Japan - November 2019S P OT L I G H T
Savills Research

Regional Japanese
Office Markets

Regional Japanese Office Markets

Regional rental growth remains robust,albeit moderating
GRAPH 1: High-grade Office Performance, 2H/20192018 Rent

2019 Rent

2018 Vacancy

2019 Vacancy

50,0001.2%
Rent YoY

45,000
9.3%

1.1%
7.8%

4.5%

1.0%
0.9%

35,0000.8%

0.8%

30,0000.7%
0.6%

25,0000.6%
0.5%

20,0000.4%

15,000VACANCY

JPY / TSUBO / MONTH

40,000

6.7%

0.4%
0.3%

10,000

0.2%

0.2%

0.2%

0.2%

5,000

0.1%

0.1%

0

0.1%
0.0%

Tokyo

Osaka

NagoyaFukuoka* Tokyo data represents Grade A office performance in the C5W.
Source Savills Research & Consultancy

GRAPH 2: All-grade Office Performance, 2H/20192018 Rent

2019 Rent

2018 Vacancy

2019 Vacancy

30,000

7.0%
Rent YoY
6.9%

2.4%

4.0%

5.2%

0.9%

4.2%

6.0%

5.1%

5.0%

4.1%

4.0%

20,00015,0002.9%
10,000

2.3%

2.0%

3.0%

2.9%
2.2%

2.5%

2.3%

2.0%

VACANCY

JPY / TSUBO / MONTH

25,000

2.4%
2.0%

1.6%
5,000

1.0%

0

0.0%
Tokyo

Osaka

NagoyaFukuoka

Sendai

Sapporo* Market data as of September 2018 and 2019.
Source Miki Shoji, Savills Research & Consultancy

HIGH-GRADE OFFICES1
The pace of high-grade rental growth has
been strong, though it has moderated
compared to the previous period. Rental
growth, nonetheless, remains buttressedby extremely tight vacancy rates. That said,
top rents may soon start to test the financial
limits of tenants.
Each of the three major regions have airtight vacancy rates, with some having close
to no availability at all. Osaka has witnessed
the greatest tightening this period, falling 0.6
percentage points (ppts) year-on-year (YoY)
to 0.2%. Rates in Nagoya remained fairly
unchanged, though this is not surprising given
vacancy has been below 0.5% since 1H/2018.
Fukuoka follows a similar trend, with vacancy
holding firm at 0.1% this year (Graph 1).
High-grade rental growth in Tokyono longer lags its regional counterparts,
outpacing Fukuoka in 2H/2019. In fact, Tokyo
was the sole market to experience higher YoY
growth compared to the previous period. As aresult, the spread between the top performer,
namely Osaka, is narrowing.
ALL-GRADE OFFICES2
Underpinned by tight vacancy rates, rents
in most regions have surpassed previous
peaks seen in 2008. Osaka and Sendai are theexceptions, though both are not far off. The
relative affordability of this market, given the
spread in rents versus the high-grade market,
suggests there may be some room for further
growth.
As of September, apart from Sendai, averagevacancy rates across the regions sit below
2.5%. In Sendai, the vacancy rate lies just above
4% – the lowest level recorded since 1992.
Given the current low levels of vacancy
experienced in the submarkets, it is perhaps
unsurprising that the pace of tightening
has slowed, and in some regions, rates havesomewhat loosened YoY – Sapporo beingcase in point. Regardless, the tight market
conditions across the regions has fed throughto rental growth. As of September, all regions
experienced a pick-up in rents over the year,
perhaps spurred by more expensive rents
in the high-grade office market. Fukuoka
maintains the top spot, growing 5.2% YoY.
Nagoya, however, saw the greatest change,
with growth doubling to 4.0% YoY compared
to September 2018. In contrast, having
consistently exceeded 1% of YoY growth since
September 2018, rental growth in Sendai has
fallen just below that level a year later.
1 In each of Osaka, Nagoya, and Fukuoka, Savills monitors
about 50 “high-grade” office buildings typically with a GFA
of 15,000+ sq m (4,500 tsubo) and a building age of <25years.
2 “All-grade” refers to offices typically over 1,000 sq m GFA,
depending on the market. Data is sourced from Miki Shoji.

savills.co.jp/research2Regional Japanese Office Markets

REGIONAL INVESTMENT
Investor sentiment remains positive.
According to the bi-annual investor
survey conducted by the Japan Real Estate
Institute (JREI) in April 2019, cap rates inmost submarkets over the year tightenedsomewhat, including in Tokyo. Similar to theprevious report, Fukuoka saw the greatest
tightening, compressing by 0.4ppts. Other
regions exhibited contractions of around0.2ppts.
Total real estate investment volumes
for 1H/2019 were around JPY2.1 trillion,
according to data from Real Capital
Analytics (RCA), broadly in line with thesame period last year (Graph 3).

