Xymax Real Estate Institute

RESEARCH REPORT

Analysis of Length of Occupancy of Office Tenants inTokyo 23 Wards (2018)
Estimation of average occupancy period of tenants and analysis ofdeparting tenants

December 7, 2018

In 2014, Xymax Real Estate Institute (hereinafter referred to as “Xymax REI”) analyzed and published a reporton the occupancy period of office tenants in the Tokyo 23 Wards.*1 Using a statistical method, the analysis
estimated the average occupancy period of office tenants, which is the period of time until fifty percent of thetenants, including ongoing tenants at the time of data collection, moves out of the building. Four years after
the previous survey, we conducted a new estimation using the same method.
The actual period of time from a tenant’s start of occupancy to departure varies, and not all tenants stay in abuilding for the average occupancy period. Therefore, in this report we also focused on tenants that had moved
out and analyzed the actual occupancy periods of departed tenants to examine the factors that affect thelengths of occupancy.
In addition, since there is a certain number of tenants who move out within less than two years, which isshorter than the two-year contract period of a general office lease in Japan, we conducted interviews to gather
the reason and background of the departure of each such tenant.
*1

Refer to “How long will the office tenant continue to stay?”, published on May 26, 2014
https://www.xymax.co.jp/english/news_research/?type=research

Key Findings
１． Average occupancy period of office tenants
・ The estimated average occupancy period of office tenants, including ongoing tenants, was
9.6 years.
・ The estimated percentage of tenants continuing to stay in a building for over two years was
93.8%.
・ The results were not significantly different from when the analysis in 2014 was carried out.
２． Analysis of departed tenants
・ The occupancy period of departed tenants was 5.7 years on average and 4.4 years median.
・ There was no correlation between the contract terms (i.e. occupied area, unit rent) or building
specifications (i.e. gross floor area, age) and the occupancy period.
・ Occupancy periods tend to be shorter when rents are declining on the back of a downturn inthe office market, and longer when rents are rising.
3.

Cases of tenants departing within less than two years (from the interviews)
・ Although lease of office space is generally a two-year contract in Japan (automaticallyrenewed), there is a certain number of tenants who departed within less than two years. The
reasons and backgrounds to their departure vary.

Analysis of Length of Occupancy of Office Tenants in Tokyo 23 Wards (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 © 2019 Xymax Real Estate Institute Corporation. All rights reserved.

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RESEARCH REPORT｜ Xymax Real Estate Institute[About the data]
This report uses tenant management data gathered independently by Xymax REI. The subjects of the analysis
are lease contracts for office use of office buildings located in the Tokyo 23 Wards. The data collection period
was approximately ten years from January 2008 to March 2018.
In this report, “occupancy period” represents the period from the start date to the end date of a lease
contract. Contracts confirmed during the data collection period were subject to the analysis. Figure 1 illustrates
the concept of the occupancy period of the contracts subject to the analysis.
Pattern ① of the figure illustrates contracts of tenants that had already moved into the building at the startof data collection and moved out during the period of data collection. The occupancy periods are determined.
Pattern ② represents contracts of tenants that moved in and out during the data collection period. The
occupancy periods are determined.
Pattern ③ are contracts of tenants still staying in the building at the time of the end of the data collection
period. The occupancy periods could not be determined at the time of the survey.
Pattern ④ illustrates contracts of tenants that had already moved into the building at the start of datacollection and were still staying in the building at the end of data collection. The occupancy periods could not
be determined at the time of the survey.
Patterns ③ and ④ were included in the subjects of the occupancy period analysis as censored data but
were not subject to the analysis of departed tenants.
“1. Average Occupancy Period of Office Tenants” below was carried out using the data of 2,947 contracts of①, ②, ③ and ④ above, while “2. Analysis of Departed Tenants” was conducted using the data of 1,273
contracts of ① and ②, whose tenants had already departed.
Figure 1: Contracts Subject to the Analysis①
Moved inOccupancy

Departure

period analysis

analysis・・・・・・

Subject

Subject

・・・・・・

Subject

Subject

・・・

Subject

Not subject

・・・

Subject

Not subject

Moved out②
Moved in

Moved out③
Moved in④
Moved in

Moved out
Data collection period

January 2008

March 2018

Analysis of Length of Occupancy of Office Tenants in Tokyo 23 Wards (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 © 2019 Xymax Real Estate Institute Corporation. All rights reserved.

