Xymax Real Estate Institute

Office Market Report
Tokyo | Q1 2018
May 2, 2018

Summary(1 tsubo = 3.3 sqm)

In the January–March quarter, the Tokyo 23 Wards’ office market saw a continued drop in the vacancy rate,
as new supply of large buildings succeeded to find tenants promptly. The rising trend of new contract rent
has also continued.



The vacancy rate was 2.51%, down 0.45 points from the previous quarter. The Decrease in Vacant Space
exceeded Increase, with 256,000 tsubo decreasing and 205,000 tsubo increasing. The Vacancy Turnover
Ratio (the ratio of vacant space leased during the quarter to all the vacancy stock) continued to rise.



The New Contract Rent Index (the level of new lease rent) was 109, up 3 points. The Contract Rent
Diffusion Index, calculated by subtracting the percentage of buildings with a rent decrease from thepercentage of buildings with a rent increase, remained above zero for the twelfth consecutive quarter at+15.



The Paying Rent Index (the level of new lease rent and the level of existing lease rent combined) rose 1
point to 90.

The Average Free Rent Month of Lease with Free Rent was 3.9 months, an increase of 0.3 months. Although
the percentage of free rent of 6 months or more was small, granting of free rent has become common.

Office Market Report | Tokyo | Q1 2018
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2018 Xymax Corporation. All rights reserved.

1

Xymax Real Estate Institute

Figure 1: Vacancy Rate

Vacancy

10%

Figure 1 shows the vacancy rate in the Tokyo 23

8%Wards since 2011. The vacancy rate in Q1 2018

Q2 20129.27%

dropped by 0.45 points quarter-on-quarter to 2.51%.

6%

The rate has been declining consistently since Q3

4%

2012.

2%

Q1 2018
2.51%

0%There is demand in all areas due to the rising needfor expansion and better location as companies

Vacancy Rate

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

3.76%

3.66%

3.28%

2.96%

2.51%

Source: Xymax Real Estate Instituteincrease their staff. New supply of large buildings isoften taken almost completely before construction iscompleted, and secondary vacancies due to tenants’
relocations to new buildings are filled by otherFigure 2: Increase and Decrease in Vacant Space(tsubo)Increase

Decreasetenants in the building.

Vacancy Rate (right scale)

600,00010%

9%500,000

8%

400,000

7%

300,000

5%

6%
4%

200,000

3%

100,000

2%

0

0%

1%

Figure 2 shows the quarterly Increase and Decreasein Vacant Space. The increase was 205,000 tsubo andthe decrease was 256,000 tsubo. Decrease exceeded
increase for 13 consecutive quarters since Q1 2015,
contributing to the constant decline in the vacancy
rate.
The volume of increase in Q1 2018 was larger thanQ1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Increase

258,000

217,000

189,000

163,000

205,000

Decrease

276,000

232,000

241,000

197,000

256,000

3.76%

3.66%

3.28%

2.96%

2.51%

Vacancy (right scale)

Source: Xymax Real Estate Institutethe previous quarter due to the completion of large
properties. However, since many of the buildings
were already filled by the time they were completed,the volume of decrease in vacant space was larger

Figure 3: Vacancy Turnover Rate (4-quarter moving average)

than the increase.
Figure 3 shows the Vacancy Turnover Ratio

50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

(four-quarter moving average), which is the ratio of
Q1 201840.3%

vacant spaces leased to tenants during the quarter toall the vacant office stock (vacancy at the start of thequarter + vacancy added during the quarter).
The ratio in Q1 2018 was 40.3%, a further rise fromthe previous quarter. The rise continued, pushing the

Vacancy TurnoverQ1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

36.9%

35.6%

37.5%

38.1%

40.3%

Source: Xymax Real Estate Instituteratio above 40% for the first time and indicating thatvacant spaces in the market continue to be steadilyleased up by tenants.

Office Market Report | Tokyo | Q1 2018
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2018 Xymax Corporation. All rights reserved.

