rentable area basis, with small & medium-sizedbuildings and large buildings accounting for roughly the same amount: 1.41 million tsubo and 1.37 million tsubo,respectively.

Metropolitan Areas Office Demand Survey Autumn 2017
・December 7, 2017

Recently, more companies are starting to allow employees to be flexible on where and when they work, in order tosecure human resources and improve productivity on the back of a decline in labor force. This trend will have animpact on office space demand.

・

Against this backdrop, Xymax Real Estate Institute started a survey on a semi-annual basis in autumn 2016 on officeuse and work styles, analyzing their influence on office space demand. This report covers the results of our thirdsurvey.

Contact
Xymax Real Estate InstitutePhone: +81 3 3596 1477
Fax:+81 3 3596 1478
Email: info-rei@xymax.co.jp

Office Market Report | Tokyo | Q4 2017
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 © 2018 Xymax Corporation. All rights reserved.

7