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RESEARCH REPORT｜ Xymax Real Estate Institute

1. Average Occupancy Period of Office Tenants
Figure 2 indicates the ratio of remaining tenants by the length of occupancy derived from the Kaplan-Meiermethod.*2 The ratio of remaining tenants at the initial point is 100% (occupancy period = 0 month). The ratio
decreases as the occupancy period becomes longer.
Our analysis found that the period from the start of the occupancy to the time until fifty percent of thetenants depart from the building (average occupancy period of office tenants) was 9.6 years. In Japan, leaseof office buildings is generally a two-year contract. Our estimate shows that 93.8% of tenants continue to stayover two years; in other words, only 6.2% of tenants leave within two years.
The results of this analysis did not show a significant difference in the average occupancy period of officetenants from that published in 2014 (10 years), and the percentage of tenants continuing to stay for over two
years was the same.*1

Figure 2: Tenants’ Length of Occupancy and the Ratio of Remaining Tenants*1

Refer to “How long will the office tenant continue to stay?”, published on May 26, 2014
https://www.xymax.co.jp/english/news_research/?type=research*2

Kaplan-Meier Method
A method of survival analysis. It does not assume a specific probability distribution in the estimation of thesurvival rate and does not include an explanatory variable. In our analysis, the departure of tenants is
considered an “event,” tenants that occupy the space at the end of the survey period, “censored data”, andthe ratio of remaining tenants, a “survival rate”.

Analysis of Length of Occupancy of Office Tenants in Tokyo 23 Wards (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 © 2019 Xymax Real Estate Institute Corporation. All rights reserved.

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RESEARCH REPORT｜ Xymax Real Estate Institute

2. Analysis of Departed Tenants
2.1 The reality of departed tenants“1. Average Occupancy Period of Office Tenants” is an estimated average occupancy period using data ofongoing tenants, but the actual period of time from the start of occupancy to departure varies between tenants.
Therefore, we looked into the occupancy period of departed tenants only, which was 5.7 years on average and4.4 years median*3 (Figure 3).
Figure 3: Length of Occupancy of Departed Tenants*3 A median is the value centrally positioned when data is aligned in ascending order. It is less likely to beaffected by outliers compared to average values, and is used as the representative value of an asymmetrical
distribution such as that of annual income. (In a symmetrical distribution, the average value will be equal tothe median value.)

Analysis of Length of Occupancy of Office Tenants in Tokyo 23 Wards (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 © 2019 Xymax Real Estate Institute Corporation. All rights reserved.

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RESEARCH REPORT｜ Xymax Real Estate Institute
2.2 Relationship between occupancy period and various elements
We then examined whether there was a correlation between the length of occupancy of departed tenants
and the rent level or occupied area. We found no clear correlation between the occupied area, unit rent
inclusive of CAM, gross floor area of the building or the building’s age at the time of departure, and the lengthof occupancy (Figure 4).
When deciding which building to rent, tenants would usually have understood the size or age of the building
before agreeing on contract terms such as the occupied area and unit rent and entering into a lease contract
with the building owner. Therefore, it would be unlikely for a tenant to move out of a building due to the size or
age of the building. We also think it is unlikely for a tenant to leave the building due to the occupied area orunit rent unless the financial situation or management policy of the tenant has changed dramatically or the rent
has been increased significantly.
Therefore, we believe that the length of occupancy until departure has almost no correlation with the termsof the lease contract or the building’s specifications such as size.

Figure 4: Relationship Between Unit Rent, Building Size, etc.

Analysis of Length of Occupancy of Office Tenants in Tokyo 23 Wards (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 © 2019 Xymax Real Estate Institute Corporation. All rights reserved.

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RESEARCH REPORT｜ Xymax Real Estate Institute
2.3 Relationship with the office market
We examined chronological changes in departed tenants’ occupancy to see the relationship with the officemarket.
Figure 5 is the vacancy rate and an index of newly-signed unit rent in the 23 Wards. This shows that thevacancy rate rose between 2008 and 2012 while rent declined. Meanwhile, between 2013 and 2018, the vacancy
rate dropped while the rent was on a rising trend.
Figure 6 shows changes in departed tenants’ occupancy over the same period as in Figure 5. Occupancy was
shorter during the drop in rent between 2008 and 2012 than during rising rent between 2013 and 2018.
Vacancies usually increase when rents drop, providing tenants (lessees) with more choices for relocation at alower rent than the rent of the building they currently occupy. During such periods, tenants can enjoy benefits
such as a less rent burden even if considering relocation costs and the ability to move into a better located or
better spec building even if the rent was the same. On the other hand, building owners (lessors) act toaggressively capture tenants by reducing tenants’ relocation costs such as by setting longer free rent periods,
in an effort to increase rent income as much as possible. This results in a relatively frequent relocation oftenants, who increasingly move out of buildings after a short occupancy. The rising cost awareness due tofactors such as bankruptcy of companies and consolidation of offices as well as headcount reductions during
recessions when rents decline is also believed to have an effect on shorter occupancy periods.
On the other hand, vacancies in the market become scarce when rents are rising, with vacancies sometimes
taken by the need for expansion within the building before going on the market. Tenants may be unable to finda preferable building to relocate to and forced to postpone relocating. During these periods when the lessor
side has the advantage, building owners tend to avoid tenants who only intend to stay for a short period oftime. They prioritize tenants who will stay for a long period of time since general building owners try to avoid
vacancy periods and complicated paperwork caused by changes in tenants and wish to establish a good
relationship with the lessees. We believe these are the reasons why occupancy periods are relatively longer
during rising rent than during declining rent.
Figure 5: Vacancy Rate and Newly-signed Rent Index

Figure 6: Chronological Change in Occupancy Period

Analysis of Length of Occupancy of Office Tenants in Tokyo 23 Wards (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 © 2019 Xymax Real Estate Institute Corporation. All rights reserved.

