Xymax Real Estate Institute

Office Market Report
Tokyo | Q4 2022
January 25, 2023

SummaryIn Q4 (October–December) 2022, the office market of the 23 wards of Tokyo (“Tokyo 23 Wards”) showed adrop in the vacancy rate from Q3 2022 and a decline in rent levels.

The vacancy rate was 3.88%, down 0.14 pt from Q3 2022. The availability rate, which includes space forwhich a cancellation notice has been given and vacant space current available (i.e., accepting tenant
applications), was 5.81%, down 0.3 pt from Q3 2022. The increase and decrease in vacant space showedthat the decrease outweighed the increase as vacant space increased by 128,000 tsubo (1 tsubo = approx.
3.3 sqm) and decreased by 155,000 tsubo. The vacancy turnover ratio, which is the ratio of vacant spaces
leased to tenants, dropped 1.4 pt from Q3 2022 to 26.8%.

The new contract rent index, i.e., the level of new lease rent, was 87, down 4 pt from Q3 2022. The contract
rent diffusion index, the percentage of buildings with a rise in new rent minus that of buildings with adrop in new rent, rose 10 pt from Q3 2022, but remained in negative territory for the ninth consecutive
quarter at -11.

The paying rent index, which includes both new and existing rents, rose 1 pt from Q3 2022 to 103.

The average number of free rent months among lease contracts with free rent was 3.9 months, theratio of free rent of more than two months was 50.9%, and that of more than six months was 19.5%.

Office Market Report | Tokyo | Q4 2022
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 © 2023 Xymax Corporation. All rights reserved.

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FIGURE 1: VACANCY RATE & AVAILABILITY RATE

Vacancy
Figure 1 shows the vacancy rate and theavailability rate.*1*2 The vacancy rate of Tokyo 23
Wards in Q4 2022 dropped 0.14 pt from Q3 to 3.88%.
The availability rate declined 0.3 pt to 5.81%. Thevacancy rate dropped for the first time since Q1 2020,
11 quarters ago. In general, the vacancy rate tends todrop when office demand expands on the back ofcompanies’ improved business confidence. However,
it is hard to ascertain whether the vacancy rate willcontinue to drop given the uncertainties in theFIGURE 2: INCREASE AND DECREASE IN VACANCIES (23WARDS , ALL SIZES )environment surrounding the Japanese economy,such as BOJ policy changes, foreign exchange
developments, and inflation concerns.
*1

Availability rate: The sum of currently vacant space,
space for which a cancellation notice has been given,and space that is accepting tenant applications (beforethe previous tenant has left) divided by rentable space*2

For the rates by size of building and area, see Vacant
Office Space Monthly Report Tokyo | December 2022.
https://www.xymax.co.jp/english/research/images/pdf/20230106.pdf

Figure 2 is the increase and decrease in vacant
space. In Q4 2022, the increase was 128,000 tsubo,
and the decrease was 155,000 tsubo. The decrease
exceeded the increase for the first time since Q1 2020,
FIGURE 3: VACANCY TURNOVER RATIO (4- QUARTER
MOVING AVERAGE )11 quarters ago. The amount of both the increase anddecrease was smaller than in Q3 partly because there
were fewer new completions in Q4.
Figure 3 is the vacancy turnover ratio, the ratio ofvacant spaces leased to tenants during the quarter tothe total vacant office stock (vacant office stock at
start of quarter + vacant space added during thequarter). The ratio in Q4 2022 was down slightly fromQ3 at 26.8%. The ratio dropped amid a falling vacancy
rate, probably due to the smaller decrease in vacant
space as much of the vacant space that increased in
Q3 was not filled and was carried over to Q4.

Office Market Report | Tokyo | Q4 2022
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 © 2023 Xymax Corporation. All rights reserved.

