Xymax Real Estate Institute

Office Market Report
Tokyo | Q4 2016
February 1, 2017

Summary(1 tsubo = approx. 3.3 sq m)

In the December 2016 quarter, the Tokyo 23 Wards' office market continued to see solid demand for officespace; the vacancy rate decreased and the contract rent increased as companies posted strong results andhired more office workers. However, the rental growth was slow and some owners of large buildings orother buildings decided to lower the asking rents.

The vacancy rate was 3.85%, a decrease by 0.23 points. Increase and Decrease in Vacant Space, which isXymax's new indicator released from this quarter, showed that a quarterly decrease in vacant space was
238,000 tsubo while an increase in vacant space was 210,000 tsubo; the decrease exceeded the increase.

New Contract Rent Index (the level of new lease rent) was 107, an increase by 3 points. Contract Rent
Diffusion Index (calculated by subtracting the percentage of buildings with a rent decrease from thepercentage of buildings with a rent increase) was +18, a decrease by 3 points.

Paying Rent Index (the level of new lease rent and that of existing lease rent combined) was 86, an increaseby 2 points.

Average Free Rent Month was 2.8 months, a decrease by 0.3 months. Ratio of Free Rent Granted also
decreased for all the periods.

Office Market Report | Tokyo | Q4 2016
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real Estate
Institute Corporation.
Copyright © 2017 Xymax Corporation. All rights reserved.

1Xymax Reall Estate Instiitute

Vaccancy
Figu
ure 1 shows changes in vvacancy rate
e in Tokyo 23
Wards since 201
11. The vacanncy rate in th
he fourthquaarter of 2016 decreased bby 0.23 pointts
quaarter-on-quarter to 3.85%%. The rate ke
ept
deccreasing sincee the third q uarter of 201
12.
Com
mpanies keep
p expanding their office spacessreflecting the sttrong perform
mance and in
ncrease in
T expandeed the demand for office
office workers. Thisspa
ace in the perriphery 18 waards. How coomfortable
the office for woorkers is now
w important, in addition
henouggh space, whhen tenants choosec
theirto having
office. In the IT, financial, inssurance and real estateindustries, comppanies mentiioned that th
hey want to
imp
prove the gra
ade and locattion of the officeoto
attrract job canddidates.
Figu
ure 2 shows an increase aand a decrea
ase in vacantspa
ace by quarteer (Increase aand Decreasse in VacantSpaace). The dem
mand for offiice space was strong;
vacant space deecreased by 2238,000 tsub
bo thisquaarter, exceeding the increease in vacant space(210,000 tsubo). The demannd for office spaces
exceeded the inncrease in vaccant space foor sevennsecutive qua
arters since t he fourth quuarter of 2014
4.
conThee vacancy rate kept decreeasing; the voolume ofquaarterly increase and decreease also tennd todeccrease.

Neew Contrac
ct Rent
Figu
ure 3 shows changes in N
New Contrac
ct Rent
Inddex, which is the index off the rent in newn lease.
Thee fourth quarrter of 2016 w
was 107, an increaseiby 3points from 104
4 in the previious quarter. Afterbotttoming in th
he second quuarter of 2012
2 at 76, therent continued tot increase. TThe market remained
rtighht, pushing up
u the rent inn new lease agreements.
aket Report | Tokyo | Q4 2016
2Office MarkAll the contents aare as of the datee of this report. Xymax
XCorporationn does not guarantee the accuracy
y or completenesss of the information herein.
Copying, quoting, forwarding, distrributing, reprinting or any other usse of this report iss not allowed withhout prior permisssion from Xymax Real Estate
Institute Corporattion.
Copyright © 2017
7 Xymax Corporation. All rights reseerved.