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RESEARCH REPORT｜ Xymax Real Estate Institute

3. Cases of Tenants who Moved Out Within Less than Two Years(From the Interviews)
In Japan, a typical lease of office buildings is a two-year contract (automatically renewed). Despite thissituation, there constantly is a certain number of occupancy periods of less than two years. Therefore, we
carried out individual interviews about the reason of the departure of tenants who moved out within less than
two years.*4
The cases included departures (relocations) due to circumstances unexpected by the tenant as well as a large
number of departures by tenants who had originally intended to stay only for a short period of time. The
following are some examples of the reasons for departure.
*4 The interviews were conducted with the persons who were in charge of building operation performing
departure procedures of the departing tenants.

[Examples of departures due to unexpected circumstances]

The tenant cancelled the contract and relocated to a larger block that became available within thesame building. (Relocation within the same building)The tenant relocated to a larger block they were looking for in a different building. (Relocation to adifferent building)

Due to rapid expansion of business, the tenant relocated to a higher-grade building, to which otherdepartments that occupied a different building were consolidated.



The tenant downsized its business and relocated to the head office building due to a rapid
downturn of business.

The tenant moved out due to bankruptcy.

[Examples of short periods of occupancy intended from the beginning of the occupancy]

The tenant occupied the building while its own building/parent company’s building was being
rebuilt.



The tenant occupied the building only during the development period of a contract systemdevelopment project.

A construction company occupied the space as a workers’ station for a construction site nearby.



A condominium developer temporarily used the space as a model room for marketing.



The tenant’s occupancy was until the end of March, since the work was a government-contract
project and the budget was prepared on a fiscal year basis.



The contract was a short fixed-term leasehold at the request of the owner who was concerned
about the creditworthiness of the tenant, which was a startup company. (The tenant moved out
after expiry of the leasehold.)An ongoing tenant temporarily used vacant space within the building to store goods while thetenant’s space was undergoing a layout change.

Analysis of Length of Occupancy of Office Tenants in Tokyo 23 Wards (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 © 2019 Xymax Real Estate Institute Corporation. All rights reserved.

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RESEARCH REPORT｜ Xymax Real Estate Institute[Summary]
The average occupancy period of office tenants, including those that have continued to stay in the building,is estimated at 9.6 years. This was not significantly different from when the previous analysis was carried out in2014. However, since actual occupancy periods vary between tenants, this time we conducted an analysis ofdeparted tenants only, the result of which was an average occupancy period of 5.7 years (the median was 4.4
years). The analysis revealed that the length of occupancy was not influenced by the terms of the lease contract
and building specifications but by the office market environment.
Furthermore, since there constantly is a certain number of tenants with less than two years occupancy, we
looked into the individual circumstances of their departures. The reasons and backgrounds to the departuresvaried, with tenants not only relocating (i.e. departing) due to the market situation but also having intended ashort occupancy from the beginning in some cases.
Many building owners consider stable income as the attraction of the real estate lease business and wanttenants to stay in their buildings for a long period of time instead of having vacancies for a long time. *5
Therefore, in the current office market environment of extremely low vacancy rates, there tend to be few
buildings that will accept tenants with short occupancy needs. On the other hand, the companies, who are thetenants, now require flexibility in the time and place for work on the back of workstyle reforms, which has givenrise to rental needs that cannot be met with conventional two-year (automatically renewed) lease contracts.
Going forward, it is likely that new office services that cater to a wide variety of tenants will emerge and theforms of building leases will diversify so as to fill such discrepancies between building owners and tenants.
*5 Refer to “Building Owner Survey 2018,” published on October 25, 2018https://www.xymax.co.jp/english/news_research/?type=research

Survey Overview
TargetOffice lease contracts of office buildings located in the Tokyo 23 Wards

Aggregation
periodJanuary 2008 – March 2018

Data source

Tenant management and property data gathered independently by Xymax REI

No. of data

2,947 contracts, of which 1,273 are contracts of departed tenantsContact for inquiries concerning this report
Xymax Real Estate Institutehttps://soken.xymax.co.jp
PHONE: +81 3 3596 1477 | FAX: +81 3 3596 1478 | E-MAIL: info-rei@xymax.co.jp

Analysis of Length of Occupancy of Office Tenants in Tokyo 23 Wards (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 © 2019 Xymax Real Estate Institute Corporation. All rights reserved.

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