Xymax Real Estate Institute

Office Market Report
Tokyo | Q1 2017
May 2, 2017

Summary

In the March 2017 quarter, the Tokyo 23 Wards' office market continued to see a decrease in vacancy rate
and an increase in contract rent. The market looks tight with the vacancy rate at the 3% level but the rental
growth remained slow.
The vacancy rate was 3.76%, a decrease by 0.09 points. Increase and Decrease in Vacant Space showedthat the vacant space decreased by 276,000 tsubo and increased by 258,000 tsubo; the decrease surpassed
the increase. Vacancy Turnover Ratio, which is the ratio of vacant space leased during the quarter to all
the vacancy stock, is on the rise.
New Contract Rent Index (the level of new lease rent) was 108, an increase by 1 point. Contract Rent
Diffusion Index, calculated by subtracting the percentage of buildings with a rent decrease from thepercentage of buildings with a rent increase, was +6. Although the DI remained in the positive area, thedecrease by 12 points was relatively large; we will pay close attention to what happens next.
Paying Rent Index (the level of new lease rent and the level of existing lease rent combined) was 88, an
increase by 2 points.
Average Free Rent Month was 2.6 months, a decrease by 0.2 months. Ratio of Free Rent Granted also
decreased for leases with two months or more free rent and those with six months or more free rent.

Office Market Report | Tokyo | Q1 2017
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real EstateInstitute Corporation.
Copyright © 2017 Xymax Corporation. All rights reserved.

1

Xymax Reall Estate Instiitute

Vaccancy
Figu
ure 1 shows changes in vvacancy rate in Tokyo 23
Wards since 201
11. The vacanncy rate in th
he first
quaarter of 2017 decreased bby 0.09 pointts
quaarter-on-quarter to 3.76%%. The rate ke
ept
deccreasing sincee the third q uarter of 201
12.
The
e vacancy rate is at the 3%% level; the marketmlooks
eve
en tighter tha
an before. Maany companiies are willinggto expande
their office to acccommodate newnemployees, and such compaanies often ta
ake the newvacant space in their currentt buildings. TheT central
parrt of Tokyo is having a lim
mited availabiility thatmeets the requirements of ttenants; demmand foroffice has spread into the peeriphery 18 wards.
wFigu
ure 2 shows a quarterly inncrease and a quarterly
deccrease in vaca
ant space (Inncrease and Decrease in
Vaccant Space). The demandd for office sppace wasstroong; although 258,000 tsuubo of new vacantvspace,the amount greater than thaat in previous quarter bynea
ded this qua
arly 50,000 tssubo, was add
arterfollowing the coompletion off new buildings, 276,000
tsubo of vacant space was leeased to tenaants. The
deccrease in vaca
ant space excceeded the increase byapp
proximately 20,000
2tsuboo. The decrease exceeded
the increase for nine conseccutive quarte
ers since thefirstt quarter of 2015,2
influenncing the conntinued
deccrease in the vacancy ratee.
Figu
ure 3 shows the Vacancyy Turnover Ratio
R(4-qquarter movving averagee), which is thet ratio ofvacant spaces leeased to tenaants during the quarter tooall thet vacant offfice stock (innitial vacancy
y + vacancy
add
ded during thhe quarter). IIf this ratio iss high, itmeans that therre are vacantt spaces but suchsspaces
are being taken by tenants. If this ratio iss low, itmeans that vaca
ant spaces reemain vacantt andland
dlords are struggling to aattract tenants.
Figu
ure 3 shows that the ratioo is slowly movingmupwward. This ind
dicates that tthe available stock isbeing leased moore rapidly li ttle by little.
We will check th
his ratio on a regular basis to find outt
howw the level chhanges along
g the market change.
Office Markket Report | Tokyo | Q1 20172
All the contents aare as of the datee of this report. Xymax
XCorporationn does not guarantee the accuracy
y or completenesss of the information herein.
Copying, quoting, forwarding, distrributing, reprinting or any other usse of this report iss not allowed withhout prior permisssion from Xymax Real Estate
Institute Corporattion.
Copyright © 2017
7 Xymax Corporation. All rights reseerved.