2

Xymax Real Estate Institute

Figure 4: New Contract Rent Index

New Contract Rent

180

Figure 4 shows the New Contract Rent Index (Tokyo
Q2 2008
161

160

23 Wards), the index of new lease rent levels. The

140
120

Q1 2018
109

Q1 2010
100

100
80

in the previous quarter. Although the trend seems to
be flat in recent quarters, the mild rising trend sinceQ2 2012 has remained unchanged.

Q2 201276

60

index for Q1 2018 was 109, a 3-point drop from 106

Figure 5 is the new contract rent index by Size of
New Contract Rent Index

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

108

104

109

106

109

Source: Xymax Real Estate Institute

Building. The index for small & medium buildings
with a gross floor area (GFA) of less than 5,000 tsubo
was 112 and that for large buildings with GFA of
5,000 tsubo or more was 117, both representing a

Figure 5: New Contract Rent Index by Size of Building

rise. New contract rent seems to be rising steadily in

200

all building sizes.

190

180
160
140

117

146

120
100

112

79

80

76

60

Figure 6 shows the Contract Rent Diffusion Index (DI),which indicates the direction of changes in new leaserents. The DI in Q1 2018 dropped 2 points over thequarter to +15. However, the quarter marked thetwelfth consecutive above-zero DI, which means the

Small & Medium (GFA less than 5,000 tsubo)
Large (GFA 5,000 tsubo or more)

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Small & Medium Buildings

107

103

109

106

112

Large Buildings

109

107

111

108

117

number of buildings with a rent increase exceeded
those with a rent decrease.

Source: Xymax Real Estate Institute

Demand was strong in the Tokyo 23 Wards overall,with vacancies in areas that had been struggling for a
Figure 6: Contract Rent DI

while also being filled quickly. Companies with theRent increased (percentage of buildings) (left scale)intention to move are increasingly facing difficulties

Rent decreased (percentage of buildings) (left scale)in finding a property that suits their needs. Amid

Contract Rent DI (right scale)Contract Rent DI (four-quarter moving average) (right scale)

100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
-80%
-100%

Contract Rent DI

Q3 200751

Q1 2018 100
80
15
60
40
20
0
-20
-40
-60
-80
-100

Q2 2009-75

such circumstances, the rise in rent has been mild.
The annual average supply between 2018 and 2021
is expected to be 180,000 tsubo, exceeding the past*

10 years’ average of 164,000 tsubo. As buildings
scheduled for completion in 2018 are being leased

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

6

6

13

17

15

up steadily, attention should be paid to the demand
for secondary vacancies that will become available.

Source: Xymax Real Estate Institute*

Refer to TOKYO 23 WARDS | Supply of New Office Space 2018 &Office Stock Pyramid 2018, December 7, 2017

Office Market Report | Tokyo | Q1 2018
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2018 Xymax Corporation. All rights reserved.

3

Xymax Real Estate Institute

Figure 7: Paying Rent Index

Paying Rent

120

Figure 7 shows changes in the Paying Rent Index,
Q1 2009
105

110
100

which covers both new lease rents and existing leaserents. The index in Q1 2018 was 90, a rise of 1 point.

Q1 2010100

90

Q1 201890

80
Q3 201377

70
60

It has remained on a mild rising trend since Q3 2013.

Free Rent
Figure 8 shows the trend of the ratio of new lease
contracts with free rent to all new lease contracts

Paying Rent Index

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

88

91

92

89

90

rent period (Average Free Rent Month). The Average

Source: Xymax Real Estate InstituteFree Rent Month of all new lease contracts was 2.9

Figure 8: Free Rent

months in Q1 2018, up 0.3 months from the previous

1 day or more (%)

Free Rent
Granted(left scale)quarter, while that of contracts with free rents was 3.9

2 months or more (%)

months, also up 0.3 months.