Most regional office markets havedemonstrated strong rental growth
driven by extremely tight market
conditions. This trend should continue
going forward, though the rate of
growth could slow.

GRAPH 3: Investment Volumes By Area For All Asset Types, 2007 to 1H/2019
Tokyo

Yokohama

Osaka

NagoyaFukuoka

SapporoSendai

Other

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

* Transactions where specific locations have not been identified are classified as other.
Source RCA, Savills Research & Consultancy

GRAPH 4: Kijun Chika Commercial Land Prices, 2011 to 2019

Nationwide

Tokyo Central 5 Wards

Osaka

NagoyaFukuoka

Sendai

Sapporo

2017

2018

2019

15.0%

YOY CHANGE

10.0%

5.0%

0.0%

-5.0%

-10.0%
2011

2012

2013

2014

2015

2016

Source MLIT, Savills Research & Consultancy

3

When looking at the regional markets
specifically discussed in this report, thevariation in office investment volumes isstark. Investment in 1H/2019 has tripledcompared to the same period last year,with Osaka experiencing the largest outlay.
Overall, this is also true across most othersectors, with Osaka again attracting thelion’s share of investment volumes.
REGIONAL LAND PRICES RISING
According to the most recent national land
survey (Kijun Chika), land price growthin the key regions significantly outpaced
the national average (Graph 4). Having led
performance in 2017 and 2018, Fukuoka,
this year, was surpassed by Osaka following
the region’s substantial growth. The former
grew 12.8% – the second consecutive year of
double-digit YoY growth – while the lattersaw land prices increase by 13.1%. Over thelong term, however, Fukuoka is still in thevanguard, with land prices rising by over
57% since 2010. In contrast, average land
prices nationwide declined by around 7%
over the same period.
Sapporo, having witnessed a fall in land
prices between 2010 and 2015, rebounded
drastically, recording YoY gains of over 7%
every year since. Annual gains in 2019 were11.0%. Tokyo has, once again, demonstrated
solid growth. The capital’s importanceto the economy continues to underpin
investment, which significantly outstrips
that of other regions.
The Ministry of Land, Infrastructure,
Transport and Tourism’s (MLIT) latest
quarterly Land Price Look Report, which
tracks the value of 100 “high-use” sites
throughout the country, revealed that 97
target sites showed land price increasesin Q2/2019. When broken down by region,
Tokyo trailed its peers, with Osaka
impressing again. Furthermore, according
to the report, price growth of land used for
offices outpaced residential land, with somesites increasing by more than 6% (Graph 5).

Regional Japanese Office Markets

GRAPH 5: Land Price Look Report, Q2/2019+6% Growth

3-6% Growth

0-3% GrowthFlat

100.0%% of SURVEYED AREAS

90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Greater
Tokyo

Greater
Osaka

Greater
NagoyaOther
Regional

Residential
OfficeNationwide
Source MLIT, Savills Research & Consultancy

GRAPH 6: Net Migration For Major Regional Cities, 2014 to 2019YTD*

NET MIGRATION BY CITY

SapporoSendai

NagoyaOsaka

Fukuoka

Total Net Migration (RHS)

14,00040,00012,00035,00030,00010,00025,0008,000
20,0006,000
15,0004,000

10,000

2,000

5,000

0

0
2014

2015

2016

2017

2018

2019 (YTD)* Market data as of August 2019.
Source Ministry of Internal Affairs and Communications, Savills Research & Consultancy

TABLE 1: BOJ Regional Economic Assessment, July 2019REGIONTREND

CHANGE VS APRIL

Hokkaido (Sapporo)“Recovering moderately”

Tohoku (Sendai)“Continued to recover moderately, although someweakness has been observed in part”

Kanto (Tokyo)“Expanding moderately, although exports andproduction have been affected by the slowdown inoverseas economies”

Tokai (Nagoya)“Expanding”

Kinki (Osaka)“Continued to expand moderately, although someweakness has been observed in part”

