Xymax Real Estate Institute

Office Market Report
Tokyo | Q1 2020
April 28, 2020

Summary

In Q1 (January–March) 2020, the office market of the 23 wards of Tokyo (“Tokyo 23 Wards”) remained robust
as demand for office space was strong and new vacancies were filled promptly.



The vacancy rate was 0.71%, down 0.07 points from the previous quarter. In terms of the increase anddecrease of vacancies, the decrease outstripped the increase for the third consecutive quarter, as 150,000
tsubo (1 tsubo = approx. 3.3 sqm) increased and 162,000 tsubo decreased. The vacancy turnover ratio,
which is the rate of decrease of vacant office stock, dropped 3.9 points quarter on quarter to 50.5%.

The new contract rent index, the level of new lease rent, was 137, up 9 points from the previous quarter.
The contract rent diffusion index, which is the percentage of buildings with a rise in new rent minus thatof buildings with a drop in new rent, remained above zero for the twentieth consecutive quarter at +43.

The paying rent index, which includes both new and existing rents, was 101, up 1 point quarter on quarter.



The average free rent months of lease with free rent was 1.2 months, 0.1 months less from theprevious quarter, and the ratio of free rent offered was 36.6%, down 4.2 percentage points.



While the new coronavirus is feared to have a negative impact on the economy, no impact was seen on
office market indicators in the quarter under review.

Office Market Report | Tokyo | Q1 2020
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 © 2020 Xymax Corporation. All rights reserved.

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Vacancy

Figure 1: Vacancy Rate (by Area)

Figure 1 shows the vacancy rates in Tokyo 23

Tokyo 23 Wards
Tokyo 5 Central Wards
Tokyo 18 Peripheral Wards

10%

Wards, 5 Central Wards (Chuo, Chiyoda, Minato,

8%

Shibuya, and Shinjuku Wards), and 18 Peripheral

6%

Wards since 2011. The rate in Q1 2020 dropped 0.07

4%

points in the 23 Wards to 0.71%, 0.09 points in the 52%

Central Wards to 0.54%, and 0.01 points in the 18

0%

Peripheral Wards to 1.27%. Companies’ needs forQ1 2019

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Tokyo 23 Wards

0.81%

0.87%

0.79%

0.78%

0.71%

Tokyo 5 Central Wards

0.55%

0.59%

0.62%

0.63%

0.54%

Tokyo 18 Peripheral Wards

1.65%

1.77%

1.36%

1.28%

1.27%

expanding their offices remained high, which has led
to record low vacancy rates in all areas.
The reasons for the drop in vacancy rates include
companies placing priority on securing office space,large, new office buildings being nearly fully

Figure 2: Vacancy Rate (by Size)
All Buildings

Large Buildings

Small & Medium Buildings

occupied at the time of completion, and vacancies

12%

due to companies relocating to such new office10%buildings being filled immediately.

8%
6%
4%

Figure 2 shows the vacancy rates of all sizes of2%

buildings, large buildings (gross floor area (GFA):

0%5,000 tsubo or more), and small & medium buildings(GFA: less than 5,000 tsubo) in Tokyo 23 Wards since
Q1 2019

Q2 2019

Q3 2019

Q4 2019

Q1 2020All Buildings

0.81%

0.87%

0.79%

0.78%

0.71%

Large Buildings

0.68%
0.95%

0.79%
0.96%

0.73%
0.86%

0.74%
0.83%

0.58%
0.85%

Small & Medium Buildings

2011. In Q1 2020, the rate dropped among large
buildings by 0.16 points to 0.58% and rose amongsmall & medium buildings by 0.02 points to 0.85%.

