Xymax Real Estate Institute

Office Market Report
Tokyo | Q2 2018
August 1, 2018

Summary(1 tsubo = 3.3 sqm)

In the April–June quarter, the Tokyo 23 Wards’ office market saw a continued drop in the vacancy rate, ascompanies’ demand for office expansion remained robust, new properties were already filled by the timethey were completed, and existing vacancies succeeded to find tenants promptly. The rising trend of newcontract rent also remained unchanged.



The vacancy rate was 2.28%, down 0.23 points from the previous quarter. The Decrease in Vacant Space
exceeded Increase, with 212,000 tsubo decreasing and 184,000 tsubo increasing. The Vacancy Turnover
Ratio (the ratio of vacant space leased during the quarter to all the vacancy stock) continued to rise.



The New Contract Rent Index (the level of new lease rent) was 113, up 4 points. The Contract Rent
Diffusion Index, calculated by subtracting the percentage of buildings with a rent decrease from that ofbuildings with a rent increase, remained above zero for the thirteenth consecutive quarter at +22.

The Paying Rent Index (the level of new lease rent and the level of existing lease rent combined) rose 1
point to 91.

The Average Free Rent Months of Lease with Free Rent was 3.1 months, a decrease of 0.1 months.
Granting of free rent as an incentive remained low, with the ratio of free rent granted for six months ormore at 6.7%.

Office Market Report | Tokyo | Q2 2018
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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Vacancy

Figure 1: Vacancy Rate

Figure 1 shows the vacancy rate in Tokyo 23

10%8%

Wards since 2011. The vacancy rate in Q2 2018

Q2 20129.27%

6%dropped 0.23 points quarter-on-quarter to 2.28%.
The rate has been declining consistently since Q34%2%Q2 2018
2.28%

0%

2012.
Amid the continuous rise of the jobs-to-applicantsratio, companies are hiring aggressively to secure

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

3.66%

3.28%

2.96%

2.51%

2.28%

Vacancy Rate

Source: Xymax Real Estate Institutepersonnel, resulting in strong demand for officespace expansion. Vacancies are often filled fromwithin the building before they go on the market,
and buildings completed during this quarter havebeen taken almost completely. We believe thatbuildings scheduled to be completed are also being

Figure 2: Increase and Decrease in Vacant Space(tsubo)Increase

Decreaseleased up steadily.

Vacancy Rate (right scale)

600,00010%
9%500,000

8%

400,000

7%

300,000

5%

6%

4%

200,000

3%

100,000

2%

0

0%

1%

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Increase

217,000

189,000

163,000

205,000

184,000

Decrease

232,000

241,000

197,000

256,000

212,000

3.66%

3.28%

2.96%

2.51%

2.28%

Vacancy (right scale)

Source: Xymax Real Estate Institute

Figure 2 shows the quarterly Increase andDecrease in Vacant Space. The increase was 184,000
tsubo and the decrease was 212,000 tsubo. Decrease
exceeded increase for 14 consecutive quarters since
Q1 2015, contributing to the constant decline in thevacancy rate.
The amount of new supply was quite large due tothe completion of large properties in Q2 2018.
However, due to limited vacancies in existing
properties and robust demand, the decrease invacant space remained larger than the increase.

Figure 3: Vacancy Turnover Rate (4-quarter moving average)
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

Figure 3 shows the Vacancy Turnover Ratio(four-quarter moving average), which is the ratio of
vacant spaces leased to tenants during the quarter to

Q2 2018
42.8%

all the vacant office stock (vacancy at the start of thequarter + vacancy added during the quarter).
The ratio in Q2 2018 was 42.8%, a further rise fromthe previous quarter. Vacant spaces in the market
are being leased up by tenants at an accelerating

Vacancy TurnoverQ2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

35.6%

37.5%

38.1%

40.3%

42.8%

Source: Xymax Real Estate Institutepace as existing vacancies are filled and newly
completed office buildings find tenants promptly.

