October 31, 2014

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Tokyo Office Space Market Index Q3 2014
Contract Rent DI | New Contract Rent Index | Ratio of Free Rent Granted | Average Free Rent (Month)

Xymax Real Estate Institute releases the third quarter 2014 results of the office space market indices:
Contract Rent DI, New Contract Rent Index, Ratio of Free Rent Granted and Average Free Rent (Month).
Tokyo 23 Wards Office Space Market Index (Q3 2011 – Q3 2014)
Q3 2011

Q3 2012

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014

Contract Rent DI-28-36

60

91911

New Contract Rent Index

9382

87

87

94

91

94

88.2%

70.7%

64.6%

66.1%

69.9%

68.6%

70.0%

4.8

4.1

3.9

3.8

3.7

3.3

3.5

Granted (All Contracts)
Free Rent
Average Month--

See links below and Page 6 of this report for details of the indices.
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
We have reviewed some free rent data and revised the quarterly numbers from the previous release.
Numerical data is available at the end of this report.

• Contract Rent Diffusion Index (DI) was +11, recorded three consecutive positive quarters, which means
the number of buildings with a rent increase was higher than the number of buildings with a rent
decrease. The overall rental growth is, however, yet to come as the positive range remained flat.
• New Contract Rent Index (Q1 2010 = 100), which shows the level of contract rent, was 94; +3quarter-on-quarter and +7 year-on-year. The contract rent level is growing modestly after the bottom in2012.
• Ratio of Free Rent Granted (All Contracts) was 70%; +1.4 points quarter-on-quarter. Average Free Rent(Month) was 3.5 months; +0.2 months quarter-on-quarter. The grant ratio remained high, but theaverage free rent shown in months is becoming shorter due to a decrease of long-term free rent.
The overall Tokyo 23 wards office space market is on track for a slow recovery, supported by strong demandfor office spaces as IT and staffing sectors are having buoyant business results and adding workers. Otherfactors are that the large buildings, supplied around 2012, have been generally taken up, and there is limited
new supply expected in the near term.
The market is split into two different directions: recently constructed large buildings are more in short supply
as tenants continue to show strong interests, whereas buildings that failed to attract tenants continue to see arent decrease.
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Contract Rent DI
Figures 1 and 2 show Contract Rent DI for Tokyo 23 wards and central three wards (Chiyoda, Chuo, andMinato) for the past ten years (Q3 2004 – Q3 2014). The third quarter of 2014 recorded +11 for Tokyo 23wards and +8 for the central three wards. The contract rent continued to show growing trends with the threeconsecutive quarterly increases, which means the number of buildings with a rent increase was higher than
the number of buildings with a rent decrease.
The buildings with a rent increase accounted for 42% of all the contracts in the third quarter of 2014, a
continuous gradual increase over two years from 9% in Q3 2012, whereas the buildings with a rent decrease
remained at around 20%-30%. This shows that it is not an overall growth but a market split into two different
directions.
Figure 1: Contract Rent DI in Tokyo 23 Wards

Figure 2: Contract Rent DI in Tokyo’s 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.

2

New Contract Rent Index
Figure 3 shows New Contract Rent Index (Q1 2010 = 100) in Q1 2001 - Q3 2014. The third quarter of 2014
recorded 94; an increase of 3 points quarter-on-quarter and 7 points year-on-year. The contract rent level is
growing modestly after the bottom in 2012 at 76.
Figure 3: Xymax New Contract Rent Index in Tokyo 23 Wards

Figure 4 shows New Contract Rent Index by large office buildings (gross floor area: 5,000 tsubo and up) andsmall/medium office buildings (below 5,000 tsubo). Large buildings saw a 3-point drop whereas small/medium
buildings saw a 3-point rise.
Figure 4: Xymax New Contract Rent Index in Tokyo 23 Wards by Large Buildings & Small/Medium Buildings

5,000 tsubo = approx. 16,500 sqm

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

Ratio of Free Rent Granted & Average Free Rent (Month)Figure 5 shows free rent in new contracts.
Compared to the previous quarter, all the Free Rent Granted categories (1. One day and above, 2. Twomonths and above and 3. Six months and above) recorded increases. Average Free Rent (Month) also
increased quarter-on-quarter for the both categories (4. Average of all the contracts, 5. Average of contracts
with free rent).
Compared to the same quarter year ago, the ratio of six months and more free rent granted and the average
free rent in months for both categories (all the contracts / contracts with free rent) have decreased. It can besaid that the average month decreased because fewer buildings offered contracts with a long-term free rent.
Figure 5: Free Rent for New Lease in Tokyo 23 Wards

