Xymax Real Estate Institute

Office Market Report
Tokyo | Q3 2017
November 1, 2017

Summary(1 tsubo = 3.3 sqm)

In the September 2017 quarter, the Tokyo 23 Wards' office market remained tight with the low vacancy
rate at the 3% level. The new contract rent turned up again after a drop in the previous quarter.

Vacancy Rate was 3.28%, a decrease by 0.38 points. Decrease in Vacant Space was 241,000 tsubo while
Increase was 189,000 tsubo; the decrease was larger than the increase. Vacancy Turnover Ratio (the ratioof vacant space leased up during the quarter to all the vacancy stock) is moving upward.

New Contract Rent Index (the level of new lease rent) was 109, an increase by 5 points. Contract Rent
Diffusion Index, calculated by subtracting the percentage of buildings with a rent decrease from thepercentage of buildings with a rent increase, was +13, an increase by 7 points.

Paying Rent Index (the level of new lease rent and the level of existing lease rent combined) was 92, anincrease by 1 point.

The free rent period is becoming shorter. Average Free Rent Month of Lease with Free Rent was 3.3
months, a decrease by 0.4 months.

Office Market Report | Tokyo | Q3 2017
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real Estate
Institute Corporation.
Copyright © 2017 Xymax Corporation. All rights reserved.

1

Xymax Real Estate InstituteVacancy
Figure 1 shows changes in Vacancy Rate in Tokyo 23
Wards since 2011. The vacancy rate in the third
quarter of 2017 decreased by 0.38 points
quarter-on-quarter to 3.28%. It has been decreasing
since the third quarter of 2012.
Available space is disappearing in the entire market.
Office spaces with good lease terms are taken by
new tenants soon after they become available. Suchspaces are often taken by other tenants in thebuilding and never exposed to the market, indicatingthat the strong demand for office space continued.
Figure 2 shows a quarterly increase and a quarterly
decrease in vacant space (Increase and Decrease inVacant Space). The increase was 189,000 tsubo andthe decrease was 241,000 tsubo; the decrease
surpassed the increase for 11 consecutive quarters
since the first quarter of 2015, contributing to theconstant decrease in vacancy rate.
The variance between the increase and the decreaseis larger this quarter than that in the previous quarter.
This is partly because some tenants relocated tolarge buildings but the space they formerly occupied
was immediately taken by a new tenant and nevercounted as vacant space.
Figure 3 shows Vacancy Turnover Ratio(four-quarter moving average), which is the ratioof the vacant spaces leased to tenants during thequarter to all the vacant office stock (vacancy at thestart of the quarter + vacancy added during thequarter).
The ratio in this quarter was 37.5%, a slight increase
quarter-on-quarter. A modest increase continued,
indicating that vacant spaces in the market are
steadily leased up by new tenants.

Office Market Report | Tokyo | Q3 2017
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real EstateInstitute Corporation.
Copyright © 2017 Xymax Corporation. All rights reserved.

2Xymax Real Estate Institute

New Contract Rent
Figure 4 shows changes in New Contract Rent
Index (Tokyo 23 Wards), which is the index of thelevel of new lease rent. The index for the third
quarter of 2017 was 109, an increase by 5 points
from 104 in the previous quarter. It moved upwardagain after having decreased for the first time in nine
quarters in the previous quarter.

Figure 5 shows changes in New Contract Rent Index
by Size of Buildings. The index for small andmedium buildings (gross floor area: below 5,000tsubo) was 109, an increase by 6 points, and theindex for large buildings (gross floor area: over 5,000tsubo) was 111, an increase by 4 points.
The index had decreased for both sizes in theprevious quarter, but they increased this quarter andcontinued the upward move started in the thirdquarter of 2012.

Figure 6 shows changes in Contract Rent Diffusion
Index (DI) (Tokyo 23 Wards). The figure increased by
7 points this quarter to +13. The above-zero DI
means the buildings with a rent increase continued
to exceed the buildings with a rent decrease. This
quarter marked the tenth consecutive above-zero DI.
New Contract Rent DI had remained at a single-digit
figure for two consecutive quarters in the second
quarter of 2017, influenced by the decrease in New
Contract Rent Index, which could be signs ofslowdown in rental growth. This quarter, however, theDI turned up again and the upward momentum
returned and continued.
Since available spaces are now limited in central
Tokyo, tenants are starting to look for office space infurther areas. This has increased the rent in theperiphery 18 wards too.
Office Market Report | Tokyo | Q3 2017
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real EstateInstitute Corporation.
Copyright © 2017 Xymax Corporation. All rights reserved.

