Xymax Real Estate Institute

Office Market Report
Tokyo | Q2 2022
July 27, 2022

Summary

In Q2 (April–June) 2022, the office market of the 23 wards of Tokyo (“Tokyo 23 Wards”) showed the same
trend as the previous quarter: vacancy rates rose mildly and rent levels dropped marginally.



The vacancy rate was 3.91%, up 0.31 pt from Q1 2022. The availability rate, which includes space forwhich a cancellation notice has been given and vacant space currently available (i.e., accepting tenant
applications), was 6.31%, up 0.22 pt from Q1 2022. The increase and decrease in vacant space showedthat the increase outweighed the decrease for the ninth consecutive quarter, as vacant space increased by
175,000 tsubo (1 tsubo = approx. 3.3 sqm) and decreased by 144,000 tsubo. The vacancy turnover ratio,
which is the ratio of vacant spaces leased to tenants, dropped 1.9 pt to 24.8%, the first time it declined to
below 25% in 10 years since Q2 2021.

The new contract rent index, i.e., the level of new lease rent, was 85, down 1 pt from Q1 2022. The
contract rent diffusion index, the percentage of buildings with a rise in new rent minus that of buildings
with a drop in new rent, was -3, a negative value for the seventh consecutive quarter although it rose 23
pt from Q1 2022.

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 3.7 months, the ratio of
free rent offered for more than two months was 56.1%, and 18.3% for more than six months.

Office Market Report | Tokyo | Q2 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 Q2 2022 rose 0.31 pt from Q1 2022 to8%6%

3.91%, and the availability rate rose 0.22 pt to 6.31%.

4%

Although we are beginning to some office2%

expansions, both rates have risen on the back of an0%

increase in cancellations.
Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

Vacancy Rate

2.96%

3.41%

3.58%

3.60%

3.91%

Availability Rate

5.75%

5.91%

5.80%

6.09%

6.31%

*1

*2
Figure 2: Increase and Decrease in Vacancies (23 Wards, All Sizes)
Increase(tsubo)Decrease

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
For the rates by size of building and area, see Vacant
Office Space Monthly Report Tokyo | June 2022.
https://www.xymax.co.jp/english/research/images/pdf/
20220705.pdf

Vacancy Rate (right scale)

400000

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

35000030000025000020000015000010000050000
0Figure 2 is the increase and decrease in vacant
space. In Q2 2022, the increase in vacant space was
175,000 tsubo, while the decrease was 144,000
tsubo. The increase exceeded the decrease for the
ninth consecutive quarter. Although there have beenrises in the need for office expansion to

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

Increase

258,000

190,000

162,000

151,000

175,000

Decrease

179,000

144,000

146,000

148,000

144,000

Vacancy (right scale)

2.96%

3.41%

3.58%

3.60%

3.91%

accommodate increased workforce and in the needfor relocating to a building with better specifications
than the current building or to a building withenvironmental certification such as ZEB, vacant
space has been increasing at a faster pace.

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

4-quarter moving average

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

Figure 3 shows the vacancy turnover ratio, theratio of vacant spaces leased to tenants during theQ2 202224.8%

quarter to the total vacant office stock (vacant officestock at start of quarter + vacant space added
during the quarter). The ratio in Q2 2022 declined to
below 25% for the first time in 10 years since Q22012 to 24.8%. Although there has been some

Vacancy TurnoverQ2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

34.5%

27.1%

26.5%

26.7%

24.8%

vacancy turnover since last year following
relocations, the turnover rate has remained low due
to a build-up of vacant stock as the increase of
vacant space outpaced the decrease.

Office Market Report | Tokyo | Q2 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
130

Figure 4 is the new contract rent index, which(Q1 2020=100)

Q2 2008117

120

Q2 2020104110

indicates the rent level for new lease contracts. The

100
90

index for Q2 2022 was 85, down 1 pt from Q1 2022

Q2 20126780

Q2 2022857060

and down 4 pt from Q2 2021. Some lessors appear
to be accepting a decrease in rent in contract
negotiations on the back of the rise in vacancy rates.

New Contract Rent Index

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

89

86

88

86

85

We must keep a close eye on the development ofrent, since the contract rent DI (see Figure 6), a
leading indicator of the new contract rent index,3
has risen 23 pt from Q1 2022.

Figure 5: New Contract Rent Index (by Size)130(Q1 2020=100)*3 For the relationship between the new contract rent index
and the contract rent DI, see “TOPIC 1” of Office Market
Report | Tokyo Q4 2020.
https://www.xymax.co.jp/english/research/images/pdf/
20210203.pdf

120
110
100
90

80
70
60

Figure 5 is the new contract rent index by size of
Small & Medium (GFA less than 5,000 tsubo)

Large (GFA 5,000 tsubo or more)

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

Large Buildings

89

83

87

82

83

Small & Medium Buildings

90

91

90

92

88

building. The index for large companies with a grossfloor area (GFA) of 5,000 tsubo or more was up 1 pt
from Q1 2022 at 83, while that for small & medium
buildings with a GFA of 300–4,999 tsubo was down 4
pt at 88.