6 months or more (%)

Average
Free Rent(rightscale)(Ratio of Free Rent Granted) and the average free

All new lease contracts (month)
New lease contracts with free rent (month)

100%

7
6
5
4
3
2
1
0

80%
60%

40%
20%
0%

Although the free rent ratio and number of months
rose in Q1 2018 partly due to moves to secure unit
rent by granting free rent for a long period, thenumber of free rent months is on a declining trend in
the overall market. However, while the ratio of free

Ratio ofFree Rent
GrantedQ1 2017

Q2 2017

Q3 2017

Q4 2017

2018Q1

1 day +

67.8%

72.3%

73.1%

73.7%

73.9%

2 mon. +

52.1%

56.3%

58.0%

61.4%

65.8%

15.1%

12.6%

14.0%

18.0%

2.7

2.4

2.6

2.9

3.7

3.3

3.6

3.9

6 mon. +14.9%
AverageAll
2.6
Free Rent
w/ FR
3.8
Month
Source: Xymax Real Estate Instituteamount of free rent has become common practice,such as during construction work after moving in.

Market Cycle
Figure 9 plots vacancy rates on the horizontal axis

Figure 9: Market Cycle

and the New Contract Rent Index on the vertical axis

180

on a quarterly basis. It shows the cyclicality of theQ2 2008160

rent of 6 months or more is low, granting a certain

market, with the chart trending to the lower right in140

2001 (vacancy up, rent down), remaining static in

Q1 2001

120
100

2003–2004, then trending to the upper left in 2005

Q2 2003

Q1 2018(vacancy down, rent up) and to the lower right again

80
Q2 2012

60
0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Q1 2017

Q2 2017

Q3 2017

Q4 2017

Q1 2018

Vacancy Rate

3.76%

3.66%

3.28%

2.96%

2.51%

New Contract Rent Index

108

104

109

106

109

Source: Xymax Real Estate Institute(Vacancy rates before March 2011 are based on data by a major leasing agent)in 2008 (vacancy up, rent down).
The market entered a recovery phase in 2013, withthe trend continuing in 2018. During Q1 2018, thechart moved to the upper left due to a drop in
vacancy rates and a rise in rent.

Office Market Report | Tokyo | Q1 2018
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2018 Xymax Corporation. All rights reserved.

4

Xymax Real Estate Institute

Reference

Figure 10: Major Building Completions (Q1 2018)
Completion

Leasable
space(tsubo)2018/01

36,943

2-11-1 Nihonbashi

2018/01

6,673

Minato5-29-11 Shiba

2018/01

3,771

Chiyoda1-1-2 Yurakucho

2018/0237,087

Month
Year

PurposeSize(tsubo)Autumn2018

Consolidation
by relocation

13,280

May 2020

Betterefficiency

5,400

Autumn2018

Better facility

1,480

Dec 2018

Better locationand efficiency

974

Feb 2018

Redevelopmentof former
location

900

May 2018

Unknown800

FloorsName

Above Ground /Below Ground

Ward

Sumitomo Fudosan Osaki Garden Tower

24 / 2

Taiyo Seimei Nihonbashi Bldg.

27 / 5Chuo

G-BASE Tamachi

18 / 0Tokyo Midtown Hibiya

35 / 4Address

Shinagawa 1-1-1 Nishishinagawa

Source: Compiled by Xymax Real Estate Institute based on information released by companies

Figure 11: Major Office Relocations (Q1 2018)
Company
Sega Sammy Group

Mitsubishi Shokuhin

From
Canal Side Building
Shinagawa Ward

Tokyo Ryutsu Center
Ota Ward

To
Sumitomo Fudosan Osaki
Garden Tower
Shinagawa Ward

(Tentative)
Kasuga/Korakuen Ekimae
Redevelopment South Block
SA Tower
Bunkyo WardJapan Securities
Dealers Association
Ohba
Nippon Thompson

OGIS-RI

Cnuo Ward

Taiyo Seimei Nihonbashi
Building

Company building

Kowa Hitotsubashi Building

Meguro Ward

Chiyoda Ward

Takanawa Center
Building

Sumitomo Shibakoen
Building

Minato Ward

Minato Ward

Shinagawa Intercity
Tower A

Sumitomo Fudosan Osaki
Garden Tower

Minato Ward

Shinagawa Ward

Tokyo Shoken Kaikan

Cnuo Ward

Source: Complied by Xymax Real Estate Institute based on information released by companies.
The sizes of office space are estimates.