Office Market Report | Tokyo | Q2 2018
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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New Contract Rent

Figure 4: New Contract Rent Index
180

Figure 4 shows the New Contract Rent Index, theQ2 2008
161

160

index of new lease rent levels. The index for Q2 2018

140
120

Q2 2018
113

Q1 2010
100

100
80

New Contract Rent Index

quarter. A lessors’ market has continued due to tightsupply and demand, with building owners making
aggressive moves to raise rent as they look forQ2 201276

60

was 113, a 4-point rise from 109 in the previous

tenants for the remaining few vacancies.

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

104

109

106

109

113

Source: Xymax Real Estate Institute

Figure 5 is the new contract rent index by Size of
Building. The index for small & medium buildings
with a gross floor area (GFA) of less than 5,000 tsubo
was 115, up 3 points from the previous quarter.

Figure 5: New Contract Rent Index by Size of Building

Despite the index for large buildings with a GFA of200

5,000 tsubo or more dropping 1 point to 116, there

190

180

is no change to the continued rising trend since

160
140

146

120

116
115

79

100
80

76

60

2012.
Figure 6 shows the Contract Rent Diffusion
Index (DI), which indicates the direction of changes

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

Large (GFA 5,000 tsubo or more)

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Small & Medium Buildings

103

109

106

112

115

Large Buildings

107

111

108

117

116

Source: Xymax Real Estate Institutein new lease rents. The DI in Q2 2018 rose 7 points
over the quarter to +22. The quarter marked thethirteenth consecutive above-zero DI, which means
the number of buildings with a rent increase
exceeded those with a rent decrease.

Figure 6: Contract Rent DI

Due to companies’ needs to expand, the officeRent increased (percentage of buildings) (left scale)
Rent decreased (percentage of buildings) (left scale)space market is extremely tight, with properties

Contract Rent DI (right scale)Contract Rent DI (four-quarter moving average) (right scale)

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

Q3 200751

Q2 2018 100
80
22
60
40
20
0
-20
-40
-60
-80
-100

Q2 2009-75

located in non-central areas or far from stations also
taken promptly. Amid such circumstances, not only
are new rents set higher but rent conditions are
sometimes maintained based on a fixed term lease
contract, with priority on securing long-term tenants.
Changes in future supply and demand require

Contract Rent DI

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

6

13

17

15

22

Source: Xymax Real Estate Instituteattention, as a relatively large amount of officesupply is scheduled from this year through 2020.

Office Market Report | Tokyo | Q2 2018
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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Paying Rent

Figure 7: Paying Rent Index
120

Figure 7 shows changes in the Paying Rent Index,

Q1 2009
105

110
100

which covers both new lease rents and existing leaserents. The index in Q2 2018 was 91, a rise of 1 point.

Q1 2010100

90

Q2 201891

80
Q3 201377

70

Not only new rents but also rents to existing tenants
were raised in many cases.

Free Rent

60

Figure 8 shows the trend of the ratio of new leaseQ2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

91

92

89

90

91

Paying Rent Index

Source: Xymax Real Estate Institutecontracts with free rent to all new lease contracts(Ratio of Free Rent Granted) and the average freerent period (Average Free Rent Month). In Q2 2018,the average free rent period of contracts with freeFigure 8: Free Rent

rents was 3.1 months, down 0.1 months from the

1 day or more (%)

2 months or more (%)

Free Rent Granted(left scale)previous quarter. The figure has remained roughly

6 months or more (%)

All new lease contracts (month)

Average Free Rent
(right scale)

New lease contracts with free rent (month)

100%

7
6

80%

5

60%

4

40%

3
2

20%

1

0%

0

Ratio ofFree Rent
Granted

Q2 2017

Q3 2017

Q4 2017

2018Q1Q2 2018

1 day +

53.9%

54.2%

53.6%

53.8%

55.2%

2 mon. +

34.8%

37.3%

38.4%

40.7%

42.1%

6 mon. +

6.8%

5.9%

6.3%

8.4%

6.7%

All

1.6

1.5

1.6

1.7

1.7

w/ FR

2.9

2.8

3.0

3.2

3.1

Average
Free Rent
MonthsNote: Figures for the last three years (from Q1 2015) have been revised due to the addition of new data
sources.

