Xymax Real Estate Institute

Office Market Report
Tokyo | Q3 2022
October 26, 2022

Summary

In Q3 (July–September) 2022, the office market of the 23 wards of Tokyo (“Tokyo 23 Wards”) showed amarginal increase in rent levels amid a mild rise in the vacancy rate.



The vacancy rate was 4.02%, up 0.11 pt from Q2 2022. The vacancy rate reached 4% for the first time inseven years since Q3 2015. The availability rate, which includes space for which a cancellation notice has
been given and vacant space current available (i.e., accepting tenant applications), was 6.11%, down 0.2 pt
from Q2 2022. The increase and decrease in vacant space showed that the increase outweighed thedecrease for the tenth consecutive quarter, as vacant space increased by 192,000 tsubo (1 tsubo = approx.
3.3 sqm) and decreased by 178,000 tsubo. The vacancy turnover ratio, which is the ratio of vacant spaces
leased to tenants, rose 3.4 pt from Q2 2022 to 28.2%.

The new contract rent index, i.e., the level of new lease rent, was 91, up 6 pt from Q2 2022. The contract
rent diffusion index, the percentage of buildings with a rise in new rent minus that of buildings with adrop in new rent, dropped 2 pt from Q2 2022 to -21, a negative value for the eight consecutive quarter.



The paying rent index, which includes both new and existing rents, rose 2 pt from Q2 2022 to 102.

The average number of free rent months among lease contracts with free rent was 3.8 months, theratio of free rent of more than two months was 50.6%, and that of more than six months was 20.7%.

Office Market Report | Tokyo | Q3 2022
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 © 2022 Xymax Corporation. All rights reserved.

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FIGURE 1: VACANCY RATE & AVAILABILITY RATE

Vacancy
Figure 1 shows the vacancy rate and theavailability rate.*1*2 The vacancy rate of Tokyo 23
Wards in Q3 2022 rose 0.11 pt from Q2 2022 to 4.02%.
It is the first time in seven years, since Q3 2015, forthe vacancy rate to rise above 4%. The availability rate
dropped 0.2 pt from Q2 2022 to 6.11%. The
background to the rise in vacancy rate and a drop in
availability rate includes companies’ robust officedemand, which has resulted in vacancies being filled
between the cancellation notice date and the datewhen the tenant leaves amid a continued rise in

FIGURE 2: INCREASE AND DECREASE IN VACANCIES (23WARDS , ALL SIZES )cancellations, and the strong intention of lessors toseek early contract to avoid manifestation of or
prolonged vacancies.
*1

Availability rate: The sum of currently vacant space,
space for which a cancellation notice has been given,and space that is accepting tenant applications (before
the previous tenant has left) divided by rentable space*2

For the rates by size of building and area, see Vacant
Office Space Monthly Report Tokyo | September 2022.
https://www.xymax.co.jp/english/research/images/pdf/
20221005.pdf

Figure 2 is the increase and decrease in vacant
space. In Q3 2022, the increase in vacant space was
192,000 tsubo, while the decrease was 178,000 tsubo.
The increase exceeded the decrease for the tenth
FIGURE 3: VACANCY TURNOVER RATIO (4- QUARTER
MOVING AVERAGE )consecutive quarter. The amount of both the increase
and decrease in vacant space has increased from Q22022, indicating active relocation by tenants.
Figure 3 shows the vacancy turnover ratio, theratio of vacant spaces leased to tenants during thequarter to the total vacant office stock (vacant officestock at start of quarter + vacant space added during
the quarter). Although low at 28.2%, the ratio in Q3
2022 rose slightly from Q2, suggesting that vacancy
turnover is starting to improve.

Office Market Report | Tokyo | Q3 2022
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 © 2022 Xymax Corporation. All rights reserved.