2Xymax Reall Estate Instiitute

Neew Contracct Rent
Figu
ure 4 shows changes in N
New Contracct Rent
Inddex, which is the index off the new lease rent. Theindex for the first quarter off 2017 was 1008, anincrrease by 1 pooint from 1077 in the prev
vious quarter..
Afteer bottomingg in the seco nd quarter ofo 2012 at 76,
the new lease reent continued
d to increasee. The markett
is tiight and new
w lease rent iss increasing; however, theerate
e of increase in the currennt quarter waas small.
Figu
ure 5 shows changes in t he New Contract Rent
Index by size of buildings. T he index for small andmedium buildin
ngs (gross flo
oor area: beloow 5,000tsubo) was 107 and the indeex for large buildingsb(grooss floor area
a: over 5,0000 tsubo) was 109; bothremmained uncha
anged from tthe previous quarter.
Thee owners of laarge building
gs offered high rent for
the remaining small vacant sspace, but it did not
influence the coontract rent leevel. The inddex for smallandd medium bu
uildings also remained fla
at but thebreakdown show
ws that the rrental growthh wasrela
atively large in the periphhery 18 wards; indicatingthat the rent is risingr
there aat a modest rate as
demmand spread to those areeas.
Figu
ures 6 and 7 are changess in the Conttract Rent
Diffusion Indexx (DI). They show the dirrection of theecha
ange in new lease rent. Thhe DI in this quarterq
was+6 for Tokyo 23
3 Wards, a deecrease by 122 points, andd+5 for the centrral three ward
ds, a decreasse by 10points. The DI reemained possitive for eighht
connsecutive qua
arters, meaniing the build
dings with arent increase coontinued to eexceed the bu
uildings withha reent decrease..
It iss often said that real estatte market is lagging
behhind actual market
mbut thhe Contract Rent
RDI
actu
ually moves along with oother market indicators. Itt
is oneo of the rea
al estate indi cators that canc be used
as a leading ind
dicator.**Reelease of Quarte
erly Contract Reent DI Report relleased onDeceember 13, 2013Office Markket Report | Tokyo | Q1 20172
All the contents aare as of the datee of this report. XymaxXCorporationn does not guarantee the accuracy
y or completenesss of the information herein.
Copying, quoting, forwarding, distrributing, reprinting or any other usse of this report iss not allowed withhout prior permisssion from Xymax Real Estate
Institute Corporattion.
Copyright © 2017
7 Xymax Corporation. All rights reseerved.

3

Xymax Reall Estate Instiitutee changes in the Contractt Rent DI (Tokyo 23TheWards) show that the decreaase of more than 10points was recorded for the first time sin
nce the fourthhquaarter of 2014 when the DII decreased by 13 points.
In thattquarter, the DI dropp
ped to the neegative area(−2), which mea
ans that the bbuildings with a rent
deccrease exceed
ded the build
dings with a rent increasee.
Thee New Contra
act Rent Indeex also decre
eased in thefollowing quarteer (Q1 2015) from 94 to 92.
9t current quarter, the D
DI is still in the positive
In thearea (+6) and th
he vacancy raate is also low
w at the 3%
leveel. The curren
nt situation iss different from the timeof thet negative DI in the fouurth quarter ofo 2014. We
will, however, pa
ay close atte ntion to wha
at happens
nexxt since the decreasedby 112 points thiss quarter wass
rela
atively a large
e decrease, aand the turning point(zerro) is nearingg.

Payying Rent
Figu
ure 8 shows changes in t he Paying Rent
RIndex, innwhiich new leasse rents andd existing lea
ase rents areebotth covered. TheT index in the first qua
arter of 2017
7wass 88, an increase by 2 points. It coontinued theemodest growth since the thhird quarter of 2013. Not
only the increase in rent off new lease but also theeincrrease in rentt of existing lease has co
ontributed toothe growth of th
he Paying Reent Index.

Freee Rent
Figu
ure 9 shows changes in t he ratio of new leases
withh free rent too all the new leases (Ratioo of Free
Rennt Granted) and changess in the avera
age free rent
perriod (Average Free Rent Month).
Thee Average Fre
ee Rent Mon th in the first quarter of201
17 was 2.6 months for all the new leasses and 3.8
months for leases with free rent; a decreease by 0.2
months and 0.4 months, resspectively. Th
he Ratio ofFree
e Rent Granted of two m onths or more and those
eof sixs months or more also ddecreased.
Thee shorter freee rent period and decreasse in theRattio of Free Re
ent Granted ccontinued, reeflecting thetighht market. Th
he decrease i n the ratio ofo six months
or moremfree rennt was large in particular.

