June 3, 2013

For further inquiry please contact:
Xymax Real Estate Institute
Phone: +81 3-5544-6640 FAX: +81 3-5544-6641
info-rei@xymax.co.jp

Contract rent and free rent both show improvements in Tokyo’s office market
Xymax to release office lease indices covering small, medium and large properties
Xymax Real Estate Institute released the “Contract Rent Diffusion Index” (Contract Rent DI) developed using
the office lease data Xymax Group has collected and accumulated over time. Based on this index, Xymax
Real Estate Institute analyzed the market movements and compared the index with the asking rent data. Inaddition, to understand the actual lease terms and conditions agreed, the free rent offer trends were alsostudied.

KEY FINDINGSIn the analysis of office leases in Tokyo 23 wards, buildings with new lease contract
agreed in two consecutive years (FY2012 and FY2011) were used as sample data.
Though many buildings continued to see their contract rents to decreaseyear-on-year in FY2012, the number of such buildings were fewer than the previousyear, indicating that the Contract Rent DI is on track for recovery.
In the analysis of rent volatility, the year-on-year rent decreases in FY2012 weresmaller while the year-on-year rent increases in FY2012 were greater, improving
average rent volatility to +0.5%.
Market changes are timely reflected in contract rent, ahead of the more publicly
available data like asking rent.
More free rent offers and longer rent-free period had been seen since FY2009 but therally slowed in FY2012, indicating that the market is moving toward recovery.

Most of the publicly available office market data are based on asking rent. Only a few are based on contract
rent which more properly reflects the current market conditions. Also, free rent is often offered by building
owners to promote leasing activities in Japan but is rarely included in the publicly available market information.
What is more, there are almost no such studies that cover small and medium office buildings. Xymax Real
Estate Institute will continue to study and analyze the lease office market trends with its original data andshare the findings with market participants.

The information contained in this report is as of the date of preparation. XYMAX accepts no liability for any inaccuracies or omissions in this report.
No copying, quoting, forwarding, distributing, reprinting or any other use of this report is allowed.
Copyright © 2013 XYMAX Corporation. All rights reserved.

June 3, 2013

Contract Rent DI & Average Volatility
The Contract Rent DI is an index developed by Xymax Real Estate Institute to measure real estate market
trends using the contract rent data.

Xymax Group, a real estate management company in Japan, collected leasing data directly from its businessactivities and used the data to compare the actual agreed rent in a particular year with that in the previousyear. Each sample was counted separately into three categories (“rent increase”, “no change”, and “rentdecrease”). The index is estimated by subtracting the ratio of “rent decrease” from the ratio of “rent increase”.
Approximately 60-200 samples collected in Tokyo 23 wards are applied for each year.

Year-on-Year Comparison

Contract with rent increase: X cases  ●%Contract with no rent change: Y cases
Contract with rent decrease: Z cases  ■%Contract Rent DI = ●% − ■%X + Y + Z  100%Total

The Contract Rent DI for Tokyo 23 wards office buildings in FY2012 remained negative, at -21, showing thatthe contract rent continues to decrease year-on-year (Figure 1). The detailed analysis, however, shows that
there were more ”rent increase” and “no change” than year ago while “rent decrease” was fewer, indicatingthat the market is about to make a turnaround and showing signs of picking up.

Figure 1: Contact Rent DI (Tokyo 23 Wards)
Rent Increase
100100%

Ratio of lease with rentincrease (%)

Rent Decrease
81%64%60%

Contract Rent DI

78%80%
6580

6260

51%
44%

40%

Increase > Decrease

40%35%
29%

30%

3440

33%

23%
20%

18%

20

2011%
00%

Increase = Decrease-5-7

Ratio of lease with rent
decrease (%)

Increased innearly all thebuildings

-20%

-16%

-15%

-21 -20

-23
-29

-40%

-35

-31%

-30%

-40

Increase < Decrease-46-47%

-49%

-60%

-55
-58%

-59%

-54%

-60

-65%
-69%
-80%

-79 -74%-80

Decreased innearly all thebuildings-89%-100-100%
FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012

The information contained in this report is as of the date of preparation. XYMAX accepts no liability for any inaccuracies or omissions in this report.
No copying, quoting, forwarding, distributing, reprinting or any other use of this report is allowed.
Copyright © 2013 XYMAX Corporation. All rights reserved.

June 3, 2013

The rent decrease in the lease contract agreed in FY2012 was smaller than that in the year ago while the rent
increase in the lease contract agreed in FY2012 was greater than that in the year ago, improving the rent
volatility to +0.5%, the first positive figure in five years (Figure 2).

Figure 2: Contract Rent Average Year-on-Year Volatility (Tokyo 23 Wards)
20.0%
15.0%

10.5% 10.5%
10.0%
5.0%

3.9%

3.3%
-0.2%

0.5%

-0.9%

0.0%

-4.0%

-3.0%

-3.9%

-5.2%

-5.0%

-9.0%
-10.0%-15.0%-17.6%-20.0%

Contract Rent & Asking Rent Comparison
The below Figure 3 compares the index based on the average volatility of contract rent and that of publicly
available asking rent data (FY2000 = 100). The figure shows that the contract rent index is a more leading
indicator as it timely reflects the market changes than the asking rent index.
Figure 3: Rent Volatility Index (Contract Rent & Asking Rent)
120115110
1051009590
8580？

7570

Contract Rent

Asking Rent

The information contained in this report is as of the date of preparation. XYMAX accepts no liability for any inaccuracies or omissions in this report.
No copying, quoting, forwarding, distributing, reprinting or any other use of this report is allowed.
Copyright © 2013 XYMAX Corporation. All rights reserved.

June 3, 2013

Free Rent Offer Rate & Rent-Free Period Index
Of the lease contract data Xymax Group directly collected (new lease only, excluding expansion of leased
area within the same building), the lease contract with two-month or longer rent-free period was counted andthe ratio of that to all the lease contracts was named “Free Rent Offer Rate” (*). In addition to this index, theaverage rent-free period (the sample data includes lease contracts with no free rent) is studied based on
FY2003 = 100 and named “Rent-Free Period Index”.

The Free Rent Offer Rate for FY2012 was 61%, down 17 points year-on-year, showing downward trends(Figure 4). The Rent-Free Period Index for FY2012 was 143, a drop of 45 points year-on-year. Free rent isoften used as alternative to rent reduction. Following the financial crisis in 2008, owners of medium-size officebuildings provided free rent to fill vacant spaces but the situation seems to be recovering. Although the freerent offers and rent-free period still remain stagnant, it is expected to be fewer and shorter as market recovers
for the future.

Figure 4: New lease contract with free rent (Tokyo 23 wards)
100%

20090%

18080%

73%

75%

78%

16070%

14061%

58%60%

12048%

50%

10040%
40%

80

26%30%
20%

4015%
9%

10%0%

60

22%20%

29421007660

31212036119160188

1430FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012
Rent-Free Period Index (based on FY2003=100, incl. all the leases)
Free Rent Offer Rate (ratio of leases with free rent to all the leases)(*) Originally rent-free period is given to tenants to avoid double rent payments (for the current office and new office). In
such case, two-month rent-free period is typical in practice. In other words, longer rent-free period is deemed as rent
reduction or rent abatement. In this study, to measure this abatement, two-month or longer rent-free period is regarded as
free rent offers.
The information contained in this report is as of the date of preparation. XYMAX accepts no liability for any inaccuracies or omissions in this report.
No copying, quoting, forwarding, distributing, reprinting or any other use of this report is allowed.
Copyright © 2013 XYMAX Corporation. All rights reserved.