May 8, 2015

For further inquiry please contact:
Xymax Real Estate Instituteinfo-rei@xymax.co.jp

Tokyo Office Space Market Index Q1 2015
Vacancy Rate | New Contract Rent Index | Contract Rent DI | Free Rent
Recovery spreads across the market, as witnessed by lease of long-time vacant spaces

Xymax Real Estate Institute releases the results of the office space market indices for the first quarter of2015: Vacancy Rate, New Contract Rent Index, Contract Rent DI, Ratio of Free Rent Granted andAverage Free Rent (Month).

Overall Market
Tokyo 23 Wards Office Space Market continues to be in the slow process of recovery backed
by strong demand and limited new supply of office spaces as companies are hiring more office
workers. The market is tight for those seeking office spaces in prime locations or withaffordable rents. The rents of office spaces such as those in large buildings are increasing as aresult. Meanwhile, if the rents are set appropriately, tenants sign lease of buildings that wereless successful in leasing in the past. Thus, the recovery is prevailing throughout the market.
By Index (Tokyo 23 Wards)• Vacancy Rate is 5.62%.
A quarter-on-quarter decrease of 0.11 points and eleventh consecutive quarterly decrease.
Available office spaces in some prime areas are becoming in short supply. Tenants are now
signing lease for spaces that were vacant for a long time.
• New Contract Rent Index (level of contract rent) is 92. (Q1 2010 = 100)
Overall index decreased by 2 points quarter-on-quarter; however, index for large buildings(over 5,000 tsubo gross floor area) increased by 5 points.
• Contract Rent DI (buildings with rent increase versus buildings with rent decrease) is 0.
The number of buildings with rent decrease and those with rent increase were roughly thesame this quarter.
• Average Free Rent (Month) is 2.7 months.
A quarter-on-quarter decrease by 0.4 months. Long-term free rent (over 6 months) was given
to 20.4% of new lease contracts; a quarter-on-quarter decrease by 4.7 points, indicating acompression of the free rent period.
­­­

Explanations for the results of each index are available on the following pages.
Summary of the indices is available on 6. Index Summary.
Historical quarterly data is available on 7. Numerical Data for Entire Period.

The information contained in this report is as of the date of preparation. XYMAX accepts no liability for any inaccuracies or omissions in this report.
No copying, quoting, forwarding, distributing, reprinting or any other use of this report is allowed unless prior consent from XYMAX is obtained.
Copyright © XYMAX Corporation. All rights reserved.

11. Vacancy Rate
Figure 1 shows the vacancy rate in Tokyo 23 Wards for the past four years. The vacancy rate decreasedfor 11 consecutive quarters to 5.62% in the first quarter of 2015, dropping by 0.11 points from 5.73% in
the previous quarter. Although the overall market continued to see healthy performance backed bysteady demand for spaces, the decrease in vacancy slowed slightly due to the tight market in someprime areas like Marunouchi and Shibuya.
Figure 1: Vacancy Rate in Tokyo 23 Wards

Figure 2 shows the vacancy period (downtime) of the spaces that were leased in each year. Of all thecontracts signed in 2014, 57.7% (bold black line) had been vacant for more than six months prior to theoccupancy, the largest percentage in five years, indicating that even such long-time vacant spaces arebeing leased up now. The steady demand from tenants and limited availability of affordable spaces are
the possible factors behind this.
Figure 2: Vacancy Period (Downtime) in Tokyo 23 Wards

The information contained in this report is as of the date of preparation. XYMAX accepts no liability for any inaccuracies or omissions in this report.
No copying, quoting, forwarding, distributing, reprinting or any other use of this report is allowed unless prior consent from XYMAX is obtained.
Copyright © XYMAX Corporation. All rights reserved.

22. New Contract Rent Index
Figure 3 shows changes in New Contract Rent Index. The first quarter of 2015 was 92, a decrease by 2points from 94 in the previous quarter and same quarter year ago. Overall, the rising market becamequiet.
Figure 3: New Contract Rent Index in Tokyo 23 Wards

Figure 4 shows changes in New Contract Rent Index by size of office buildings. Small and medium
buildings (less than 5,000 tsubo in gross floor area) decreased quarter-on-quarter by 3 points to 94 whilelarge buildings (over 5,000 tsubo) saw a quarter-on-quarter increase by 5 points to 103.
Figure 4: New Contract Rent Index in Tokyo 23 Wards by Size of Buildings

The information contained in this report is as of the date of preparation. XYMAX accepts no liability for any inaccuracies or omissions in this report.
No copying, quoting, forwarding, distributing, reprinting or any other use of this report is allowed unless prior consent from XYMAX is obtained.
Copyright © XYMAX Corporation. All rights reserved.