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New Contract Rent

FIGURE 4: NEW CONTRACT RENT INDEX

Figure 4 is the new contract rent index, whichindicates the rent level for new lease contracts. The
index for Q3 2022 was 91, up 6 pt from Q2 2022 andup 5 pt from Q3 2021. Since the vacancy rate has risen
from Q2 and the contract rent DI (see Figure 6), theleading indicator of the new contract rent index,
remains in the negative, it is difficult to determine
whether new rent has bottomed, warranting close
examination of the development of rent going
forward.
FIGURE 5: NEW CONTRACT RENT INDEX ( BY SIZE )Figure 5 is the new contract rent index by size ofbuilding. The index for large buildings with a grossfloor area (GFA) of 5,000 tsubo or more was up 8 pt
from Q2 2022 at 91, while that for small & medium
buildings with a GFA of 300–4,999 tsubo was up 4 pt
at 92. Demand for relatively new, large buildings ingood locations remains strong, hence the strength in
rent.
Figure 6 is the contract rent diffusion index (DI)(the percentage of buildings with a rent rise minusthat of buildings with a rent decline), which indicates

FIGURE 6: CONTRACT RENT DI

the direction of change in new contract rent. In Q3
2022, the DI was -21, down 2 pt from Q2 2022*3 andin negative territory for the eighth consecutive
quarter. A negative DI means there are morebuildings with lower new rent than those with higher
new rent compared to six months ago. Hoping to
avoid prolonged vacancies, some building owners
presented more accommodating conditions.

Contract Rent DI

2021Q32021Q42022Q12022Q22022Q3

-31

-31

-26

-19

-21

*3 The contract rent DI was -3 in Office Market Report Tokyo| Q2 2022. However, it has been revised to -19 due to arecalculation using contract data aggregated after the
release of the report.

Office Market Report | Tokyo | Q3 2022
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 © 2022 Xymax Corporation. All rights reserved.

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Paying Rent

FIGURE 7: PAYING RENT INDEX

Figure 7 shows the paying rent index, which
includes both new lease rents and existing lease rents.
The index lags new contract rent and has less volatility.
In Q3 2022, the index was 102, up 2 pt from Q2, when
the index remained unchanged.

Free Rent
Figure 8 shows the percentage of new lease
contracts with free rent (FR) to all new lease contracts(ratio of FR granted) and the average free rent
period (average FR months). In Q3 2022, the ratio ofgranting FR of 1 day or more was 65.5% and that of

FIGURE 8: FREE RENT

two months or more was 50.6%, down 5.6 pt and 5.5
pt from Q2, respectively. On the other hand, the ratioof granting FR of six months or more rose 2.4 pt to20.7%. The average number of FR months among
lease

contracts

with

FR

was

3.8,

increasingconsecutively since Q1 2021. While the ratio ofgranting FR of less than six months dropped from Q22022, the ratio of granting FR of six months or morerose. Some of the owners of buildings that have hadvacancies for a long time sought to attract tenants by
granting free rent for an extended amount of time.

Market Cycle
Figure 9 plots the vacancy rate on the horizontal

FIGURE 9: MARKET CYCLE

scale and the new contract rent index on the verticalscale on a quarterly basis. It shows the cyclicality ofthe market, with the chart trending to the upper left
(vacancy down, rent up) in 2005, moving to the lower
right (vacancy up, rent down) in 2008, and returning
to the upper left (vacancy down, rent up) in 2010.
In Q3 2022, the chart moved to the upper rightsince both the vacancy rate and new contract rent
Vacancy Rate
New Contract Rent Index

Q3 2021

Q4 2021

Q1 2022

Q2 2022

Q3 2022

3.41%

3.58%

3.60%

3.91%

4.02%

86

88

86

85

91

Note: The vacancy rate before March 2011 is based on data by a major leasing agent.

index rose. However, this appears to be a move amid
the declining phase of the rental market, which has
continued since Q2 2020.

Office Market Report | Tokyo | Q3 2022
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 © 2022 Xymax Corporation. All rights reserved.