Source: Xymax Real Estate Instituteconstant at around 3 months for the past year.
The ratio of free rent granted long-term (sixmonths or more) remained low at under 10%. On theother hand, free rent has been granted to more thanhalf of the lease contracts, indicating that free rent
has become common practice.
Note: Figures for the last three years (from Q1 2015)
have been revised due to the addition of new data sources.

Market Cycle
Figure 9 plots vacancy rates on the horizontal axis
and the New Contract Rent Index on the vertical axis

Figure 9: Market Cycle

on a quarterly basis. It shows the cyclicality of the180market, with the chart trending to the lower right in

Q2 2008160

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

140

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

Q1 2001

120
100(vacancy down, rent up) and to the lower right again

Q2 2003

Q2 2018

in 2008 (vacancy up, rent down).

80
Q2 2012

60
0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Q2 2018

Vacancy Rate

3.66%

3.28%

2.96%

2.51%

2.28%

New Contract Rent Index

104

109

106

109

113

Source: Xymax Real Estate Institute

The market entered a recovery phase in 2013, withthe trend continuing in 2018. During Q2 2018, thechart moved to the upper left due to a drop in
vacancy rates and a rise in rent.

(Vacancy rates before March 2011 are based on data by a major leasing agent)

Office Market Report | Tokyo | Q2 2018
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

Figure 10: Major Building Completions (Q2 2018)
Leasable

FloorsName

Above Ground /Ward

Address

Completionspace(tsubo)Below GroundPMO Hatchobori Shinkawa

9/0

Chuo

2-9-11 Shinkawa

2018/04920

msb Tamachi Tamachi Station Tower S

31 / 2

Minato3-1-21 Shibaura

2018/05

23,406

Sumitomo Fudosan Onarimon Tower

22 / 2

Minato1-1-1 Shibakoen

2018/05

5,594

Sumitomo Fudosan Kojimachi First Bldg.

10 / 1

Chiyoda

4-2-6 Kojimachi

2018/05

2,894

Nihonbashi Takashimaya Mitsui Bldg.

32 / 5Chuo

2-5-1 Nihonbashi

2018/06

16,318Source: Compiled by Xymax Real Estate Institute based on information released by companies

Figure 11: Major Office Relocations (Q2 2018)
Company
VOYAGE GROUP

CyberAgent

Itochu Enex

From

To

Shibuya First Place, etc.

Nanpeidai Project (tentative
name)Shibuya Ward

Shibuya Mark City, etc.
Shibuya Ward

Toranomon Twin
Building
Minato Ward

Net Protections

Money Forward

SolxyzGinza First Building, etc.
Chuo Ward

PurposeSize(tsubo)May 2019

Consolidation,betterefficiency

1,584

Mar 2019

Consolidation

More than
10,000Feb 2019

Expansion,
betterefficiency

2,391

Jul 2018

Expansion,consolidation

960

Jul 2018

Expansion,consolidation936

H1 2019

Redevelopmentof former
location

Approx.
300

Shibuya Ward

Ameba Towers, Shibuya
Scramble Square
Shibuya Ward

Kasumigaseki Building
Chiyoda Ward

Sumitomo Fudosan
Kojimachi First Bldg.
Chiyoda Ward

Morinaga Plaza Main
Building, etc.

msb Tamachi Tamachi
Station Tower S

Minato Ward

Minato Ward

Tokuei Building

msb Tamachi Tamachi
Station Tower S

Minato Ward

Month
Year

Minato Ward

Source: Complied by Xymax Real Estate Institute based on information released by companies.
The sizes of office space are estimates.

