Office Market Report
Tokyo Q1 2024

April 25, 2024
Xymax Real Estate InstituteSummary

1 tsubo = approx. 3.33 sqm● During Q1 2024 (January – March 2024), the office market of the 23 wards of Tokyo (“Tokyo 23Wards”) saw a decline in the vacancy rate and an increase in rent relative to the previous quarter.

● The vacancy rate was 3.22%, down 0.19 pt from Q4 2023. The availability rate, which includes
space for which a cancellation notice has been given and vacant space currently available (i.e.,accepting tenant applications), was 4.73%, down 0.29 pt from Q4 2023. As for the increase anddecrease in vacant space, the decrease outweighed the increase, with the increase at 131,000
tsubo and the decrease at 162,000 tsubo. The vacancy turnover ratio, the percentage of vacant
space leased to tenants, rose 0.6 pt from Q4 2023 to 35.1%.

● The new contract rent index, the level of new lease rent, was 94, up 6 pt from Q4 2023. The
contract rent diffusion index, the percentage of buildings with a higher new lease rent minus thatof buildings with a lower new lease rent, rose 3 pt from Q4 2023 to －1, in negative territory for the14th consecutive quarter but an improvement for the third consecutive quarter.

● The paying rent index, which includes new and existing rents, was 101, down 1 pt from Q4 2023.
● The average free rent (months) among all lease contracts and lease contracts with free rent
was 2.6 months and 4.5 months, respectively. The ratio of free rent of two months or more was45.9%, and that of six months or more was 22.1%.
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Vacancy Rate 3.22%, Availability Rate 4.73%● The vacancy rate dropped 0.19 pt from Q4 2023 to 3.22%.

● The availability rate was down 0.29 pt from Q4 2023 to4.73%.

Figure 1: Vacancy & Availability Rates (All Building Sizes)● The availability rate has declined for five consecutive
quarters, indicating that new occupancy growth continues tooutpace cancellation notices.

● Office demand is robust, driven by office expansions asworkers return to the office and companies increase theirheadcount. Office expansions within buildings after tenants
moved out were also relatively common, contributing to thecontinued decline in the availability rate.
● New large buildings that will be completed in the next 1–2years have already begun recruiting tenants, with large
companies apparently having informally signed with somebuildings. However, as their relocation is still some time
away, some of the buildings they currently occupy have notyet recruited tenants. These large vacant spaces caused bycancellations are likely to become apparent in the future.
Vacancy rate: The percentage of vacant space (vacant space that has been vacated and isavailable for immediate occupancy: currently vacant space) to total rentable area
Availability rate: The percentage of the sum of currently vacant space, space for which acancellation notice has been given, and space that is accepting tenant applications (before theprevious tenant has left) to the total rentable area
Refer to the Vacant Office Space Monthly Report for the rates by building size and area.

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Vacant Space Increase: 131,000 Tsubo; Decrease: 162,000 Tsubo● The increase in vacant space was 131,000 tsubo,6,000 tsubo less than in Q4 2023.

Figure 2: Increase and Decrease in Vacant Space (23 Wards, All Building Sizes)● The decrease in vacant space was 162,000 tsubo,13,000 tsubo less than in Q4 2023.
● The decrease in vacant space outweighed the increase
for the third consecutive quarter on the back of relatively
robust office demand.

Increase in vacant space: The sum of the following
・Vacant space in existing buildings caused by tenants leaving, etc.
・Total rentable area of new completions
Decrease in vacant space: The sum of the following
・Vacant space in existing buildings no longer available for tenants due to newoccupancy, etc.
・Space in new completions where lease is signed prior to the completion

For further details, see Survey of Increase and Decrease in Vacant Office Space(Tokyo 23 Wards), released January 23, 2017.
https://www.xymax.co.jp/english/research/images/pdf/20170123.pdf
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Vacancy Turnover Ratio at 35.1%● The vacancy turnover ratio was 35.1%, up 0.6 pt fromFigure 3: Vacancy Turnover Ratio

Q4 2023.

● The vacancy turnover ratio has been gradually rising asvacancies are being filled at a stable rate. The last time
the ratio exceeded 35% was nearly four years ago in Q22020.

Vacancy turnover ratio: The percentage of vacant space leased during the quarter tothe total vacant office stock (initial vacancy + vacancy added during the quarter)
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New Contract Rent Index at 94● The new contract rent index was 94, up 6 pt fromQ4 2023.