Office Market Report | Tokyo | Q1 2018
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2018 Xymax Corporation. All rights reserved.

5

Xymax Real Estate Institute

Overview of Researches
Increase and Decreasein Vacant Space

Vacancy Rate

Description

Main Point

Vacancy Turnover Ratio

Vacant space versus total office stock in themarket.

A quarterly increase and a quarterly decrease The ratio of the vacant space leased during
Office rent index based on new contract rents.
in volume of vacant space in the market.
the quarter to all the vacant office stock in the This index uses a statistical method to remove
market.
property-specific influences such as size andage of buildings.

Supply and demand balance in the market

Supply and demand balance in the market

Supply and demand balance in the market

SectorOffice Building

MarketTokyo 23 Wards

Building Size

All

All

ReleaseData Source
Data Used in
Recent Quarter

New Contract Rent Index

All

Level of contract rents

All / Large / Small & Medium

Every Quarter
Data of available vacant spaces andData of available vacant spaces andData of available vacant spaces andData of new contract rents including CAM
buildings. Independently collected by Xymax. buildings. Independently collected by Xymax. buildings. Independently collected by Xymax. charge. Independently collected by Xymax.
32,044 buildings• Vacancy rate
= vacant space ÷ rentable space• Vacant Space
Total available vacant space in completedbuildings as of the time of the research.

19,408 contracts• Increase in volume of vacant spacea. Space in existing buildings formerly
occupied by tenantsb. Total rentable area of new completions• Decrease in volume of vacant spacea. Space in existing buildings leased under a• Rentable Space
new agreement
Rentable space of completed buildings as of b. Space in new completions but lease issigned prior to the completion
How to Calculate the time of the research.
c. Space that had been vacant but the owner
Where rentable space is not available, thedecided not to leaserentable space is estimated from the grossfloor area of the building using the formula
Where rentable space is not available, thedeveloped in the joint study with therentable space is estimated from the grosslaboratory of Professor Naoki Kato at Kyoto floor area of the building using the formula
University Graduate School of Engineering.
developed in the joint study with thelaboratory of Professor Naoki Kato at Kyoto
University Graduate School of Engineering.

19,408 contracts

683 contracts• Vacancy Turnover Ratio= Volume of vacant space leased during thequarter ÷ (Initial vacancy + Vacancy added
during the quarter)
Then, compute the four-quarter moving
average amount with the ratio derived fromthis formula.

1) Develop a rolling hedonic model(overlapping period: five quarters) based on
the collected new contract data withproperty-specific factors as variables(location, building size, building age,facilities, date of signing of lease, etc.).

2) Estimate the quarterly contract rent by• Volume of vacant space leased during theassigning the values of a typical building toquarter: Same as the "decrease in volume of the model developed in the preceding step.
vacant space).
• Initial vacancy: Total volume of completed 3) The New Contract Rent Index is the rent
buildings that are available for lease as of the estimated in the preceding step based on Q1start of the quarter.
2010 as the base point (=100).
• Vacancy added during the quarter: Same as
the "increase in volume of vacant space"
This model shows changes in new contract
rents after removing property-specificvariables.

Overview of Researches
Contract Rent DI

Description

Main Point

Paying Rent Index

Index of changes in new contract rents. Calculated bycounting and comparing the buildings where rent has
increased and those where rent has decreased.

Index of changes in paying rents (new and existing contract Distribution of free rent and average length of free rent period.
Free rent is the time lag between the start of the contract andrents).
the start of the rent payment.

Direction of contract rent trends

Level of rents paid by tenants

SectorOffice Building

MarketTokyo 23 Wards

Building Size

All

All

ReleaseData Source
Data Used in
Recent Quarter

Free Rent Granted (%) &Average Free Rent (Month)Market trends that are not reflected in contract rents

All

Every Quarter
Data of new contract rents including CAM charge.
Independently collected by Xymax.

Data of new and existing contracts signed for buildings
under management by Xymax.