Figure 3: Increase and Decrease in Vacancies(23 Wards, All Sizes)(tsubo)Increase

Decreasevacancies. The increase was 150,000 tsubo and the

Vacancy Rate (right scale)

4000009%3500008%3000007%6%2500005%2000004%1500003%100000Figure 3 indicates the increase and decrease in

2%

50000

1%

0

0%

decrease was 162,000 tsubo in Q1 2020. The
decrease exceeded the increase for the third
consecutive quarter, as new properties were nearly
fully occupied at completion and vacancies ofexisting buildings were also promptly filled.
Both increases and decreases in vacancies weresignificantly larger than in the previous quarter as

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Increase

98,00063,00077,00054,000150,000

Decrease

106,000

60,00086,00056,000162,000

Vacancy (right scale)

0.81%

0.87%

0.79%

0.78%

0.71%

there was a greater amount of new supply of vacant
space from multiple large office buildings that were
newly completed.

Office Market Report | Tokyo | Q1 2020
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 © 2020 Xymax Corporation. All rights reserved.

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Figure 4 shows the vacancy turnover ratio (four-

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

quarter moving average), the rate of vacancies
leased to tenants during the quarter to the total

55%
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%

Q1 202050.5%vacant office stock (vacant office stock at start ofquarter + vacancies added during the quarter). The
ratio remained high at 50.5% in Q1 2020, up 3.9
points from the previous quarter. With the ratio
trending at around 50% over the past year, vacancy
turnover in the office market continues to be robust.

Vacancy TurnoverQ1 2019

Q2 2019

Q3 2019

Q4 2019

Q1 2020

53.6%

50.7%

49.7%

46.6%

50.5%

New Contract Rent

Figure 5: New Contract Rent Index
180(Q1 2010=100)

160

Figure 5 is the new contract rent index, which is
the rent level for new lease contracts. The index forQ2 2008161
Q1 2020
137

140
120

Q1 2020 was 137, up 9 points quarter on quarterand up 14 points year on year. New rent hascontinued to rise since Q2 2012. Due to record low

100

vacancy rates in Tokyo 23 Wards and the scarcity of

Q2 20127680

vacant office stock in the market, as well as the60completion of many large office buildings in central

New Contract Rent Index

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Q1 2020

123

127

135

128

137

Figure 6: New Contract Rent Index (by Size)
200

Tokyo during Q1 2020, more lease contracts wereconcluded at high rent levels.

Figure 6 shows the new contract rent index bysize of building. The index for large buildings with a(Q1 2010=100)180

GFA of 5,000 tsubo or more rose by 5 points quarter160

on quarter to 132, and that for small & medium

140
120

buildings with a GFA of less than 5,000 tsubo

100
80

increased by 10 points to 139. The rising trend since60

Q2 2012 has continued in both sizes of buildings.
Small & Medium (GFA less than 5,000 tsubo)

Large (GFA 5,000 tsubo or more)

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Large Buildings

119

118

127

127

132

Small & Medium Buildings

122

125

135

129

139

Office Market Report | Tokyo | Q1 2020
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 © 2020 Xymax Corporation. All rights reserved.

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Figure 7 is the contract rent diffusion index (DI)Figure 7: Contract Rent DI(the percentage of buildings with a rent rise minus

Rent increased (percentage of buildings) (left scale)
Rent decreased (percentage of buildings) (left scale)that of buildings with a rent decline), which indicatesContract Rent DI (right scale)Contract Rent DI (four-quarter moving average) (right scale)

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

Q3 2007
51

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

Q1 2020
43

Q2 2009-75

Contract Rent DI

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Q1 2020

19

34

40

38

43

the direction of changes in new contract rents. The
DI in Q1 2020 was +43, indicating there were morebuildings with a higher new rent than six months
ago than those with a lower new rent. The DI has
remained above zero for 20 consecutive quarters.

Paying Rent
Figure 8 shows the paying rent index, which

Figure 8: Paying Rent Index

includes both new lease rents and existing lease rents.
The index in Q1 2020 was 101, up 1 point quarter on

120 (Q1 2010=100)
Q1 2009110
105

quarter and up 7 points year on year. The upward

Q1 2020101100

trend since Q3 2013 has continued. Negotiations for90

raising the rent upon renewal of contract have been

80

taking place on the back of continued strong demand

Q3 201377

70

for offices, which are likely to have led to the rise in60

paying rent.