Office Markket Report | Tokyo | Q1 2017
2All the contents aare as of the datee of this report. XymaxXCorporationn does not guarantee the accuracy
y or completenesss of the information herein.
Copying, quoting, forwarding, distrributing, reprinting or any other usse of this report iss not allowed withhout prior permisssion from Xymax Real Estate
Institute Corporattion.
Copyright © 2017
7 Xymax Corporation. All rights reseerved.

4

Xymax Reall Estate Instiitutearket CycleeMaFigu
ure 10 is a grraph plotted by quarter basedbon
vacancy rates on the horizonntal axis and the NewCon
ntract Rent Inndex on the vvertical axis.
Thee graph show
ws that the mmarket is cycliical; the plot
starrted to movee to lower rig
ght in 2001 (vvacancy up,rent down) and remained sttatic in 2003--2004, then itt
starrted to movee to upper lefft in 2005 (vaacancy downn,rent up) and to lower right aagain in 2008
8 (vacancy upp,rent down).
Thee office spacee market enteered the reco
overy phasein 2013
2and remmained there in 2017 too.. This quarteralsoo saw an incrrease in new lease rent annd a decrease
ein vacancyvrate; the plot movved slightly tot the upperr
left.

Office Markket Report | Tokyo | Q1 20172
All the contents aare as of the datee of this report. XymaxXCorporationn does not guarantee the accuracy
y or completenesss of the information herein.
Copying, quoting, forwarding, distrributing, reprinting or any other usse of this report iss not allowed withhout prior permisssion from Xymax Real Estate
Institute Corporattion.
Copyright © 2017
7 Xymax Corporation. All rights reseerved.

5

Xymax Reall Estate Instiitute

Referencce

Office Markket Report | Tokyo | Q1 20172
All the contents aare as of the datee of this report. Xymax
XCorporationn does not guarantee the accuracy
y or completenesss of the information herein.
Copying, quoting, forwarding, distrributing, reprinting or any other usse of this report iss not allowed withhout prior permisssion from Xymax Real Estate
Institute Corporattion.
Copyright © 2017
7 Xymax Corporation. All rights reseerved.

6

Xymax Reall Estate Instiitute

Office Markket Report | Tokyo | Q1 2017
2All the contents aare as of the datee of this report. Xymax
XCorporationn does not guarantee the accuracy
y or completenesss of the information herein.
Copying, quoting, forwarding, distrributing, reprinting or any other usse of this report iss not allowed withhout prior permisssion from Xymax Real EstateInstitute Corporattion.
Copyright © 2017
7 Xymax Corporation. All rights reseerved.

7

Xymax Real Estate Institute

Appendix

Xymax REI Research Updates

January – March 2017

Electric Power Consumption by Office Tenants (December 2016)

March 3, 2017•

The 12-month moving average consumption for 2016 was 35.9 kWh/tsubo.

•The average consumption for 2016 was a year-on-year decrease by 1.2 kWh/tsubo (3.2%).

•The average consumption per month in Oct-Dec 2016 was 33.7 kWh/tsubo.

Energy Consumption and Energy Cost in Office Buildings (December 2016)

March 3, 2017•

Energy Consumption: Remained roughly unchanged from the September 2016 quarter.

•

Energy Price per Unit: 5 points down from the September 2016 quarter. Started to fall in March 2015.

•

Energy Cost: 3 points down from the September 2016 quarter. Decreased in line with the falling consumption andprice.

Metropolitan Areas Office Demand Survey 2016 | Changing Work Styles and Office•January 30, 2017

It is a survey on how companies are using their office and how people are working there. This issue featured theapproaches taken by companies for the changing work styles and the different work places that are becoming moreavailable.

Tokyo 23 Wards | Increase and Decrease in Vacant Office Space•

January 23, 2017

Xymax studied the increase and decrease in office space using the data of available spaces independently obtained
and accumulated by Xymax Group and released a report on the study.

Metropolitan Areas Office Demand Survey 2016 | Demand Trends•

January 12, 2017

More companies are now allowing a flexible working time and place. This trend is likely to influence the futuredemand for office space.

•Xymax decided to do a regular research on how companies are using their office and how people are working thereand analyze the impact of them on demand for office space. "Demand Trends" is the first publication of thisresearch.

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 | Q1 2017
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real Estate
Institute Corporation.
Copyright © 2017 Xymax Corporation. All rights reserved.

8