Office Market Report | Tokyo | Q2 2018
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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Survey Overview
Increase and Decreasein Vacant Space

Vacancy Turnover Ratio

New Contract Rent Index

Vacant space versus total office stock in the

A quarterly increase and a quarterly decrease in

The ratio of the vacant space leased during the

Office rent index based on new contract rents.

market.

volume of vacant space in the market.

quarter to all the vacant office stock in themarket.

This index uses a statistical method to remove
property-specific influences such as size and age

Supply and demand balance in the market

Supply and demand balance in the market

Supply and demand balance in the market

Vacancy Rate

Descriptionof buildings.
Main Point

Tokyo 23 Wards

MarketAll / Large / Small & Medium

All

All

All

Building Size

Every Quarter

ReleaseData Source

Level of contract rents

Office Building

SectorData 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

Independently collected by Xymax.

Independently collected by Xymax.

Independently collected by Xymax.

charge. Independently collected by Xymax.

Data Used in

967 contracts

17,949 contracts

17,949 contracts

32,370 buildings

Recent Quarter

1) Develop a rolling hedonic model (overlapping
period: five quarters) based on the collected new• Vacancy rate
= vacant space ÷ rentable space• Vacancy Turnover Ratio• Increase in volume of vacant spacea. Space in existing buildings formerly occupied = Volume of vacant space leased during the• Vacant Spaceby tenantsb. Total rentable area of new completions

quarter ÷ (Initial vacancy + Vacancy added
during the quarter)

Total available vacant space in completedbuildings as of the time of the research.

• Decrease in volume of vacant space

Then, compute the four-quarter moving average facilities, date of signing of lease, etc.).
amount with the ratio derived from this formula.

• Rentable Spacea. Space in existing buildings leased under a new• Volume of vacant space leased during theagreement

Rentable space of completed buildings as of the b. Space in new completions but lease is signed
prior to the completion
How to Calculate time of the research.
c. Space that had been vacant but the owner
decided not to lease
Where rentable space is not available, thecontract data with property-specific factors as
variables (location, building size, building age,2) Estimate the quarterly contract rent by
assigning the values of a typical building to thequarter: Same as the "decrease in volume ofvacant space).

model developed in the preceding step.

• Initial vacancy: Total volume of completedbuildings that are available for lease as of the3) The New Contract Rent Index is the rent
estimated in the preceding step based on Q1

2010 as the base point (=100).
start of the quarter.
• Vacancy added during the quarter: Same as therentable space is estimated from the gross floorarea of the building using the formula developed Where rentable space is not available, thein the joint study with the laboratory of Professor rentable space is estimated from the gross floor "increase in volume of vacant space"
Naoki Kato at Kyoto University Graduate School area of the building using the formula developed

This model shows changes in new contract rents
after removing property-specific variables.

in the joint study with the laboratory of Professor
Naoki Kato at Kyoto University Graduate Schoolof Engineering.

of Engineering.

Survey Overview
Contract Rent DI

Description

Main Point

Paying Rent Index

Index of changes in new contract rents. Calculated bycounting and comparing the buildings where rent has
increased and those where rent has decreased.

Index of changes in paying rents (new and existing contract Distribution of free rent and average length of free rent
rents).
period. Free rent is the time lag between the start of thecontract and the start of the rent payment.

Direction of contract rent trends

Level of rents paid by tenants

SectorTokyo 23 Wards
All

All

ReleaseData Source
Data Used in Recent
Quarter

How to Calculate

Market trends that are not reflected in contract rents

Office Building

MarketBuilding Size

Free Rent Granted (%) &Average Free Rent (Month)All

Every Quarter
Data of new contract rents including CAM charge.
Independently collected by Xymax.

Data of new and existing contracts signed for buildings
under management by Xymax.

1,442 contracts

3,694 contracts

Data of new contracts independently collected by Xymax.