1,075 contracts

3,730 contracts

Data of new contracts signed for buildings undermanagement by Xymax.
111 contracts

1) Compare the data of new contract rent per tsubo withthat in the 6-month prior period in the same building.
Each contract was counted separately into three categories:
buildings with"rent increase”,"no change” or“rent decrease”

1) Calculate the rent per tsubo of each tenant from the data • Free Rent Periodof new and existing lease contracts and memorandums.
The period between the start of the contract and the start2) Develop a rolling hedonic model (overlapping period:of the rent, shown in number of days.
five quarters) based on the rents calculated in the preceding • Ratio of Free Rent Granted
step (the "paying rent") with property-specific factors as
The ratio of contracts with free rent in all the new contracts
variables (location, building size, building age, facilities,(excl. contracts for expansion within the building anddate of signing of lease, etc.).
recontracts)
3) Estimate a quarterly contract rent by assigning the values • Average Free Rent (Month) of All the Contracts2) Calculate the percentage of buildings with “rentof a typical building to the model developed in the
The simple average of the free rent period including lease
preceding step.
contracts with no free rent.
How to Calculate decrease” and buildings with “rent increase”.
4) The Paying Rent Index is the rent estimated in the• Average Free Rent (Month) of Contracts with Free Rent
3) Subtract the percentage of buildings with “rent decrease” preceding step based on Q1 2010 as the base point (=100). The simple average of the free rent period of leasefrom the percentage of buildings with “rent increase”. This
contracts with free rent.
outcome is the Contract Rent Diffusion Index (DI).
With this method, influences from replacement of sample
data and deterioration of buildings over age are removed In some cases, the rent agreed in a lease contract includes
from the result.
CAM charge, and then, for a certain period of time, the rent
is reduced to the CAM charge equivalent or closer level, butsuch contracts are excluded from this research.

Office Market Report | Tokyo | Q1 2018
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2018 Xymax Corporation. All rights reserved.

6

Xymax Real Estate Institute

Appendix
Xymax REI Research Updates
Average Offer Periods of Offices

February 2018 – April 2018

February 1, 2018

・

The average offer period for blocks used as office in the Tokyo 23 Wards is five months.

・(By location) Five central wards: five months; 18 peripheral wards: six months

・(By size (gross floor area)) Less than 5,000 tsubo: five months; 5,000 tsubo or more: four months

・(By building age) Less than 20 years: four months; 20 years or older: five months

・(By size of office block) Less than 100 tsubo: five months; 100 tsubo or more: five months

Corporate Activity and Workstyle Reforms as Seen in Office Relocation
・March 13, 2018

Xymax Real Estate Institute conducted a questionnaire survey of companies that moved into a new office between
2016 and 2017 and summarized the relationship between office demand and workstyles and the changes in such
relationship as seen in companies' office relocation behavior.

・In terms of the type of office relocation, “relocation for expansion” was the most popular (46.6%), followed by “newopening” (26.2%) and “relocation for downsizing” (13.6%), indicating robust demand for offices.

・

The most popular reason for the relocation was “space became small due to personnel increase” (41.7%). 28.6% ofcompanies chose “to heighten motivation of employees,” indicating companies' high interest in employee
satisfaction.

・In choosing an office, companies placed the most importance in “rent,” “size of space” and “proximity to nearest
station.” On the other hand, the top requirement that was forsaken was also “rent.” This indicates that a certain
number of companies increased their budget after struggling to find an office that met their requirements.

・In terms of difficulties companies faced between considering relocation and completion of the move, the top
replies included “narrowing down the properties,” “confirming the layout plan” and “negotiating contract terms (e.g.
rent).”

・

60.7% of companies introduced a new office layout when moving into a new office in order to improve workstyles.
Specific examples include “an open meeting space,” “space for employees to refresh” and “ABW”*.

・ The most popular purpose of introducing a new office layout was to “improve comfort of the office space” (34.5%),
indicating companies' awareness toward employee satisfaction.
*ABW (Activity Based Working): A layout with a variety of work areas that can be chosen according to the work, such asbooths for concentrating on solo work and space to collaborate in a team.

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 2018
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2018 Xymax Corporation. All rights reserved.

7