Paying Rent Index

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Q1 2020

94

96

98

100

101

Free Rent
Figure 9 indicates the percentage of new lease

Figure 9: Free Rent
Free Rent Granted(left scale)
Average Free Rent
(right scale)

100%

contracts with free rent to all new lease contracts

1 day or more (%)
2 months or more (%)(ratio of free rent offered) and the average free

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

7
6
5
4
3
2
1
0

80%
60%
40%
20%
0%

rent period (average free rent months). In Q1 2020,
the average free rent months were 3.3 months
among lease contracts with free rent, 0.1 months
more than the previous quarter, and 1.2 months
among all new lease contracts, 0.1 months less thanthe previous quarter.

Ratio ofFree Rent
GrantedAverage
Free Rent
Months

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Q1 2020

1 day +

46.3%

47.3%

45.9%

40.8%

36.6%

2 mon. +

31.4%

33.0%

31.0%

28.3%

26.8%

6 mon. +

8.2%

11.8%

12.8%

8.7%

7.3%

All

1.5

1.7

1.6

1.3

1.2

w/ FR

3.2

3.5

3.6

3.2

3.3

The ratio of free rent offered, which had been
dropping since 2011, has remained flat since around2016, indicating that the custom of offering free rent
has become common across the market. The drop in
the ratio in Q1 2020 was likely a result of lessors’
long-standing advantage reflected in free rent.

Office Market Report | Tokyo | Q1 2020
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 © 2020 Xymax Corporation. All rights reserved.

4

Xymax Real Estate InstituteMarket Cycle

Figure 10: Market Cycle

Figure 10 plots the vacancy rate on the horizontal

180

scale and the new contract rent index on the vertical

Q2 2008160

scale on a quarterly basis. It shows the cyclicality of

Q1 2020140

the market, with the chart trending to the lower

Q1 2001

120

right in 2001 (vacancy up, rent down), remaining flat

Q2 2003100

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

80

Q2 2012

60
0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Vacancy Rate

0.81%

0.87%

0.79%

0.78%

0.71%

New Contract Rent Index

123

127

135

128

137

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

2005 (vacancy down, rent up) and to the lower rightagain in 2008 (vacancy up, rent down).
The office lease market entered a recovery phasein 2013, with the trend continuing in Q1 2020.
However, the chart moved to the upper left due to adrop in the vacancy rate and a rise in new rent
compared to the previous quarter.
Although office market indicators have continued
in their trends in Q1 2020, there have been somecases where tenants have refrained from relocating
their offices due to the new coronavirus outbreak.

Office Market Report | Tokyo | Q1 2020
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 © 2020 Xymax Corporation. All rights reserved.

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Xymax Real Estate Institute

Reference
Figure 11: Major Building Completions (Q1 2020)
FloorsAbove Ground /Below Ground
36/3

Ward

Address

Completion

Total floorarea(tsubo)Minato1-17-1 Toranomon

2020/01

52,310YOTSUYA TOWER

31/3

Shinjuku

1-6-1 Yotsuya

2020/01

42,227KANDA SQUARE

Chiyoda 2-2-1 Kanda Nishikicho

2020/02

25,790Otemachi One Tower

21/1
40/5

Chiyoda1-2-1 Otemachi

2020/02

63,949Kamiyacho Trust Tower

38/3

Minato4-1-1 Toranomon

2020/03

59,045

Toyosu Bayside Cross Tower

36/2

Koto

2-2-1 Toyosu

2020/0355,886

PurposeSize(tsubo)NameToranomon Hills Business Tower

Source: Complied by Xymax Real Estate Institute based on information released by the companies.