1. Free Rent Granted (%)
One day and above
5. Average Free Rent (Month)
Contracts with free rent
2. Free Rent Granted (%)
Two months and above

4. Average Free Rent (Month)
All the contracts
3. Free Rent Granted (%)
Six months and above

Ratio ofFree Rent
GrantedAverage
Free Rent(Month)

Q3 2011

Q3 2012

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014

1. One day and above

88.2%

70.7%

64.6%

66.1%

69.9%

68.6%

70.0%

2. Two months and above

78.2%

66.3%

59.6%

61.4%

61.7%

60.3%

63.8%

3. Six months and above

48.8%

42.0%

38.4%

37.6%

34.7%

28.9%

31.0%

4. All the contracts

4.8

4.1

3.9

3.8

3.7

3.3

3.5

5. Contracts with free rent

5.4

5.7

6.0

5.8

5.3

4.8

5.0

We have reviewed some free rent data and revised the quarterly numbers from our previous release.

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

Market Analysis: Combining Three IndicesFigure 6 shows New Contract Rent Index and Contract Rent DI in one graph.
The combined data shows a trend of contract rent to increase when DI is positive and decrease when DI isnegative. A rapid increase of contract rent was seen in 2006-2007 when DI was showing a strong positivegrowth. In contrast, a rapid decrease of contract rent was seen in 2008-2010 when DI was strong negative.
The combined graph can be used as a tool to analyze the speed of rent changes. DI for the third quarter of2014 was +11, which is a positive growth but the pace of growth is moderate.
Figure 6: New Contract Rent Index & Contract Rent DI in Tokyo 23 Wards

Figure 7 shows New Contract Rent Index and Average Free Rent (Month) for all the contracts in one graph.
(In the graph, the axis of the free rent was turned around to match with the up and down market trends.)
As shown, although the ups and downs of the two data are linked, a market recovery comes faster for freerent and then followed by a recovery in rent. This indicates that free rent is acting as an adjuster for a recoveryof actual rental income.
Figure 7: New Contract Rent Index & Average Free Rent (Month) (All the Contract) 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.

5

Index Outline
Contract Rent DI

New Contract Rent Index

Ratio of Free Rent Granted &Average Free Rent (Month)FeatureChanges in contract rent

Contract rent level

Market movements that are notreflected in contract rent

SectorOffice building

Office building

Office building

Area

Tokyo 23 wards / 3 wards

Tokyo 23 wards

Tokyo 23 wards

Overall

Overall / Large / Small & Medium

Overall

Quarterly

Quarterly

Quarterly

Since Q1 2001

Since Q1 2001

Since Q1 2002

Building
Size
Reporting
Frequency
PeriodData Source

Data VolumeCalculation

Contractrentdata(incl.

CAM)

Contract

rentdata(incl.

CAM)

Contract

datacollected

originally collected by Xymax

originally collected by Xymax

buildings managed by Xymax

Average: 400 per quarter

Average: 800 per quarter

Average: 150 per quarter

828 in Q3 2014

1,009 in Q3 2014

210 in Q3 2014

1) Compare the data of contract rent

1) Developed a rolling hedonic•Free rent period

from

per tsubo in a particular period

model (overlapping period: five

The period from the start ofwith that in the 6-month priorquarters) based on the collected

contract to the start of rent, shown

period in the same building. Eachnew contract data with factors likein days.

data was counted separately into

location, gross floor area, building

three categories (“rent increase”,age, facilities, and date of signing“no change”, and “rent decrease”).

of lease as variables.

2) Subtract the ratio of “rent2) Quarterly contract rent is• Ratio of Free Rent Granted
The percentage of contracts withfree rent in all the new contracts(excl. expansions within thedecrease” from the ratio of “rentestimated by assigning thebuilding and recontracts)

increase”

attribute values of a typical• Average Free Rent (Month)3) The figure derived above isbuilding to the model developed in(All Contracts)

1.

The simple average of the freereferred to as the Contract Rent
Diffusion Index (DI).

3) The amount of the contract rent
estimated in 2 based on Q1 2012

rent period including lease
contracts with no free rent.

as base point (=100) is referred to• Average Free Rent (Month)

as the New Contract Rent Index.

(Contracts with Free Rent)
The simple average of the freeThis model can present historical

rent period of lease contracts withchanges in contract rent reflecting

free rent

the adjusted variables such as
location, size, age and facilities of

In some cases, the rent agreed in athe building.

lease contract includes CAM charge,and then, for a certain period of time,
the rent is reduced to the CAM
charge equivalent level or closer tothat level, but such contracts areexcluded from this research.

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

Numerical Data

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