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FIGURE 4: NEW CONTRACT RENT INDEXNew Contract Rent
Figure 4 is the new contract rent index, whichindicates the rent level for new lease contracts. The
index for Q4 2022 was 87, down 4 pt quarter onquarter and down 1 pt year on year. The downward
trend that had continued since Q3 2020 seems tohave paused, and the index appears to be trending
flat.

FIGURE 5: NEW CONTRACT RENT INDEX ( BY SIZE )Figure 5 is the new contract rent index by size ofbuilding. The index for large buildings with a grossfloor area (GFA) of 5,000 tsubo or more was down 6
pt from Q3 2022 at 85, while that for small & medium
buildings with a GFA of 300–4,999 tsubo was down 3
pt at 89. The index by size of building is also trending
flat.

Figure 6 is the contract rent diffusion index (DI)FIGURE 6: CONTRACT RENT DIFFUSION INDEX ( DI)(the percentage of buildings with a rent rise minusthat of buildings with a rent decline), which indicatesthe direction of change in new contract rent. In Q4
2022, the DI was -11, up 10 pt from Q3 2022 and innegative territory for the ninth consecutive quarter. A
negative DI means there are more buildings withlower new rent than those with higher new rent
compared to six months ago. Properties with a rent
rise and those with a rent decline were both few,
which suggests that the fluctuation in rent isbeginning to subside.

Office Market Report | Tokyo | Q4 2022
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 © 2023 Xymax Corporation. All rights reserved.

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Paying Rent

FIGURE 7: PAYING RENT INDEX

Figure 7 shows the paying rent index, which
includes both new lease rents and existing lease rents.
The index lags new contract rent and has less volatility.
In Q4 2022, the index was 103, up 1 pt from Q3.

Free Rent
Figure 8 shows the percentage of new lease
contracts with free rent (FR) to all new lease contracts(ratio of FR granted) and the average free rent
period (average FR months). In Q4 2022, the ratio ofgranting FR for one day or more was 61.5%, down 4.0

FIGURE 8: FREE RENTpt from Q3, that for two months or more was 50.9%,
roughly unchanged from Q3, and that for six months
or more was 19.5%, down 1.2 pt. The average numberof FR months among lease contracts with FR was 3.9,
increasingly marginally from Q3. While contracts
without FR is increasing, the ratio of granting FR forsix months or more has been gradually rising and hasreached nearly 20%. We believe these changes in theratio of FR granted to be a reflection of the properties’
competitiveness and the difference in the policies ofbuilding owners.

Market CycleFigure 9 plots the vacancy rate on the horizontal
FIGURE 9:
Figure9: MARKET
MarketCYCLE
Cycle

scale and the new contract rent index on the vertical120

scale on a quarterly basis. It shows the cyclicality of110

2008Q2the market, with the chart trending to the upper left

2020Q2

100(vacancy down, rent up) since 2005, moving to the90

lower right (vacancy up, rent down) since 2008, and2022Q4

80

returning to the upper left (vacancy down, rent up)

2005Q170

2010Q260
0%

1%

2%

Vacancy Rate
New Contract Rent Index

3%

4%5%

6%

7%

8%

9%

10%

Q4 2021

Q1 2022

Q2 2022

Q3 2022

Q4 2022

3.58%

3.60%

3.91%

4.02%

3.88%

88

86

85

91

87

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

since 2010. In Q4 2022, the chart moved to the lower
left since both the vacancy rate and the new contract
rent index dropped. Amid the declining phase of therental market since Q3 2020, the cycle has been
moving back and forth since Q3 2022. We must keepa close eye on the future direction.

Office Market Report | Tokyo | Q4 2022
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 © 2023 Xymax Corporation. All rights reserved.

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Reference
Figure 10: Major Building Completions (Q4 2022)
FloorsName

Total

Above ground/

WardAddress

Completion floor area

Below ground(tsubo)

Tamachi M-SQUARE Garden

11Minato5-26 ShibaOct 2022

3,000Daiwa Nihonbashi Bakurocho Bldg.