2Xymax Reall Estate Instiituteure 4 shows changes in N
New Contract Rent Index
Figuby sizes of buildings. The inddex for small and medium
mbuildings (grosss floor area: bbelow 5,000 tsubo) was
107
7, an increasee by 3 pointss and the index for large
buildings (grosss floor area: oover 5,000 tsubo) was 109
9,a decrease by 2 points.
Thee owners of someslarge bbuildings offe
ered a highrent for the remmaining small vacant space while someeoth
her owners struggled to fiind a tenant and reduced
dthe rent. Constructions of la rge buildings continued
in recentryears. Such new buuildings are alreadyadiffferent to eachh other due tto their age and location
andd are beginning to face inntensified competition.
Figuures 5 and 6 are changess in Contractt Rent
Diffusion Indexx (DI). They show the dirrection of theecha
ange in rent ofo new contra
ract. The DI inn this quarter
wass +18 for Tokkyo 23 Wardss, a decreasee by 3 points,,
andd +15 for cen
ntral three waards, a decreease by 3points. The DI reemained possitive for seveencon
nsecutive qua
arters, meaniing the build
dings with arent increase coontinued to eexceed the buuildings withha reent decrease.. However, thhe DI did nott go up but
conntinued to remain flat at aaround 20.
Commpanies tryinng to relocatte office to exxpand thespa
ace are strugg
gling to find a space thatt satisfies
their requirements because Tokyo 23 Wa
ards is having
glimited availability. Some co mpanies solv
ved thissitu
uation by imp
proving the uuse of curren
nt office andposstponing the relocation. SSome other companies
csolvved it by hav
ving a satellite
te office away
y from theirhea
adquarters.
A greatgvolume of new largee buildings iss expected toobe completed in
n 2018 and b
beyond. This means that
there will be new
w vacant spaace after tenaants relocate
eto thet new completions. Somme companie
es requiring alarg
ge office spacce want to chheck the leasse terms ofsucch new vacant space in exxisting buildings before
decciding whether to relocatee to the neww
1com
mpletions.

1To
okyo 23 Wardss Supply of Neew Office Spacce 2017 &Office Stock Pyram
mid 2017 releaased on December 26, 2016
6ket Report | Tokyo | Q4 2016
2Office MarkAll the contents aare as of the datee of this report. Xymax
XCorporationn does not guarantee the accuracy
y or completenesss of the information herein.
Copying, quoting, forwarding, distrributing, reprinting or any other usse of this report iss not allowed withhout prior permisssion from Xymax Real Estate
Institute Corporattion.
Copyright © 2017
7 Xymax Corporation. All rights reseerved.

3

Xymax Reall Estate InstiitutePayying RentFigu
ure 7 shows changes in P
Paying Rent Index, inwhiich new leasee rents and eexisting leasee rents arebotth covered. TheT Paying Reent Index in thet fourthquaarter of 2016 was 86, an i ncrease by 2 points, andconntinued the modest
mgrow
wth started since the thirddqua
arter of 2013. Not only thhe increase inn rent of neww
leasse but also th
he increase inn rent of exissting tenantss
hass contributed to the growwth of the Pay
ying RentIndex.

Freee Rent
Figu
ure 8 shows changes in t he ratio of new leases
withh free rent too all the new leases (Ratioo of FreeRennt Granted) and changess in the avera
age free rent
perriod (Average Free Rent Month).
Thee Average Fre
ee Rent Mon th in the fou
urth quarterof 20162
was 2.8 months for aall the new leeases and 4.2
2months for leases with free rent; a decreease by 0.3
months and 0.5 months, resspectively. Thhe Ratio ofFree
e Rent Granted also decrreased for all the periods..
Thee free rent pe
eriod had inccreased in thee previousquaarter as influe
enced by lea ses of buildings which
period of tim
had
d been vacan
nt for a long pme. Thisqua
arter, howeve
er, the periodd decreased again.
aAlthhough the marketmremainned tight, thee decrease inn
free
e rent period and the ratiio of free ren
nt granted
wass slow.

Ma
arket CycleeFigu
ure 9 is a gra
aph plotted b
by quarter ba
ased onvacancy rates on the horizonntal axis and the New
Conntract Rent In
ndex on the vvertical axis.
Thee graph show
ws that the mmarket is cycliical; the plot
starrted to movee to lower rig
ght in 2001 (vvacancy up,rent down) and remained sttatic in 2003--2004, then itt
starrted to movee to upper lefft in 2005 (vaacancy downn,rent up) and to lower right aagain in 2008
8 (vacancy upp,rent down).

ket Report | Tokyo | Q4 2016
2Office MarkAll the contents aare as of the datee of this report. Xymax
XCorporationn does not guarantee the accuracy
y or completenesss of the information herein.
Copying, quoting, forwarding, distrributing, reprinting or any other usse of this report iss not allowed withhout prior permisssion from Xymax Real EstateInstitute Corporattion.
Copyright © 2017
7 Xymax Corporation. All rights reseerved.

