Xymax Real Estate Institute

Office Market Report
Tokyo | Q3 2016
November 2, 2016

Summary

A modest recovery of the vacancy rate and contract rent continued in the Tokyo 23 Wards' office market,
driven by the stable demand from corporate tenants. The tenant's demand expanded to include peripheryareas because of the limited availability in the central part of Tokyo.

The vacancy rate was 4.08%; decreased by 0.37 points from previous quarter. The vacancy level remained
low because only a few large buildings were completed this quarter.

New Contract Rent Index (the level of new lease rent) was 104; increased by 6 points from previous quarter.
Contract Rent DI (calculated by subtracting the ratio of buildings with a rent decrease from the ratio ofbuildings with a rent increase) was +21; increased by 4 points.

Paying Rent (the level of new lease rent and that of existing lease rent combined) was 84; increased by 2points from previous quarter.

Average Free Rent Month was 3.1 months; increased by 0.3 months from previous quarter. Although in a
general view, the free rent period seems to be shorter, the average period actually resulted in an increaseinfluenced by some cases of long free rent of longtime vacant buildings in the periphery area.

Office Market Report | Tokyo | Q3 2016
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.

1

Xymax Real Estate InstituteVacancyFigure 1 shows changes in vacancy rates in Tokyo 23
Wards since 2011. The vacancy rate in the thirdquarter of 2016 decreased by 0.37 points
quarter-on-quarter to 4.08%. The rates kept
decreasing since the third quarter of 2012.
The office space market remained tight since many
companies planned relocation for the purpose of
expanding the office size or moving to a better
location. The analysis by region shows that thedecrease in vacancy was small in the Central Five
Wards, but it was large in the periphery 18 wards. In
particular, there were cases where some tenantsdecided to look for a space in non-central areas
because they had difficulty finding a large space inthe central area.

New Contract Rent
Figure 2 shows changes in New Contract Rent Index,
which is the index of the new lease rent. The third
quarter of 2016 was 104; increased by 6 points from98 in the previous quarter. After bottoming in thesecond quarter of 2012 at 76, the rents continued toincrease and recovered the level of six years ago. The
market is tight and rents are growing.
Figure 3 shows changes in New Contract Rent Indexby size of buildings. The index of overall Tokyo 23
Wards for small and medium office buildings (grossfloor area: below 5,000 tsubo) was 105 while that forlarge office buildings (gross floor area: over 5,000tsubo) was 111; both increased quarter-on-quarter.
The rents increased thanks to the demand to moveto a better area or to a larger space to consolidate
separately-located offices.
The modest increase of rents continued, but therents of high-grade buildings in the central area
seemed to have hit the ceiling. The rents in theoverall market increased because of the rental
growth in the periphery markets and small andmedium existing buildings; the high level of rents likethose in 2007 are only rarely seen.
Office Market Report | Tokyo | Q3 2016
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.

2Xymax Real Estate InstituteFigures 4 and 5 are changes in Contract Rent
Diffusion Index (DI). The DI in the third quarter of2016 increased by 4 points to +21 in Tokyo 23 Wards
and increased by 6 points to +18 in Central Three
Wards. The number of buildings with a rent increase
surpassed those with a rent decrease for six
consecutive quarters, indicating the increase of newcontract rents.
The breakdown of Contract Rent DI is as follows:when a new lease is signed, 40% of the buildings hada rent increase; 20% had a decrease; and 40% had nochange. The ratio of the buildings with a rent
decrease is decreasing but the pace slowed in thelatest 12 months. Central Three Wards had a greater
increase in the ratio of the buildings with a rent
increase by 5 points compared to 3 points for that inTokyo 23 Wards.
In some cases, more than one potential tenant
submitted an application to lease a space in a
recently-constructed building in the central area andthe rent agreed for such lease was often higher thanthe landlord had expected. In other cases, thelandlord tried to keep the rent per tsubo of longtime
vacant space and instead offered a long period offree rent to attract potential tenants.
The consumer spending and corporate capitalspending remain weak. However, the demand for
office space is strong reflecting the tight job market.
Some particular demands include the staffing
companies establishing a new sales office or moving
to a better location and the gaming and web
contents companies having a new development baseto start a new service.

Paying Rent
Figure 6 shows changes in Paying Rent Index, in
which new lease rents and existing lease rents areboth covered. Paying Rent Index in the third quarterof 2016 was 84; increased by 2 points from theprevious quarter and continued the modest growthstarted since the third quarter of 2013. The rents ofexisting tenants also increased in some cases.

Office Market Report | Tokyo | Q3 2016
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.

3Xymax Real Estate InstituteFree Rent
Figure 7 shows changes in the ratio of new leases
with free rent to all the new leases (Ratio of Free RentGranted) and changes in the average free rent period(Average Free Rent Month).
Ratio of Free Rent Granted increased across thecategories in the third quarter of 2016. Average Free
Rent Month of all the new leases increased by 0.3
months to 3.1 months and those of new leases withfree rent increased by 0.3 months to 4.7 months.
In a general view, the free rent period seemed to be
shortening; however, both the ratio and average
period actually increased this quarter. This isprobably because of the influence of the long periodof free rent given to longtime vacant spaces.

Market Cycle
Figure 8 is a graph plotted by quarter based on
vacancy rates on the horizontal axis and New
Contract Rent Index on the vertical axis.
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).
The office space market entered the recovery phasein 2013 and stayed there in 2016 too. The second
quarter of 2016 ended with only a marginal change,
but the third quarter had a growth of the newcontract rent and the line moved slightly to upper
left, indicating a continued market improvement.

Office Market Report | Tokyo | Q3 2016
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.

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Xymax Real Estate Institute

Reference

Office Market Report | Tokyo | Q3 2016
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.

5

Xymax Real Estate Institute

Office Market Report | Tokyo | Q3 2016
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.

6

Xymax Real Estate InstituteAppendix

Xymax REI Research Updates
Economic Value of Repair

July - September 2016

September 28, 2016

• The repair record and rental data accumulated by Xymax are used in this statistical analysis.
• The analysis revealed that the new lease rent is 3%-7% higher if the buildings were properly prepared and repairedconsistently for particular types of repairs.
• Repairs are the important element in real estate management because the planned and consistent repairs can not only
improve the problems and fix the broken items but also reduce the risk of deterioration in the future and give
economic benefit.

Office Space per Person 2016

September 21, 2016

• Office Space per Person in Tokyo 23 Wards: 3.80 tsubo, a record low since this study started.
• Office Rent per Person in Tokyo 23 Wards: JPY64,697 per month (incl. CAM charge)• These results were likely to have been influenced by the increase in the number of office workers following therecovery in corporate earnings.

Electric Power Consumed by Office Tenants (June 2016)

September 7, 2016

• The average consumption in the April-June 2016 quarter was 32.9 kWh/tsubo; a decrease of 1.2 kWh/tsubo or 3.5%
from 34.1 kWh/tsubo in the same quarter previous year.

Energy Consumption and Energy Cost in Office Building (June 2016)

September 7, 2016

• Energy Consumption
Remained unchanged from the previous quarter (March 2016).
• Energy Price per Unit
7 points down from previous quarter (March 2016). Started to fall in March 2015.
• Energy Cost
5 points down from previous quarter (March 2016). Decreasing in line with the falling consumption and price.

Contact
Xymax Real Estate Institute
Phone: +81 3 3596 1477
Fax:+81 3 3596 1478
info-rei@xymax.co.jp

Office Market Report | Tokyo | Q3 2016
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.

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