Kyushu (Fukuoka)“Expanding moderately”
Source Bank of Japan, Savills Research & Consultancy

savills.co.jp/research

4

REGIONAL MACRO
In its Regional Economic Assessment in July,
the Bank of Japan (BOJ) observed that mostregional economies were on a moderate pathof growth, though acknowledged the need forcaution going forward (Table 1). Sentiment
for the Tokai region (Nagoya), however,appears to be more bullish compared to its
peers.
A shrinking population in concert withdemographic headwinds remains a national
concern. The regional cities covered inthis report, however, given their economic
importance, are relatively insulated bypopulation challenges as evidenced bycontinued positive net migration (Graph
6). The biggest beneficiary as of August thisyear has been Osaka, followed by Fukuoka.
Despite being only part way through the year,
the former has seen positive net migration
more than double compared to last year’s
total.
Over the longer term, Fukuoka is thesole region to have forecasted population
growth between 2015 and 2035 (Graph 7),with an increase of 9% anticipated. Sendai,in contrast, is predicted to experience thelargest decline in population over the same
period, falling by around 6%.
EMPLOYMENT AND DEMAND
Having continued its downward trajectoryfrom the previous period, the national
unemployment rate hit a low of 2.2% in July
– the lowest level since October 1992. From
August to September, however, the trend loststeam and increased slightly to 2.4%.
The national job-to-application ratio,
having reached a high of 1.64x in September
2018, slowly declined to 1.57x over the next 12months (Graph 8). Despite remaining highly
competitive, the decline in the ratio perhaps
suggests a somewhat stabilisation of thelabour market.
CHANGING CORPORATE
CONDITIONSAs expected, given its importance tothe global economy, Tokyo is home to asignificant share of the country’s largest
corporations. This means that the tenantpool for the regional office market is
predominantly made up of branch offices andsmall- and medium -sized companies.
From Q2/2016 to Q1/2019, the divergence
between average profits for large companies
and small- and medium-size companies
widened to its biggest spread (Graph 9).
Yet, this trend seems to have reversed in
Q2/2019. Amid global economic uncertainty
and ongoing trade disputes, profits of larger
businesses, with greater international
exposure, stuttered. Profits for small- andmedium-size companies, in contrast,

Regional Japanese Office Markets

GRAPH 7: Population Forecasts For Major Regional Cities, 2015 to 2035
2015

2020

2025

2030

2035

3.0

MILLIONS OF PEOPLE

2.5

2.0

1.5

1.0

0.5

0.0
SapporoSendai

NagoyaOsaka

Fukuoka

Source National Institute of Population and Social Security Research, Savills Research & Consultancy

GRAPH 8: Job-to-application Ratios, Selected Prefectures,2000 to September 2019
Tokyo

Osaka

Aichi (Nagoya)FukuokaMiyagi (Sendai)

Hokkaido (Sapporo)experienced a slight recovery from the dip
witnessed in mid-2017.
If the ongoing trade disputes continue toweigh on larger-company profits, especially inthe manufacturing industry, these businesses
may find high-grade rents challenging.
Therefore, we could potentially see thesebusinesses transitioning towards cheaper
properties. In addition, the market segment
for these more affordable offices could
benefit further from the improving financial
capabilities of smaller businesses looking to
expand. In an already tight market then, theadded competition should, therefore, support
rent growth across the affordable end of themarket.
Although the underlying fundamentals
appear to support continued rental growth,
it is worth considering the vulnerability ofsmall- and medium -sized companies whenthe economy is in a downturn. It is therefore
encouraging to see that corporate profits forthese companies are over 35% higher than
2008-peaks, suggesting that they should havesome more dry powder when an economic
recession does occur.

2.5x

2.0x

1.5x

1.0x

0.5x

0.0x

Source Ministry of Health, Labour, and Welfare, Savills Research & Consultancy

GRAPH 9: Four-period Moving Average For Profits Of Small- and Medium-sized*
And Large-sized Companies, Q1/2010 to Q2/2019
Large Companies

300

Small-and-medium Companies

200

150

100

50
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2

Index (Q1/2010=100)

250

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

*Small- and medium-sized companies are defined as those with capital stock of less than JPY100 million.
Source Ministry of Finance, Savills Research & Consultancy

5

OUTLOOK
Until now, regional office markets havebeen underpinned by favourable market
conditions, especially on the supply side.
This has subsequently supported solid rental
growth in both the high-grade and all-grade
markets, with many submarkets in the latterrecently surpassing peaks set in 2008. This
positive momentum is expected to mostly
continue in the all-grade market as supply
is slow to adjust. For high-grade offices,
however, despite performing remarkably
well, affordability is starting to be tested,
especially at the top end of the market. As
a result, similar to what is currently being
observed in Tokyo, the upside for rents in thissubmarket may be somewhat limited.
Although there has been some recovery of
average profits of small- and medium -sizedcompanies, economic uncertainties abound.
The vulnerability of these smaller companies
is higher than that of larger companies, andthe risk from the recent consumption tax hikein October 2019 is yet to be fully understood.
Furthermore, despite the domestic bias,
these businesses are by no means immune
to the effects of ongoing international tradedisputes, and any deterioration of market
conditions could trickle down to theregional office market.
Nonetheless, corporate profits
comfortably exceed 2008-peaks, andtherefore, businesses should be able toweather economic uncertainty for thetime being. Indeed, Japan’s political andeconomic stability stands out within thecurrent global turmoil.