33. Contract Rent DI
Figures 5 and 6 show changes in Contract Rent Diffusion Index (DI) for Tokyo 23 Wards and CentralThree Wards. The first quarter of 2015 was 0 (zero) for both Tokyo 23 Wards and Central Three Wards,
which means that the number of buildings with rent increase was roughly the same as the number ofbuildings with rent decrease. Tokyo 23 Wards saw a slight increase from −2 in the previous quarter andTokyo Central Three Wards also saw a slight increase from −4 in the previous quarter.
Although some buildings like those in the periphery market and those with a rent of 10,000-15,000 yen
per tsubo saw an increase of rent, a certain amount of other buildings had to reduce the rent in order tohave a lease signed after having increased the rent once in hopes of a market upturn.
Figure 5: Contract Rent DI in Tokyo 23 Wards

Figure 6: Contract Rent DI in Tokyo Central Three Wards

The information contained in this report is as of the date of preparation. XYMAX accepts no liability for any inaccuracies or omissions in this report.
No copying, quoting, forwarding, distributing, reprinting or any other use of this report is allowed unless prior consent from XYMAX is obtained.
Copyright © XYMAX Corporation. All rights reserved.

44. Free Rent
Figure 7 shows Ratio of Free Rent Granted which is a ratio of new leases with free rent to all the newleases and Average Free Rent (Month) which is an average free rent period shown in months.
Ratio of Free Rent Granted for the first quarter of 2015 decreased quarter-on-quarter for all thecategories: 1. One day and above was 56.0% (−8.5 points), 2. Two months and above was 53.2% (−6.5points) and 3. Six months and above was 20.4% (−4.7 points). Average Free Rent (Month) also
decreased quarter-on-quarter: 4. Average of all the contracts was 2.7 months (−0.4 months) and 5.
Average of contracts with free rent was 4.7 months (−0.1 months).
Contracts with a long free rent of six months and above are becoming less likely to be given while
contracts with no free rent are on the increase. The length of free rent was a key to success when themarket was difficult and had no room for rent reduction. As the market improved, the trend is now shifting
to a situation where rent negotiation is possible.
Figure 7: Free Rent for New Lease in Tokyo 23 Wards

Ratio of Free
Rent Granted

Average Free
Rent (Month)

Q1 2012

Q1 2013

Q1 2014

Q2 2014

Q3 2014

Q4 2014

Q1 2015

1. One day and above

86.2%

64.5%

69.9%

68.6%

70.0%

64.5%

56.0%

2. Two months andabove

77.8%

60.6%

61.7%

60.3%

63.8%

59.7%

53.2%

3. Six months andabove

56.3%

36.0%

34.7%

28.9%

31.0%

25.1%

20.4%

4. All the contracts

5.0

3.8

3.7

3.3

3.5

3.1

2.7

5. Contracts with freerent

5.85.85.3

4.8

5.0

4.8

4.7

The information contained in this report is as of the date of preparation. XYMAX accepts no liability for any inaccuracies or omissions in this report.
No copying, quoting, forwarding, distributing, reprinting or any other use of this report is allowed unless prior consent from XYMAX is obtained.
Copyright © XYMAX Corporation. All rights reserved.

55. Office Market Cycle
Figure 8 is a graph with vacancy rates on the horizontal axis and New Contract Rent Index on thevertical axis, plotted quarterly.
The graph shows that the market is cyclical: the plot started to move to lower right in 2001 (vacancy up,rent down) and remained static in 2003-2004, then it started to move to upper left in 2005 (vacancy down,rent up) and to lower right again in 2008 (vacancy up, rent down).
According to the graph, the office space market as of 2015 is recovering from the doldrums started in2010, with modest vacancy decrease and rent increase.
Figure 8: Office Space Market Cycle in Tokyo 23 Wards (New Contract Rent Index)

Figure 9 is a graph similar to Figure 8 but based on the asking rents instead of contract rents. The timing ofthe start of rent increase (the plot moving to upper side) in Figure 9 is some years behind that of Figure 8. As
the graphs indicate, in order to capture market trends, the index based on contract rents is considered more
appropriate than the index based on asking rents.
Figure 9: Office Space Market Cycle in Tokyo 23 Wards (Average Asking Rent)

The information contained in this report is as of the date of preparation. XYMAX accepts no liability for any inaccuracies or omissions in this report.
No copying, quoting, forwarding, distributing, reprinting or any other use of this report is allowed unless prior consent from XYMAX is obtained.
Copyright © XYMAX Corporation. All rights reserved.