3

Xymax Real Estate Institute

Paying Rent
Figure 7 shows changes in Paying Rent Index (Tokyo23 Wards), in which new lease rents and existing
lease rents are both covered. The index in the thirdquarter of 2017 was 92, an increase by 1 point fromthe previous quarter. It continued the modest growthstarted in the third quarter of 2013. The paying rent
increased, contributed by both the increase in rent ofnew lease and the increase in rent of existing lease.

Free Rent
Figure 8 shows changes in the ratio of new leases
with free rent to all the new leases (Ratio of Free
Rent Granted) and changes in the average free rent
period (Average Free Rent Month). The average
free rent of all the new leases was 2.4 months, adecrease by 0.3 months.
The free rent period is becoming shorter and shorter.
The ratio of long free rent period (six months ormore) decreased year-on-year to 12.6% from 31.3%
in the third quarter of 2016. Such a long free rent
period is almost no longer seen except for buildingsthat are having hard time finding new tenants orbuildings that are new completions.

Market Cycle
Figure 9 is a graph plotted by quarter with vacancy
rates on the horizontal axis and the New Contract
Rent Index on the vertical axis. It shows that themarket is cyclical; the plot started to move to lower
right in 2001 (vacancy up, rent down) and remained
static in 2003-2004, then it started to move to upper
left in 2005 (vacancy down, rent up) and to lower
right again in 2008 (vacancy up, rent down).
The market entered the recovery phase in 2013 andremained there in 2017. This quarter, the plot moved
slightly to the upper left because the vacancy rate
decreased and the rent increased.

Office Market Report | Tokyo | Q3 2017
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real EstateInstitute Corporation.
Copyright © 2017 Xymax Corporation. All rights reserved.

4

Xymax Real Estate InstituteReference

Office Market Report | Tokyo | Q3 2017
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real Estate
Institute Corporation.
Copyright © 2017 Xymax Corporation. All rights reserved.

5

Xymax Real Estate Institute

Office Market Report | Tokyo | Q3 2017
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real Estate
Institute Corporation.
Copyright © 2017 Xymax Corporation. All rights reserved.

6

Xymax Real Estate InstituteAppendix

Xymax REI Research Updates

July – October 2017

Building Owner Survey 2017

(the report is available in Japanese)•

October 25, 2017

Xymax Real Estate Institute surveyed the owners of small and medium buildings in central Tokyo and Osaka city. In
the questionnaires and interviews, the owners were asked about the current situation of their tenant-occupied
buildings, future outlook and whether they have intention to continue the business.

•The survey discovered the current situation and challenges of the owners in operating tenant-occupied buildings aswell as a variety of ideas on the business for the near future.

Office Space per Person 2017

October 18, 2017•

Office space per person of Tokyo 23 Wards in 2017 was 3.81 tsubo for all the tenants.

•It was 3.94 tsubo for new tenants, exceeding 3.81 tsubo for existing tenants.

Survey on Opening and Closing Stores 2017•

September 29, 2017

(the report is available in Japanese)

Opening and closing stores are a core part of business and the most important real estate strategy for store
operators. However, quantitative survey and analysis of such field encompassing different types of retailers rarelyexist.

•Xymax Real Estate Institute, together with the research team of Professor Yukio Komatsu, Department ofArchitecture at Waseda University, surveyed and interviewed retail companies that are operating multiple stores
about opening and closing stores and made a summary of the survey results.

ContactXymax Real Estate Institute
Phone: +81 3 3596 1477
Fax:+81 3 3596 1478
Email:
info-rei@xymax.co.jp

Office Market Report | Tokyo | Q3 2017
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real Estate
Institute Corporation.
Copyright © 2017 Xymax Corporation. All rights reserved.

7