10Chuo1-204-1 Bakurocho

Nov 2022

1,298

CIRCLES Ichigaya

9/1Chiyoda

4-19 Yombancho

Nov 2022

1,121

Source: Compiled by Xymax Real Estate Institute based on information released by companies

Figure 11: Major Office Relocations (Q4 2022)
Company

J Trust Co.,Ltd

From
Akasaka Enoki-Zaka Bldg
Minato WardSony PCL Inc.

To
Yebisu Garden Place
Tower

Dec 2022

PurposeReinforcing headquarter functions andwork efficiency

Size(tsubo)
860

Shibuya Ward

Meguro Tokyu Bldg

A-PLACE Shinagawa

VPO Megro

HigashiMinato WardMinato Ward

Restar Electronics Rikkokai Bldg
Corporation
Shinagawa Ward

TimingRestar Bldg

Dec 2022

Jan 2023

Optimizing productivity through officeconsolidation
Strengthening sales and service

1,041

3,413

Minato Ward

Source: Compiled by Xymax Real Estate Institute based on information released by companies.
The sizes of offices are estimates.

Office Market Report | Tokyo | Q4 2022
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 © 2023 Xymax Corporation. All rights reserved.

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Survey Overview
Increase and Decrease

Vacancy Rate

Description

Main Point

Vacancy Turnover Ratioin Vacant Space

Vacant space and available space versus total

A quarterly increase and a quarterly decrease in

The ratio of the vacant space leased during theOffice rent index based on new contract rents. This

office stock in the market.

volume of vacant space in the market.

quarter to all the vacant office stock in the market.

index uses a statistical method to remove propertyspecific influences such as size and age of buildings.

Supply and demand balance in the market

Supply and demand balance in the market

Supply and demand balance in the market

Level of contract rents

Office Building

SectorTokyo 23 Wards

MarketBuilding Size

GFA 300 tsubo or more

GFA 300 tsubo or more

GFA 300 tsubo or more

GFA 300 tsubo or more

Every Quarter

ReleaseData Source

New Contract Rent Index

Data of available vacant spaces and buildings.

Data of available vacant spaces and buildings.

Data of available vacant spaces and buildings.

Data of new contract rents including CAM charge.

Independently collected by Xymax.

Independently collected by Xymax.

Independently collected by Xymax.

Independently collected by Xymax.

Data Used in8,777 buildings

Recent Quarter

12,048 contracts• Vacancy rate

12,048 contracts

780 contracts• Increase in volume of vacant space• Vacancy Turnover Ratio= vacant space ÷ rentable spacea. Space in existing buildings formerly occupied= Volume of vacant space leased during the quarter period: five quarters) based on the collected new• Vacant Spaceby tenants

÷ (Initial vacancy + Vacancy added during thecontract data with property-specific factors as variables

Total available vacant space in completedb. Total rentable area of new completionsquarter)(location, building size, building age, facilities, date ofThen, compute the four-quarter moving averagesigning of lease, etc.).

buildings as of the time of the research.
• Rentable Space• Decrease in volume of vacant space

1) Develop a rolling hedonic model (overlapping

amount with the ratio derived from this formula.

Rentable space of completed buildings as of the a. Space in existing buildings leased under a new2) Estimate the quarterly contract rent by assigning thetime of the research.

agreement• Volume of vacant space leased during the quarter: values of a typical building to the model developed in・Availability rateb. Space in new completions but lease is signed

Same as the "decrease in volume of vacant space).

prior to the completion• Initial vacancy: Total volume of completedc. Space that had been vacant but the ownerbuildings that are available for lease as of the start3) Calculate the rent estimated in the preceding step

decided not to leaseof the quarter.

based on Q1 2020 as the base point (=100) by market• Vacancy added during the quarter: Same as thesegment (four segments).