252 contracts

1) Compare the data of new contract rent per tsubo with
1) Calculate the rent per tsubo of each tenant from the data • Free Rent Periodthat in the 6-month prior period in the same building.
of new and existing lease contracts and memorandums.
The period between the start of the contract and the start
Each contract was counted separately into three categories: 2) Develop a rolling hedonic model (overlapping period:of the rent, shown in number of days.
buildings withfive quarters) based on the rents calculated in the preceding • Ratio of Free Rent Granted"rent increase”,
step (the "paying rent") with property-specific factors as
The ratio of contracts with free rent in all the new contracts"no change” orvariables (location, building size, building age, facilities,(excl. contracts for expansion within the building and“rent decrease”
date of signing of lease, etc.).
recontracts)
3) Estimate a quarterly contract rent by assigning the values • Average Free Rent (Month) of All the Contracts2) Calculate the percentage of buildings with “rentof a typical building to the model developed in the
The simple average of the free rent period including leasedecrease” and buildings with “rent increase”.
preceding step.
contracts with no free rent.
4) The Paying Rent Index is the rent estimated in the• Average Free Rent (Month) of Contracts with Free Rent
3) Subtract the percentage of buildings with “rent decrease” preceding step based on Q1 2010 as the base point (=100). The simple average of the free rent period of leasefrom the percentage of buildings with “rent increase”. This
contracts with free rent.
outcome is the Contract Rent Diffusion Index (DI).
With this method, influences from replacement of sample
data and deterioration of buildings over age are removed In some cases, the rent agreed in a lease contract includes
from the result.
CAM charge, and then, for a certain period of time, the rent
is reduced to the CAM charge equivalent or closer level, butsuch contracts are excluded from this research.

Office Market Report | Tokyo | Q2 2018
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

Appendix
Xymax REI Research Updates

May 2018 – July 2018

Energy Consumption and Energy Cost in Office Buildings

June 6, 2018

・

Energy consumption: Continued on a mild declining trend, with the average for 2017 at 130.2 MJ/m2/month.

・Energy price per unit: After being on a declining trend since 2015, turned upward in 2017, with the annual average
at 1.98 yen/MJ.

・Energy cost: The smallest figure since the start of measurement, with the average for 2017 at 252.2 yen/m2/month.

Greater Tokyo Office Worker Survey 2018
・

June 6, 2018

8.1% of respondents teleworked for any length of time over a week. However, we found that there was a disparity
between respondents’ awareness that they were teleworking and the actual teleworking ratio (18.3%).

・

Satisfaction in the current workplace environment of those who teleworked (59.4%) was nearly double that of those
who did not telework (31.2%).

・

44.6% of respondents had positive intentions toward teleworking in the future. Intentions were especially high(more than 50%) among men aged 20–24 and 40–44 and women aged 25–29 and 30–34. In terms of child status,
the intention was the highest among those with child(ren) in the lower grades of elementary school or younger(54.1%).

Metropolitan Areas Office Demand Survey Spring 2018
・

July 3, 201840.0% of companies saw an increase in the number of office users over the past year, exceeding companies that saw
a decrease (13.3%). 9.1% of companies expanded their office space, while 2.7% downsized, indicating that officedemand was robust.

・More companies are making efforts to offer alternative workplaces, such as work-from-home programs (20.6%) andsatellite and serviced offices.

・

Companies that replied that the number of office users will increase (41.1%) exceeded those that expected adecrease (5.2%). Similarly, companies that replied that they wanted to expand their office space (23.5%) exceeded
those that wanted to downsize (4.6%), indicating that office demand will remain robust.

Office Offer Period and Asking Rent
・July 20, 2018

A survey on changes in rent during offer periods revealed that 82.6% of office blocks did not change the rent, 12.8%
lowered the rent from the initial asking rent, and 4.6% raised the rent.

・More than 90% of office blocks with offer periods equivalent to the average office offer period (five months) or
shorter found tenants without changing their asking rent.

・The longer the offer period becomes, the smaller the percentage of office blocks that did not change their initialasking rent before finding a tenant will be.

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

Office Market Report | Tokyo | Q2 2018
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