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Reference
FIGURE 10: MAJOR BUILDING COMPLETIONS ( Q 3 2022)

FloorsName

Above ground/

Total
Ward

Address

Completion floor area

Below ground(tsubo)KUDAN-KAIKAN TERRACE

17/3

Chiyoda1-6-5 Kudanminami

Jul 2022

20,581OAK KONAN SHINAGAWA

12/1

Minato2-10-4 Konan

Jul 2022

4,940

45/4

Chuo

2-2 Yaesu

Aug 2022

85,880TOKYO MIDTOWN YAESUYAESU CENTRAL TOWER

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

FIGURE 11: MAJOR OFFICE RELOCATIONS ( Q 3 2022)
Company
UCC HOLDINGS CO.,LTD.

SAFIE, INC.

From
Daiwa Onarimon Bldg
Minato Ward

To
Sumitomo Fudosan
Aoyama West Bldg

TimingFeb 2023

Minato Ward

A-PLACE Gotanda Ekimae Bldg

Sumitomo Fudosan

Nikko Gotanda Bldg

Osaki Garden Tower

Shinagawa Ward

Shinagawa Ward

Jul 2023

PurposeLease
Termination
Branch Office
ConsolidationSize(tsubo)
1,100

1,100

Source: Compiled by Xymax Real Estate Institute based on information released by companies.
The sizes of offices are estimates.

Office Market Report | Tokyo | Q3 2022
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 © 2022 Xymax Corporation. All rights reserved.

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Survey Overview
Increase and Decrease

Vacancy Rate and Availability Rate

Description

Main Point

Vacancy Turnover Ratio

in Vacant Space

Vacant space and available space versus total

A quarterly increase and a quarterly decrease in

The ratio of the vacant space leased during the

Office rent index based on new contract rents. This

office stock in the market.

volume of vacant space in the market.

quarter to all the vacant office stock in the market.

index uses a statistical method to remove propertyspecific influences such as size and age of buildings.

Supply and demand balance in the market

Supply and demand balance in the market

Supply and demand balance in the market

Level of contract rents

Office Building

SectorTokyo 23 Wards

MarketBuilding Size

GFA 300 tsubo or more

GFA 300 tsubo or more

GFA 300 tsubo or more

GFA 300 tsubo or more

Every Quarter

ReleaseData Source

New Contract Rent Index

Data of available vacant spaces and buildings.

Data of available vacant spaces and buildings.

Data of available vacant spaces and buildings.

Data of new contract rents including CAM charge.

Independently collected by Xymax.

Independently collected by Xymax.

Independently collected by Xymax.

Independently collected by Xymax.

12,320 contracts

471 contracts

Data Used in

8,749 buildings

Recent Quarter

12,320 contracts• Vacancy rate

• Increase in volume of vacant space• Vacancy Turnover Ratio= vacant space ÷ rentable spacea. Space in existing buildings formerly occupied= Volume of vacant space leased during the quarter period: five quarters) based on the collected new• Vacant Spaceby tenants

÷ (Initial vacancy + Vacancy added during thecontract data with property-specific factors as variables

Total available vacant space in completedb. Total rentable area of new completions

quarter)(location, building size, building age, facilities, date ofThen, compute the four-quarter moving averagesigning of lease, etc.).

buildings as of the time of the research.
• Rentable Space• Decrease in volume of vacant space

1) Develop a rolling hedonic model (overlapping

amount with the ratio derived from this formula.

Rentable space of completed buildings as of the a. Space in existing buildings leased under a newtime of the research.
・Availability rate
How to Calculate ＝available space ÷ rentable space・Available space
Total available space, which consist of vacant

2) Estimate the quarterly contract rent by assigning theagreement• Volume of vacant space leased during the quarter: values of a typical building to the model developed inb. Space in new completions but lease is signed

Same as the "decrease in volume of vacant space).

prior to the completion• Initial vacancy: Total volume of completedc. Space that had been vacant but the ownerbuildings that are available for lease as of the start3) Calculate the rent estimated in the preceding step

decided not to leaseof the quarter.

based on Q1 2020 as the base point (=100) by market• Vacancy added during the quarter: Same as thesegment (four segments).

space and space for which notice of cancellation

the preceding step.

has been given.