Figure 12: Major Office Relocations (Q1 2020)
Company

Yusen Logistics

From
Sumitomo Fudosan

Shinagawa Seaside Park

Shiba-Koen Tower

Tower

Minato Ward

Shinagawa Ward

Toranomon 30 MoriAI CROSS

Bldg.
Minato Ward
Sumitomo Fudosan

TIS

Shinjuku Grand Tower
Shinjuku Ward

Intec

To

Atago East Bldg.
Minato WardToyosu Bayside Cross Tower
Koto Ward

Intec Tokyo Bldg.

Toyosu Bayside Cross Tower

Koto Ward

Koto Ward

Month
Year
May 2020

May 2020

Greater
efficiency

Expansion

500

130

FY2021

Consolidation 10,000*

FY2021

Consolidation 10,000*

Source: Compiled by Xymax Real Estate Institute based on information released by companies.
The sizes of office space are estimates.
*The office size for TIS and Intec is 10,000 tsubo combined.

Office Market Report | Tokyo | Q1 2020
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 © 2020 Xymax Corporation. All rights reserved.

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Survey Overview
Increase and Decreasein Vacant Space

Vacancy Rate

Description

Main Point

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

GFA 300 tsubo or more

GFA 300 tsubo or more

GFA 300 tsubo or more

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.
8,584 buildings

3,812 contracts• Vacancy rate
= vacant space ÷ rentable space• Vacant Space
Total available vacant space in completedbuildings as of the time of the research.

How toCalculate

Level of contract rents

Tokyo 23 Wards
GFA 300 tsubo or more

ReleaseData Used in
Recent Quarter

Supply and demand balance in the market

Office Building

MarketData Source

New Contract Rent Index

Vacant space versus total office stock in themarket.

SectorBuilding Size

Vacancy Turnover Ratio• 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 is
the time of the research.
signed prior to the completionc. 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.

Contract Rent DI

3,812 contracts

198 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.

Paying Rent Index

Free Rent Granted (%) &Average Free Rent (Month)

Description

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
rents).
period. Free rent is the time lag between the start of thecontract and the start of the rent payment.

Main Point

Direction of contract rent trends

Level of rents paid by tenantsTokyo 23 Wards

MarketBuilding SizeAll

Data Used in
Recent Quarter

How toCalculate

GFA 300 tsubo or moreAll

Every Quarter

ReleaseData Source

Market trends that are not reflected in contract rents

Office Building

SectorData of new contract rents including CAM charge.
Independently collected by Xymax.
491 contracts

Data of new and existing contracts signed for buildings
under management by Xymax.
4,148 contracts

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

1) Compare the data of new contract rent per tsubo with
1) Calculate the rent per tsubo of each tenant from the data • Free Rent Periodthat in the 6-month prior period in the same building.
of new and existing lease contracts and memorandums.
The period between the start of the contract and the start
Each contract was counted separately into three categories: 2) Develop a rolling hedonic model (overlapping period:of the rent, shown in number of days.
buildings withfive quarters) based on the rents calculated in the• Ratio of Free Rent Granted"rent increase”,
preceding step (the "paying rent") with property-specific
The ratio of contracts with free rent in all the new"no change” orfactors as variables (location, building size, building age,contracts (excl. contracts for expansion within the building“rent decrease”
facilities, date of signing of lease, etc.).
and 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 leasedecrease” and buildings with “rent increase”.
preceding step.
contracts with no free rent.
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 2020
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 © 2020 Xymax Corporation. All rights reserved.

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Appendix: Xymax REI Research Updates (February 2020 – April 2020)
Changes in the Use of Real Estate Over Time –Fukuoka
・March 24, 2020

This report is a summary of the results of a survey on the changes in the use of real estate in central Fukuoka, namely
the Tenjin/Hakata/Gofukumachi area, between 1997 and 2017, following a report on Osaka city that was released in
2017.

Best Practices of Small-to-Medium-Sized Buildings – The 2nd Report
・April 7, 2020

This report is a compilation of excellent initiatives by building owners who own small-to-medium-sized buildings
and lease them out, based on a case study through a questionnaire survey and interview with the owners.

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

Office Market Report | Tokyo | Q1 2020
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 © 2020 Xymax Corporation. All rights reserved.

8