Xymax Real Estate Institute

Office Market Report
Tokyo | Q1 2023
April 25, 2023

Summary

In Q1 (January–March) 2023, the office market of the 23 wards of Tokyo (“Tokyo 23 Wards”) saw a drop in
the vacancy rate and a marginal increase in rent levels from Q4 2022.

The vacancy rate was 3.68%, down 0.2 pt from Q4 2022. The availability rate, which includes space forwhich a cancellation notice has been given and vacant space currently available (i.e., accepting tenant
applications), was 5.64%, down 0.17 pt from Q4 2022. In terms of the increase and decrease in vacant
space, the decrease outweighed the increase as vacant space increased by 161,000 tsubo (1 tsubo =approx. 3.3 sqm) and decreased by 191,000 tsubo. The vacancy turnover ratio, the ratio of vacant spaces
leased to tenants, rose 5.7 pt from Q4 2022 to 32.5%.

The new contract rent index, the level of new lease rent, was 90, up 3 pt from Q4 2022. The contract
rent diffusion index, the percentage of buildings with new lease rent that increased minus that ofbuildings with new lease rent that decreased, rose 3 pt from Q4 2022 but remained in negative territory
for the tenth consecutive quarter at -8.

The paying rent index, which includes new and existing rents, was unchanged at 103.

The average number of free rent months among lease contracts with free rent was 3.6 months, theratio of free rent for two months or more was 39.0%, and that for six months or more was 12.2%.

Office Market Report | Tokyo | Q1 2023
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(ALL SIZES )Vacancy
Figure 1 shows the vacancy rate and theavailability rate.*1*2 The vacancy rate of Tokyo 23
Wards in Q1 2023 dropped 0.2 pt from Q4 2022 to3.68%, and the availability rate was down 0.17 pt at
5.64%. The vacancy rate declined for the second
consecutive quarter. The availability rate dropped forthe third consecutive quarter as the increase in newoccupancy continued to outpace cancellation
notices. This is due to a rise in demand for officespace, especially among companies increasing theirheadcount, while companies that had restricted their

FIGURE 2: INCREASE AND DECREASE IN VACANCIES(23 WARDS , ALL SIZES )employees from coming to the office also began tohave their employees come to the office at prepandemic frequencies. Office expansions andrelocations also became apparent. Although there
are fewer vacancies in popular areas, vacancies
remain high in general. The impact of future supply
also requires attention, as the supply of new officespace in 2023 is nearly three times that of 2022.* 3*1

FIGURE 3: VACANCY TURNOVER RATIO

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 building size and area, see Vacant Office
Space Monthly Report Tokyo | March 2023.
https://www.xymax.co.jp/english/research/images/pdf/20230405.pdf*3 See Supply of New Office Space 2023
https://www.xymax.co.jp/english/research/images/pdf/20230118_1.pdf

Figure 2 shows the increase and decrease invacant space. The increase was 161,000 tsubo in Q1
2023, and the decrease was 191,000 tsubo. As in Q4
2022, the decrease exceeded the increase. In Q1
2023, both the increase and decrease rose from Q42022, as many companies relocated ahead of April
when the new fiscal year begins.
Figure 3 is the vacancy turnover ratio, the ratioof vacant spaces leased to tenants during thequarter to the total vacant office stock (vacant officestock at start of quarter + vacant space added
during the quarter). The ratio was 32.5%, up 5.7 pt.

Office Market Report | Tokyo | Q1 2023
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 R ENT INDEXNew Contract Rent
Figure 4 is the new contract rent index, whichindicates the rent level for new lease contracts. Theindex for Q1 2023 was 90, up 3 pt quarter on quarterand up 4 pt year on year. The downward trend thathas continued since Q3 2020 seems to have paused,
and the index is currently trending flat. Rent levels
remain unchanged as fewer lessors reduce rents
significantly to attract tenants as the pandemic
subsides.

FIGURE 5: NEW CONTRACT R ENT INDEX (BY SIZE )Figure 5 shows the new contract rent index bybuilding size. The index for large buildings with agross floor area (GFA) of 5,000 tsubo or more was up
3 pt from Q4 2022 at 88, and that for small &medium buildings with a GFA of 300–less than 5,000
tsubo was up 4 pt at 93. The index is trending flat
also in terms of building size.
Figure 6 is the contract rent diffusion index (DI)FIGURE 6: CONTRACT RENT DI(the percentage of buildings with new contract rent
that increased compared to six months ago minusthat of buildings with decreased rent), whichindicates the direction of change in new contract
rent. In Q1 2023, the DI was -8, up 3 pt from Q42022 and in negative territory for the tenthconsecutive quarter. A negative DI means morebuildings with a rent decrease than those with a rent
increase. The negative range of the DI is gradually
becoming smaller, indicating that the downward
trend in rents is slowing down.

Office Market Report | Tokyo | Q1 2023
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 7: PAYING RENT INDEX

Paying Rent
Figure 7 shows the paying rent index, which
includes both new and existing lease rents. The
index lags new contract rent and has less volatility.
The index for Q1 2023 was unchanged from theprevious quarter at 103.

Free Rent
Figure 8 shows the percentage of new lease
contracts that granted free rent (FR) (ratio ofgranting FR) and the average free rent period
FIGURE 8: FREE RENT

(average FR months).*4 In Q1 2023, the ratio ofgranting FR for one day or more was 48.0%, down
0.5 pt from Q4 2022, that for two months or morewas 39.0%, down 1.3 pt, and that for six months ormore was 12.2%, down 4.5 pt. The average numberof FR months among lease contracts with FR was 3.6,
decreasing slightly from Q4 2022. While some areasand plots from where large companies have left still
offered free rent for 12 months, there was a moveamong owners of properties in prime locations toavoid offering long-term free rent.
*4The aggregation method has been changed from Q1
2023. The figures for Q1 2021 to Q4 2022 have been
updated accordingly.

FIGURE 9: MARKET CYCLE

Market Cycle
Figure 9 plots the vacancy rate on the horizontal
scale and the new contract rent index on the verticalscale on a quarterly basis. It shows the cyclicality ofthe market, with the chart trending to the upper left
(vacancy down, rent up) in 2005, moving to thelower right (vacancy up, rent down) in 2008, andreturning to the upper left (vacancy down, rent up)
in 2010. In Q1 2023, the chart moved to the upper
left since the vacancy rate dropped and the newcontract rent index rose. After the downward trendof the rental market since Q3 2020, the cycle has
been moving back and forth for the past year.

Office Market Report | Tokyo | Q1 2023
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 InstituteReferenceOffice Market Report | Tokyo | Q1 2023
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 | Q1 2023
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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