Xymax Real Estate InstituteOffice Market Report
Tokyo | Q2 2016
August 3, 2016

Summary

Vacancy rates and contract rents continued to recover in the Tokyo 23 Wards' office market driven by
demand from corporate tenants, but the degree of recovery was small and no significant change wasobserved. Some companies started to take a careful look at relocation because of the uncertain economic
outlook.
Vacancy rates were 4.45%; decreased by 0.01 points from previous quarter. Available spaces in large
buildings completed this year were steadily taken up by tenants, which contributed to the low vacancyrates.
New Contract Rent Index (level of rents in new lease) was 98; increased by 1 point from previous quarter.
Contract Rent DI (ratio of buildings with rent increase minus ratio of buildings with rent decrease) was +17;
remained unchanged from previous quarter.
Paying Rent (level of rents in new lease and those in existing lease combined) was 82; decreased by 2
points from previous quarter.
Average Free Rent Month was 2.8 months; decreased by 0.4 months from previous quarter. The free rent
period is on the decrease since 2012.

Office Market Report | Tokyo | Q2 2016
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 © 2016 Xymax Corporation. All rights reserved.

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Vacancy
Figure 1 shows changes in vacancy rates in Tokyo 23
Wards since 2011. Vacancy rates in the second
quarter of 2016 remained low; decreased by 0.01
point to 4.45%.
Demand for office spaces remained strong as many
companies planned to relocate for forward-looking
purposes such as expansion or moving to a betterlocation; this combined with the limited supply, themarket remained tight. Overall vacancy rates had aslight decrease but the breakdown showed
differences between areas: Central Five Wards had adecrease while the periphery 18 wards had anincrease. Available spaces in small and medium
buildings especially in Shinjuku and Chuo Wards
were steadily taken up by tenants.

New Contract Rent
Figure 2 shows changes in New Contract Rent Index,
an index of rent agreed in new lease. The second
quarter of 2016 was 98; increased by 1 point from 97
in previous quarter. After the bottom peak at 76 in
the second quarter of 2012, the rent continued toincrease and recovered the level of six years ago.
However, despite the tight market, the rental growth
remained slow.
Figure 3 shows changes in New Contract Rent Indexby size of buildings. The index of overall Tokyo 23
Wards for small and medium office buildings (grossfloor area: blow 5,000 tsubo) was 99 while that forlarge office buildings (gross floor area: over 5,000tsubo) was 101. Although new large buildings
lowered the rent level in some cases to absorb
tenants' demand quickly, the overall result continued
the modest increase.
This is because, following the reduction of vacant
spaces in the overall market, landlords are graduallyshifting their pricing strategy and trying to lease theremaining spaces at high rent, but such strategy was
not successful in some cases due to the gap between
the rents desired by landlords and those desired bytenants.

Office Market Report | Tokyo | Q2 2016
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 © 2016 Xymax Corporation. All rights reserved.

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Figures 4 and 5 are changes in Contract Rent
Diffusion Index (DI). The second quarter of 2016
remained the same quarter-on-quarter at +17 inTokyo 23 Wards and decreased by 1 point to +12 inCentral Three Wards. The buildings with rent increase
surpassed those with rent decrease for five quarters
in a row. The DI level remained roughly unchanged
since mid-2015.
DI remained above zero in both Tokyo 23 Wards andCentral Three Wards. The ratios of buildings werestable for the past 12 months: those with rent
increase were approx. 40%, those with rent decrease
were approx. 20% and those with no change in rent
were approx. 40%. In this quarter, however, the ratioof buildings with no rent change slightly increased inCentral Three Wards.
This is because, although the market continued torecover and rental growth spread across Tokyo 23Wards, the rents of centrally-located large buildings
were nearing the upper end and there was no moreroom for further increase.
Global and domestic economic outlook is becoming
more uncertain and more companies are therefore
taking a careful look on their future performance.
There is also a gap between the rent desired bylandlords and those desired by tenants. Some
indicators witnessed slowdown of the recovery. To
decide whether this is temporary or is actually aturning point, we need to pay close attention to what
is going to happen next.

Paying Rent
Paying Rent Index, in which new lease rents andexisting lease rents are both covered, show changes
in income generated from office buildings over time.
Figure 6 shows changes since 2005. Paying Rent
Index bottomed in the third quarter of 2013 andcontinued a modest increase since then. In thesecond quarter of 2016, the index was 82; decreasedby 2 points from previous quarter (based on Q1 2010= 100).

Office Market Report | Tokyo | Q2 2016
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 © 2016 Xymax Corporation. All rights reserved.

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Xymax Real Estate InstituteFree Rent
Figure 7 shows changes in the ratio of new lease withfree rents to all the new leases (Ratio of Free Rent
Granted) and changes in the average free rent period(Average Free Rent Month).
Ratio of Free Rent Granted decreased across thecategories in the second quarter of 2016. Average
Free Rent Month of all the new leases decreased by
0.4 months to 2.8 months and those of new leases
with free rent decreased by 0.1 month to 4.4 months.
The free rent period is on the decrease since 2012.

Market Cycle
Figure 8 is a graph plotted by quarter based on
vacancy rates on the horizontal axis and New
Contract Rent Index on the vertical axis.
The graph shows that the market 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).
Office space market entered into the recovery phase,
which continued into 2016 too. However, vacancy
rates decreased only slightly this quarter and rental
growth of new lease also remained weak; the plot
stayed roughly in the same position as in theprevious quarter.

Office Market Report | Tokyo | Q2 2016
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 © 2016 Xymax Corporation. All rights reserved.

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Xymax Real Estate InstituteReference

Office Market Report | Tokyo | Q2 2016
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 © 2016 Xymax Corporation. All rights reserved.

5

Xymax Real Estate Institute

Office Market Report | Tokyo | Q2 2016
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 © 2016 Xymax Corporation. All rights reserved.

6

Xymax Real Estate InstituteReference

Xymax REI Research Updates

April - June 2016

Electric Power Consumed by Office Tenants (March 2016)•June 3, 2016

The electric power consumed by office tenants in January, February and March 2016 was 38.9 kWh/tsubo; decreased
year-on-year by 2.9 kWh/tsubo or 6.9% from 41.8 kWh/tsubo.

Energy Consumption and Energy Cost in Office Buildings (March 2016)

June 3, 2016•

Energy Consumption:

2.8% down year-on-year; a record low, slightly below the level continued since 2011.

•

Energy Price per Unit:

5 points down from previous study (Dec. 2015). The price started to fall in March 2015.

•

Energy Cost: 6 points down from previous study (Dec. 2015), decreased in line with the consumption and price.

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

Office Market Report | Tokyo | Q2 2016
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 © 2016 Xymax Corporation. All rights reserved.

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