Where rentable space is not available, the rentable "increase in volume of vacant space"

Where rentable space is not available, thespace is estimated from the gross floor area of the4) Integrate the figure of the preceding step as a Fisher

rentable space is estimated from the gross floor

building using the formula developed in the jointindex using gross floor area as weight. The New

area of the building using the formula developed study with the laboratory of Professor Naoki Kato

Contract Rent Index of the Tokyo office market is thein the joint study with the laboratory of Professor at Kyoto University Graduate School ofintegrated figure.

Naoki Kato at Kyoto University Graduate School

Engineering.

of Engineering.

This model shows changes in new contractrents after

Survey Overview
Contract Rent DI

Description

Main Point

Average Free Rent (Month)

Index of changes in new contract rents. Calculated byIndex of changes in paying rents (new and existing contract

Distribution of free rent and average length of free rent period.

counting and comparing the buildings where rent has

rents).

Free rent is the time lag between the start of the contract and theincreased and those where rent has decreased.

Direction of contract rent trends

start of the rent payment.

Level of rents paid by tenantsMarket trends that are not reflected in contract rents

Office Building

SectorTokyo 23 Wards

MarketBuilding SizeAll

GFA 300 tsubo or moreAll

Every Quarter

ReleaseData Source

Free Rent Granted (%) &Paying Rent Index

Data of new contract rents including CAM charge.

Data of new and existing contracts signed for buildings

Data of new contracts signed for buildings under management by

Independently collected by Xymax.

under management by Xymax.

Xymax.

Data Used in

569 contracts

Recent Quarter

4,451 contracts

41 contracts

1) Compare the data of new contract rent per tsubo with that 1) Calculate the rent per tsubo of each tenant from the data

• Free Rent Period

in the 6-month prior period in the same building.

of new and existing lease contracts and memorandums.

(Until Q4 2020) The period between the start of the contract andEach contract was counted separately into three categories:2) Develop a rolling hedonic model (overlapping period: five the startof the rent, shown in number of days.

buildings withquarters) based on the rents calculated in the preceding step (Q1 2021 onward) The period for new contracts (excl. contracts for"rent increase”,(the "paying rent") with property-specific factors as variables expansion within building and recontracts) during which rent has"no change” or(location, building size, building age, facilities, date ofcontinuously been reduced to an amount equivalent or close to“rent decrease”

signing of lease, etc.).

CAM charges since the date of contract.

3) Estimate a quarterly contract rent by assigning the values

・Ratio of Free Rent Granted

2) Calculate the percentage of buildings with “rent decrease” of a typical building to the model developed in the
How to Calculate and buildings with “rent increase”.
3) Subtract the percentage of buildings with “rent decrease”

contracts for expansion within the building and recontracts)

4) The Paying Rent Index is the rent estimated in the・Average Free Rent (Month) of All the Contracts

preceding step based on Q1 2010 as the base point (=100).

from the percentage of buildings with “rent increase”. Thisoutcome is the Contract Rent Diffusion Index (DI).

The ratio of contracts with free rent in all the new contracts (excl.

preceding step.

The simple average of the free rent period including lease
contracts with no free rent period.

With this method, influences from replacement of sample

・Average Free Rent (Month) of Contracts with Free Rent

data and deterioration of buildings over age are removed

The simple average of the free rent period of lease contracts with afrom the result.

free rent period

Office Market Report | Tokyo | Q3 2022
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 © 2022 Xymax Corporation. All rights reserved.

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Xymax Real Estate InstituteFor further inquiries please contact below:
Xymax Real Estate Institutehttps://soken.xymax.co.jp | E-MAIL: info-rei@xymax.co.jp

Office Market Report | Tokyo | Q3 2022
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 © 2022 Xymax Corporation. All rights reserved.

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