4

Xymax Reall Estate Instiitute

The office sp
pace market entered the recovery phaasein 2013 and remained there in 2016 too.
tThis quaarter
repeated thee move in thee previous quuarter; the n ew
contract rentt increased anda the vacanncy rate

deccreased and thet plot movved slightly too the upper
left, indicating a continued mmarket improovement.

Referencce

ket Report | Tokyo | Q4 2016
2Office MarkAll the contents aare as of the datee of this report. XymaxXCorporationn does not guarantee the accuracy
y or completenesss of the information herein.
Copying, quoting, forwarding, distrributing, reprinting or any other usse of this report iss not allowed withhout prior permisssion from Xymax Real Estate
Institute Corporattion.
Copyright © 2017
7 Xymax Corporation. All rights reseerved.

5Xymax Reall Estate Instiituteket Report | Tokyo | Q4 2016
2Office MarkAll the contents aare as of the datee of this report. Xymax
XCorporationn does not guarantee the accuracy
y or completenesss of the information herein.
Copying, quoting, forwarding, distrributing, reprinting or any other usse of this report iss not allowed withhout prior permisssion from Xymax Real EstateInstitute Corporattion.
Copyright © 2017
7 Xymax Corporation. All rights reseerved.

6

Xymax Real Estate Institute

Appendix

Xymax REI Research Updates

Oct - Dec 2016

Tokyo 23 Wards | Supply of New Office Space 2017 & Office Stock Pyramid 2017
•December 26, 2016

New supply in 2017 is 117,000 tsubo. This is small and equivalent to the volume in 2013 when it was 10-year low.
However, a relatively large volume is expected for 2018-2020 with around 200,000 tsubo per annum.

•Average new supply in 2017-2020 is 181,000 tsubo per annum based on rentable area. This is equivalent to the10-year average of 180,000 tsubo per annum.

•Office stock at year-end 2017 is 12.26 million tsubo based on the rentable area: 5.77 million tsubo (47%) in small
and medium buildings and more than half or 6.49 million tsubo (53%) in large buildings.

Osaka City | Supply of New Office Space 2017 & Office Stock Pyramid 2017

December 26, 2016•

New supply in 2017 is 31,000 tsubo. This is roughly equivalent to the 10-year average.

•Average new supply in 2017-2020 is 17,000 tsubo per annum based on rentable area. This is about half of the10-year average of 30,000 tsubo.

•Office stock at year-end 2017 is 2.84 million tsubo based on the rentable area: 1.41 million tsubo in small andmedium buildings and 1.43 million tsubo in large buildings; the volume is roughly the same.

Electric Power Consumption by Office Tenants (September 2016)

December 2, 2016•

The 12-month moving average consumption was 35.9 kWh/tsubo.

•

The monthly average consumption in the July-September 2016 quarter was 38.0 kWh/tsubo.

Energy Consumption and Energy Cost in Office Buildings (September 2016)

December 2, 2016•

Energy Consumption: Remained roughly unchanged from the June 2016 quarter.

•

Energy Price per Unit: 5 points down from the June 2016 quarter. Started to fall in March 2015.

•

Energy Cost: 5 points down from the June 2016 quarter. Decreased in line with the falling consumption and price.

Repair of Retail Buildings Fact-Finding Study 2016
•November 29, 2016

Xymax Real Estate Institute, together with the research team of Professor Yukio Komatsu of Department ofArchitecture, Waseda University, conducted a survey and interviews. We asked multi-store retailers about repair of
their retail buildings.

•This study is to reveal the little-known fact about how retailers repair their stores. We believe this study will improve
the level of repair of commercial buildings.

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 | Q4 2016
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Real Estate
Institute Corporation.
Copyright © 2017 Xymax Corporation. All rights reserved.

7