66. Index Summary
New Contract Rent

Vacancy Rate
Overview

Meaning

Contract Rent DIIndex

Area
Building Size

Average Free Rent (Month)

Proportion of vacant spaces in all

Office rent index based onIndex of changes in contract rent

Distribution of time lag between

the spaces available for rent incontract rent. Influential factors

estimated by comparing

start of contract and start of rentthe market

such as gross floor area andbuildings where rent has

payment. Average length of thebuilding age are adjusted byincreased and buildings wheretime lag.

using statistical method.

rent has decreased.

Contract rent level

Direction of contract rent trends

Market balance (supply anddemand)

SectorRatio of Free Rent Granted &Office Building

Markettrends

thatarenot

reflected in contract rent
Office Building

Office Building

Office Building

Tokyo 23 Wards

Tokyo 23 Wards

Tokyo 23 Wards / 3 Wards

Tokyo 23 Wards

AllAll / Large (over 5,000 tsubo) /AllAll

Small-Medium (below 5,000tsubo)
Frequency

Quarterly

Quarterly

Quarterly

Quarterly

Since

Q1 2011

Q1 2001

Q1 2001

Q1 2002

Data of vacant spaces andContract rent data (incl. CAM)

Contract rent data (incl. CAM)

Contract data collected fromproperties independently

independently collected byindependently collected byproperties under Xymax's

collected by Xymax

Xymax

Xymax

management

Data Source

Data Volume(Latest Quarter)
Calculation

26,562 buildings• Vacancy rate
= vacant space ÷ rentable space• Vacant space
Total of vacant spaces ofcompleted buildings available
for rent as of the time of thisstudy.

1,248 contracts

877 contracts

Rentable spaces ofcompleted buildings as of thetime of this study.

Where rentable space data is notavailable, the rentable space is1) Compare the data of contract

model (overlapping period:

rent per tsubo in a particular

The period from the start offive quarters) based on the

period with that in the 6-monthcontract to the start of rent,

collected new contract datawith factors like location, grossfloor area, building age,facilities, and date of signingprior period in the same

shown in days.

building. Each data was• Ratio of Free Rent Granted

counted separately into three

The percentage of contracts withcategories (“rent increase”,free rent in all the new contracts“no change”, and “rent(excl. expansions within thedecrease”).

2) Quarterly contract rent isestimated by assigning theattribute values of a typicalbuilding to the model
developed in 1.
3) The amount of the contract

2) Estimate the ratio of “rentdecrease” and the ratio of(All the Contracts)
The simple average of the free3) Subtract the ratio of “rentrent period including leasedecrease” from the ratio ofcontracts with no free rent.

“rent increase”. The figure• Average Free Rent (Month)derived is referred to as the(Contracts with Free Rent)
The simple average of the freerent period of lease contracts

rent, estimated in 2 based on

Contract Rent Diffusion Index

area of the building using theQ1 2012 as base point (=100),(DI).

study with the laboratory ofis referred to as the New

building and recontracts)• Average Free Rent (Month)“rent increase”

calculated from the gross floor

formula developed by the joint• Free rent period

1) Develop a rolling hedonicof lease as variables.
• Rentable space

216 contracts

with free rent.
In some cases, the rent agreed

Contract Rent Index.

in a lease contract includes

Professor Naoki Kato at Kyoto
University Graduate School ofThis model can present historical

CAM charge, and then, for aEngineering.

changes in contract rent

certain period of time, the rent isreflecting the adjusted variables

reduced to the CAM charge

such as location, size, age andequivalent level or closer to thatfacilities of the building.

level, but such contracts areexcluded from this study.

Further information of the indices is available online:
Contract Rent DI
http://www.xymax.co.jp/english/research/images/pdf/131211_News-release.pdf
New Contract Rent Index
http://www.xymax.co.jp/english/research/images/pdf/20140919-04.pdf
Free Rent
http://www.xymax.co.jp/english/research/images/pdf/20140919-03.pdf
Relations between indices
http://www.xymax.co.jp/english/research/images/pdf/20141031.pdf
The information contained in this report is as of the date of preparation. XYMAX accepts no liability for any inaccuracies or omissions in this report.
No copying, quoting, forwarding, distributing, reprinting or any other use of this report is allowed unless prior consent from XYMAX is obtained.
Copyright © XYMAX Corporation. All rights reserved.

77. Numerical Data for Entire Period

The information contained in this report is as of the date of preparation. XYMAX accepts no liability for any inaccuracies or omissions in this report.
No copying, quoting, forwarding, distributing, reprinting or any other use of this report is allowed unless prior consent from XYMAX is obtained.
Copyright © XYMAX Corporation. All rights reserved.

8