Xymax Real Estate Institute

Office Market Report
Tokyo | Q1 2022
April 27, 2022

Summary

In Q1 (January–March) 2022, the office market of the 23 wards of Tokyo (“Tokyo 23 Wards”) showed signsof change as vacancy rates rose more mildly and rent levels dropped marginally.



The vacancy rate was 3.60%, up 0.02 pt from Q4 2021. The availability rate, which includes space forwhich a cancellation notice has been given and vacant space currently available (i.e., accepting tenant
applications), was 6.09%, up 0.29 pt from Q4 2021. The increase and decrease in vacant space showedthat the increase outweighed the decrease for the eighth consecutive quarter, as vacant space increased
by 151,000 tsubo (1 tsubo = approx. 3.3 sqm) and decreased by 148,000 tsubo. The vacancy turnoverratio, which is the ratio of vacant spaces leased to tenants, rose 0.2 pt to 26.7%.

The new contract rent index, i.e., the level of new lease rent, was 86, down 2 points from Q4 2021. The
contract rent diffusion index, which is the percentage of buildings with a rise in new rent minus that ofbuildings with a drop in new rent, rose 5 points to -26, a negative value for the sixth consecutive quarter.



The paying rent index, which includes both new and existing rents, was unchanged at 100.

The average number of free rent months among all new lease contracts was 2.6 months, and the ratioof free rent offered was 75.4%.

Office Market Report | Tokyo | Q1 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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Vacancy

Figure 1: Vacancy Rate & Availability Rate
Vacancy Rate

Figure 1 shows the vacancy rate and the

Availability Rateavailability rate*1.*2 The vacancy rate of Tokyo 23

12%
10%

Wards in Q1 2022 rose 0.02 pt from Q4 2021 to8%
6%

3.60%, and the availability rate rose 0.29 pt to 6.09%.

4%

Although both rates have risen on the back of an2%increase in cancellations and downsizing of offices,0%

the pace of the rise has slowed compared to lastQ1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Vacancy Rate

2.30%

2.96%

3.41%

3.58%

3.60%

Availability Rate

5.31%

5.75%

5.91%

5.80%

6.09%

year.
*1

Availability rate: The sum of currently vacant space,
space for which a cancellation notice has been given andspace that is accepting tenant applications (before theprevious tenant has left) divided by rentable space*2
Figure 2: Increase and Decrease in Vacancies (23 Wards, All Sizes)
Increase(tsubo)Decrease

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

Vacancy Rate (right scale)

400000

9%
8%
7%
6%
5%
4%
3%
2%
1%
0%

35000030000025000020000015000010000050000
020220406.pdf

Figure 2 is the increase and decrease in vacant
space. In Q1 2022, the increase in vacant space was
151,000 tsubo, while the decrease was 148,000
tsubo. The increase exceeded the decrease for theeighth consecutive quarter. Office relocations seemQ1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Increase

164,000

258,000

190,000

162,000

151,000

Decrease

116,000

179,000

144,000

146,000

148,000

Vacancy (right scale)

2.30%

2.96%

3.41%

3.58%

3.60%

to have been set into motion in preparation for theend of the COVID-19 pandemic, with somecompanies that rent large space reviewing theiroffice strategy and reducing their office space, while

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

4-quarter moving averagesome SMEs with robust earnings expanding theiroffice space to accommodate their increased
workforce.

70%
60%
50%
40%
30%
20%
10%
0%

Q1 2022
26.7%

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

Vacancy TurnoverQ1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022

30.9%

34.5%

27.1%

26.5%

26.7%

during the quarter). The ratio in Q1 2022 remained
low at 26.7%

Office Market Report | Tokyo | Q1 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 4 is the new contract rent index, which

Figure 4: New Contract Rent Index
130(Q1 2020=100)

indicates the rent level for new lease contracts. The

Q2 2008117

120

Q2 2020104

110

index for Q1 2022 was 86, down 2 points from Q41002021 and down 4 points from Q1 2021. Some lessors

90

Q2 20126780

Q1 202286

70
60

appear to be indicating reduced rent as they place
greater priority on filling vacancies than the rent
level on the back of the rise in vacancy rates. The

New Contract Rent Index

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022

90

89

86

88

86

declining trend of rent is expected to continue, since
the contract rent diffusion index is in negative
territory and the ratio of free rent offered is rising.

Figure 5: New Contract Rent Index (by Size)130(Q1 2020=100)

120

Figure 5 is the new contract rent index by size of110

building. The index for large companies with a gross

100
90

floor area (GFA) of 5,000 tsubo or more was down 58070

points from Q4 2021 at 82, while that for small &60

medium buildings with a GFA of 300–4,999 tsubo
Small & Medium (GFA less than 5,000 tsubo)

Large (GFA 5,000 tsubo or more)

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Large Buildings

89

89

83

87

82

Small & Medium Buildings

93

90

91

90

92

Figure 6: Contract Rent DI

Figure 6 is the contract rent diffusion index (DI)Rent increased (percentage of buildings) (left scale)
Rent decreased (percentage of buildings) (left scale)(the percentage of buildings with a rent rise minus

Contract Rent DI (right scale)

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

Contract Rent DI (four-quarter moving average) (right scale)Q3 200751

Q1 2022-26

Q2 2009-75

was up 2 points at 92.