Figure 4: New Contract Rent Index● The quarterly change, which had been around ±2 pt
over the past year, has risen significantly this time to6 pt. We must pay attention to whether there will bechanges in future trends.

New contract rent index: An index for new unit contract rent with property-specificinfluences removed by adjusting for quality in factors that form rent, including size andage of the building.
Please refer to the following reports for further details.
Xymax New Contract Rent Index, released September 19, 2014
https://www.xymax.co.jp/english/research/images/pdf/20140919-04.pdf

Revised New Contract Rent Index, released April 19, 2021 (in Japanese only)
https://soken.xymax.co.jp/2021/04/19/2104-new_contract_rent_index_revise2021/
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New Contract Rent Index (By Building Size): 94 for Large Buildings, 94 for Small & Medium● The new contract rent index (for large buildings
with a gross floor area (GFA) of 5,000 tsubo ormore) rose 8 pt from Q4 2023 to 94.

Figure 5: New Contract Rent Index (By Building Size)● The new contract rent index (for small & medium
size buildings with a GFA of less than 5,000tsubo) rose 2 pt from Q4 2023 to 94.
● New rent levels for both large and small & medium
size buildings have been rising gradually or trendingflat.
● In this quarter, the rent level for large buildings rose
relatively significantly.

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Contract Rent DI at -1● The contract rent diffusion index (DI) was －1, up
3 pt from Q4 2023.

Figure 6: Contract Rent DI● The DI was in negative territory for the 14thconsecutive quarter. A negative DI means there
were more buildings with a rent decrease thanbuildings with a rent increase.
● The DI improved for the third consecutive quarter.
Although it remains in negative territory, it isapproaching the 0 point, which indicates thepossibility of a turnaround in the rent trend.

Contract rent DI: An index derived by ”the percentage of buildings with a higher new
contract rent than six months ago － that of buildings with a lower rent).” It indicatesthe direction of change in new contract rent.
For the DI’s relationship with various economic indices, see Release of Quarterly
Contract Rent DI Report, released December 11, 2013.
https://www.xymax.co.jp/english/research/images/pdf/131211_News-release.pdf
For the DI’s relationship with the new contract rent index, see Office Market Report
Tokyo Q4 2020 TOPIC 1, released February 3, 2021.
https://www.xymax.co.jp/english/research/images/pdf/20210203.pdf
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Paying Rent Index at 101● The paying rent index was 101, down 1 pt from Q42023.

Figure 7: Paying Rent Index● Although there were cases where rent increases
were negotiated at the time of lease renewals, theindex remained flat.

Paying rent index: A rent index that includes both new and existing lease rents. It lags
new contract rent and has less volatility.
For further details, see Paying Rent Index Is Released, released October 15, 2015.
https://www.xymax.co.jp/english/research/images/pdf/20151015.pdf
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Average Free Rent of All Lease Contracts: 2.6 Months; Ratio of Free Rent Granted: 56.7%● The average free rent (months) of all lease
contracts was 2.6 months, up 0.5 pt from Q4 2023.

Figure 8: Free Rent

● The average free rent (months) of lease contracts
with free rent was 4.5 months, up 0.4 pt from Q42023.

● The ratio of free rent granted for 1 day or more
was 56.7%, up 5.8 pt from Q4 2023.
● The ratio of free rent granted for 2 months ormore was 45.9%, up 4.2 pt.
● The ratio of free rent granted for 6 months ormore was 22.1%, up 6.5 pt.

Free rent: Calculated from the time lag between the start of a new contract and thestart of rent payment for the contract.
Ratio of free rent granted: The percentage of contracts with free rent
Average free rent (months): Average number of months of the free rent period
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Market Cycle Moved to Upper Left: Vacancy Rate -0.19pt, New Contract Rent Index +6 pt● The market cycle moved to the upper left as thevacancy rate was down 0.19 pt, and the newcontract rent index was up 6 pt.

Figure 9: Market Cycle● Since peaking in Q2 2020, the office lease market
has been on a downward trend, followed by almost
two years of stagnation. However, this quarter has
shown a different trend, with the new rent index
rising by 6 pt. We will keep a close eye on future
developments.

Market cycle: The vacancy rate plotted on a quarterly basis on the horizontal scale
and the new contract rent index on the vertical scale. It tends to move to the upper left
(vacancy down, rent up) when the office market is booming and to the lower right(vacancy up, rent down) when the market is in a recession.

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Major Building Completions and Office Relocations
Major building completions

Major office relocations

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