How to Calculate ＝available space ÷ rentable space・Available space
Total available space, which consist of vacant
space and space for which notice of cancellation

the preceding step.

has been given.

Where rentable space is not available, the rentable "increase in volume of vacant space"

Where rentable space is not available, thespace is estimated from the gross floor area of the4) Integrate the figure of the preceding step as a Fisher

rentable space is estimated from the gross floor

building using the formula developed in the jointindex using gross floor area as weight. The New

area of the building using the formula developed study with the laboratory of Professor Naoki Kato

Contract Rent Index of the Tokyo office market is thein the joint study with the laboratory of Professor at Kyoto University Graduate School ofintegrated figure.

Naoki Kato at Kyoto University Graduate SchoolEngineering.

of Engineering.

This model shows changes in new contractrents after

Survey Overview
Contract Rent DI

Description

Main Point

Average Free Rent (Month)

Index of changes in new contract rents. Calculated byIndex of changes in paying rents (new and existing contract

Distribution of free rent and average length of free rent period.

counting and comparing the buildings where rent hasrents).

Free rent is the time lag between the start of the contract and theincreased and those where rent has decreased.

Direction of contract rent trends

start of the rent payment.

Level of rents paid by tenantsMarket trends that are not reflected in contract rents

Office Building

SectorTokyo 23 Wards

MarketBuilding SizeAll

GFA 300 tsubo or moreAll

Every QuarterRelease
Data Source

Free Rent Granted (%) &Paying Rent Index

Data of new contract rents including CAM charge.

Data of new and existing contracts signed for buildings

Data of new contracts signed for buildings under management by

Independently collected by Xymax.

under management by Xymax.

Xymax.

Data Used in647 contracts

Recent Quarter

4,463 contracts

26 contracts

1) Compare the data of new contract rent per tsubo with that 1) Calculate the rent per tsubo of each tenant from the data• Free Rent Period

in the 6-month prior period in the same building.

of new and existing lease contracts and memorandums.

(Until Q4 2020) The period between the start of the contract andEach contract was counted separately into three categories:2) Develop a rolling hedonic model (overlapping period: five the startof the rent, shown in number of days.

buildings withquarters) based on the rents calculated in the preceding step (Q1 2021 onward) The period for new contracts (excl. contracts for"rent increase”,(the "paying rent") with property-specific factors as variables expansion within building and recontracts) during which rent has"no change” or(location, building size, building age, facilities, date ofcontinuously been reduced to an amount equivalent or close to“rent decrease”

signing of lease, etc.).

CAM charges since the date of contract.

3) Estimate a quarterly contract rent by assigning the values

・Ratio of Free Rent Granted

2) Calculate the percentage of buildings with “rent decrease” of a typical building to the model developed in theHow to Calculate and buildings with “rent increase”.
3) Subtract the percentage of buildings with “rent decrease”

contracts for expansion within the building and recontracts)

4) The Paying Rent Index is the rent estimated in the・Average Free Rent (Month) of All the Contracts

preceding step based on Q1 2010 as the base point (=100).

from the percentage of buildings with “rent increase”. Thisoutcome is the Contract Rent Diffusion Index (DI).

The ratio of contracts with free rent in all the new contracts (excl.

preceding step.

The simple average of the free rent period including lease
contracts with no free rent period.

With this method, influences from replacement of sample

・Average Free Rent (Month) of Contracts with Free Rent

data and deterioration of buildings over age are removed

The simple average of the free rent period of lease contracts with afrom the result.

free rent period

Office Market Report | Tokyo | Q4 2022
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 © 2023 Xymax Corporation. All rights reserved.

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Xymax Real Estate InstituteFor further inquiries please contact below:Xymax Real Estate Institutehttps://soken.xymax.co.jp | E-MAIL: info-rei@xymax.co.jp

Office Market Report | Tokyo | Q4 2022
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 © 2023 Xymax Corporation. All rights reserved.

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