Figure 6: Contract Rent DI
Rent increased (percentage of buildings) (left scale)
Rent decreased (percentage of buildings) (left scale)Figure 6 is the contract rent diffusion index (DI)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

Q2 2022-3

Q2 2009
-75

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

(the percentage of buildings with a rent rise minusthat of buildings with a rent decline), which indicatesthe direction of change in new contract rent.
Although the DI in Q2 2022 was -3, in negative
territory for the seventh consecutive quarter, it rose
as much as 23 pt from Q1 2022. A negative DI

Contract Rent DI

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

-36

-31

-31

-26

-3

means there were more buildings with lower new
rent that those with higher new rent compared to six
months ago.

Office Market Report | Tokyo | Q2 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 shows the paying rent index, which

Figure 7: Paying Rent Index
120 (Q1 2020=100)
Q1 2009110
104

includes both new lease rents and existing lease rents.

Q2 2022100

The index lags new contract rent. The index in Q2

1002022 was unchanged from Q1 2022 at 100 amid a90

decline in new lease rent.

80
Q3 201376

70
60

Free Rent
Paying Rent Index

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

104

103

100

100

100

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 Q2 2022, the ratio of
offering FR for two months or more was 56.1%,

1 day or more (%)

Free Rent Granted(left scale)

2 months or more (%)

representing a rise from Q1 2022, while that for six

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%

months or more was 18.3%. The average number of
FR months among lease contracts with FR was 3.7,
increasing consecutively since Q1 2021. Amid anincreasing prevalence of offering FR for two to threemonths, a rising number of contracts offer FR for six
months or more, suggesting that offering FR has

Ratio ofFree Rent
GrantedAverage
Free Rent
Months

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

1 day +

55.5%

65.3%

72.8%

75.4%

71.1%

2 mon. +

26.4%

36.9%

44.1%

53.6%

56.1%

6 mon. +

6.6%

8.4%

12.9%

17.5%

18.3%

All

1.3

1.7

2.1

2.6

2.6

w/ FR

2.3

2.6

2.9

3.4

3.7

110

Market Cycle
Figure 9 plots the vacancy rate on the horizontal
scale and the new contract rent index on the verticalFigure 9: Market Cycle
120

become a common practice in the office market.

scale on a quarterly basis. It shows the cyclicality of

Q2 2008

the market, with the chart trending to the upper left

Q2 2020(vacancy down, rent up) from 2005, moving to the100

lower right (vacancy up, rent down) in 2008 and90

Q2 2022

returning to the upper left (vacancy down, rent up) in80

Q1 2005

2010.

70

Q2 2010

60

0%

1%

2%

Vacancy Rate
New Contract Rent Index

3%

4%

5%

6%

7%

8%

9%

10%

Q2 2021

Q3 2021

Q4 2021

Q1 2022

Q2 2022

2.96%

3.41%

3.58%

3.60%

3.91%

89

86

88

86

85

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 Q2 2022, as the vacancy rate rose, and newcontract rent index dropped.

Office Market Report | Tokyo | Q2 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 (Q2 2022)
FloorsName

Total

Above ground/

Ward

Address

Completion floor area

Below ground(tsubo)Kanden Real Estate Yaesu Bldg

13/1

Chuo

1-11-2 Kyobashi

May 2022

4,078

Ueno 6-chome MM Bldg

11/1

Taito

6-1-14 Ueno

May 2022

2,269

12

Taito

3-7-4 Motoasakusa

June 2022

1,928

Sumitomo Fudosan Ueno Okachimachi
Bldg

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

Figure 11: Major Office Relocations (Q2 2022)
Company

KYOCERA
Corporation

From

To

I.S Bldg and other office

Tokyo Mitabranches in Metropolitan

Redevelopment Project

Areas

Office Tower

Shinagawa Ward

Minato Ward

ORIENTAL GIKEN

Confort Yasuda Bldg

INC.

Chiyoda Ward

Timing2023

Keihan Otemachi
Building

May 2022

Purposebusiness
efficiency
business
expansionSize(tsubo)

5,600

954

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

The sizes of offices are estimates.

Office Market Report | Tokyo | Q2 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

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 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.

Data Used in

8,723 buildings

Recent Quarter

12,027 contracts• Vacancy rate

12,027 contracts

750 contracts• 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

Level of contract rents

Office Building

SectorData Source

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

342 contracts

Recent Quarter

4,429 contracts

48contracts

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 | Q2 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 | Q2 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.

7