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

that of buildings with a rent decline), which indicatesthe direction of change in new contract rent.
Although the DI in Q1 2022 rose 5 points from Q42021 to -26, it is in negative territory for the sixth
consecutive quarter. A negative DI means there weremore buildings with lower new rent that those with

Contract Rent DI

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022

-29

-36

-31

-31

-26

higher new rent compared to six months ago.

New Contract Rent
Office Market Report | Tokyo | Q1 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
120 (Q1 2020=100)
Q1 2009110
104

Figure 7 shows the paying rent index, which

Q1 2022100

includes both new lease rents and existing lease rents.

100

The index lags new contract rent. The index in Q1

902022 was unchanged from Q4 2021 at 100 amid a80

decline in new lease rent.

Q3 201376

70
60

Paying Rent Index

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022

105

104

103

100

100

Free Rent
Figure 8 shows the percentage of new lease
contracts with free rent (FR) to all new lease contracts(ratio of FR offered) and the average free rent period

Figure 8: Free Rent

(average FR months). In Q1 2022, the ratio of

1 day or more (%)

Free Rent Granted(left scale)

2 months or more (%)

offering FR for one day or more was 75.4%, while that

6 months or more (%)
New lease contracts with free rent (month)

Average Free Rent
(right scale)All new lease contracts (month)

100%

7
6
5
4
3
2
1
0

80%
60%
40%
20%
0%

for six months or more was 17.5%. The average
number of FR months was 3.4 months among lease
contract with FR and 2.6 months among all new
contracts. Both the ratio of FR offered and average FR
months showed a significant increase. With contracts
not infrequently offering free rent for six months or

Ratio ofFree Rent
GrantedAverage
Free Rent
Months

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022

1 day +

50.2%

55.5%

65.3%

72.8%

75.4%

2 mon. +

22.5%

26.4%

36.9%

44.1%

53.6%

6 mon. +

1.9%

6.6%

8.4%

12.9%

17.5%

All

1.0

1.3

1.7

2.1

2.6

w/ FR

2.0

2.3

2.6

2.9

3.4

more, offering free rent seems to have become acommon practice in the office market.

Market Cycle
Figure 9 plots the vacancy rate on the horizontal
scale and the new contract rent index on the verticalFigure 9: Market Cycle

scale on a quarterly basis. It shows the cyclicality of120

the market, with the chart trending to the upper left

110

Q2 2008(vacancy down, rent up) from 2005, moving to theQ2 2020

lower right (vacancy up, rent down) in 2008 and

100

90

returning to the upper left (vacancy down, rent up) in

Q1 202280

2010.

Q1 2005

70

Q2 2010

60

0%

1%

2%

Vacancy Rate
New Contract Rent Index

3%

4%

5%

6%

7%

8%

9%

10%

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Q1 2022

2.30%

2.96%

3.41%

3.58%

3.60%

90

89

86

88

86

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

The trend of the office lease market, which had
been in a recovery phase since 2013, seems to havereversed in Q2 2020. The chart trended to the lower
right in Q1 2022, as the vacancy rate rose and newcontract rent index dropped.

Office Market Report | Tokyo | Q1 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 (Q1 2022)
FloorsName

Above ground/

Total
Ward

Address

Completion floor area

Below ground(tsubo)Sumitomo Osaki Twin Bldg West

19/2

Shinagawa5-1-18 Kitashinagawa

Jan 2022

14,729JR Meguro MARK Bldg

13/1

Shinagawa

3-5-8 Nishigotanda

Mar 2022

11,710T-Lite17/2

Minato2-4 Toranomon

Mar 2022

7,933

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

Figure 11: Major Office Relocations (Q1 2022)
Company

From

Pro-Ship

Sumitomo Iidabashi Bldg

Incorporated.

Bunkyo Ward

wevnal inc.

To

TimingSumitomo
Iidabashiekimae Bldg

May 2022

PurposeWork stylereformSize(tsubo)288

Chiyoda Ward

Shibuya Park Plaza

Ebisu Square

Shibuya Ward

Shibuya Ward

May 2022

Greater
efficiency

250

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

Office Market Report | Tokyo | Q1 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

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

Tokyo 23 Wards

MarketGFA 300 tsubo or more

GFA 300 tsubo or more

GFA 300 tsubo or more

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.

11,852 contracts

439 contracts

Data Used in

8,694 buildings

Recent Quarter

11,852 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 new

How to Calculate

GFA 300 tsubo or more

Every Quarter

ReleaseData Source

Level of contract rents

Office Building

SectorBuilding Size

New Contract Rent Index

2) Estimate the quarterly contract rent by assigning thetime of the research.

agreement• Volume of vacant space leased during the quarter: values of a typical building to the model developed in・Availability rateb. Space in new completions but lease is signed

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

＝available space ÷ rentable spaceprior to the completion• Initial vacancy: Total volume of completed

・Available spacec. 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

Total available space, which consist of vacantdecided 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
removing property-specificvariables.

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

536 contracts

Recent Quarter

4,409 contracts

31 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 | Q1 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 | Q1 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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