Regional Japanese Office Markets

OSAKA CITY

GRAPH 10: New NRA Office Supply In Osaka City, 2006 to 2021

Net Rentable Area (NRA)
Since March 2019, Osaka’s total NRA has
been slowly falling below 2.2 million tsubo,
the combination of a decline in building
numbers and lack of additional supply being
the key drivers.
Additional supply in Umeda – Osaka’s top
submarket – is not anticipated until 2022.
This is expected to noticeably change around2024, however, with the Umekita phase two
projected to add significant supply, easing thepressure somewhat.

70,00060,000TSUBO

50,00040,00030,00020,00010,0000

Source Sanko Estate, Savills Research & Consultancy

GRAPH 11: Vacancy Rate In Osaka City By Area, 2011 to 2019
Average
Yodoyabashi-Honmachi
Shin-Osaka
25.0%

Umeda
Semba

Minami-Mori
Shinsaibashi-Namba

VACANCY

20.0%

15.0%

10.0%

5.0%

0.0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

Source Miki Shoji, Savills Research & Consultancy

GRAPH 12: Average Rent In Osaka City By Area, 2011 to 2019
Average
Yodoyabashi-Honmachi
Shin-Osaka
16,000

Umeda
Semba

Minami-Mori
Shinsaibashi-Namba

JPY / TSUBO / MONTH

15,00014,00013,00012,00011,00010,000
9,000
8,000
2011

2012

2013

2014

2015

2016

2017

2018

2019

Source Miki Shoji, Savills Research & Consultancy

savills.co.jp/research

6

Vacancy
Since the last report, average high-grade
vacancy has remained at 0.2%. All-grade
vacancy for Osaka’s CBD, on the other hand,
has continued its downward trend, falling
0.9ppts YoY to 2.0%, as of September.
Office supply in Osaka is extremely tight,
and this theme is likely to continue for thetime being. For instance, the Umeda Twin
Towers South Building, due to be completed
in 2022, has already reportedly pre-leased for
multiple tenants including a main tenant withover 3,000 tsubo, despite asking rents of up to
JPY38,000 per tsubo.
Rent
Following an increase of 9.3% YoY, averagehigh-grade office rents in Osaka have risen
to JPY22,642 per tsubo per month. The main
drivers of this growth, namely Shin-Osakaand Umeda, significantly outperformed theirregional brethren, both experiencing doubledigit YoY increases for a fourth consecutive
period. In contrast, Honmachi was the only
submarket to experience no change over theyear.
All-grade rents in Osaka, as of September,have reached the highest levels since the endof 2011, growing 2.4% YoY to JPY11,670 per
tsubo. The pace of growth, having slowed at
the start of the year, has recently improved.
Semba was the standout performer, growing
3.4% YoY. Minami-Mori, on the other hand,barely changed over the same period.
Umeda
High-grade rents in this submarket still range
from JPY20,000 to JPY35,000 per tsubo permonth. Mid-market rents, on the other hand,
have continued their upward path. Annual
growth for 2H/2019 stands at 11.1%, pushingrents to JPY27,438 per tsubo per month – thehighest in the submarket. Vacancy rates are
now practically nil following a 0.4ppts decline
YoY.
It appears that the recent issues facedby WeWork have not deterred them fromexpanding their presence in Osaka. The
co-working company is reportedly looking

Regional Japanese Office Markets

TABLE 2: Osaka Prefecture Key Macro Indicators*

JAPAN

TOKYO

OSAKA

Real GDP (JPY trillion)

534.3

103.6

38.6

Real GDP (YoY%)

1.3

1.8

1.5

% of Japan (2015)

100%

20%

7%

Population (million)

126.2

13.9

8.8

Job to applicant ratio

1.6

2.1

1.8

Source Cabinet Office, Osaka Prefectural Government, Savills Research & Consultancy* Real GDP for Japan is as of Q2/2019, for Tokyo, Osaka and % of Japan, 2015.

TABLE 3: Osaka High-grade Office

2H/2019

HOH

YOY

Rent

22,600

1.4%

9.3%

Vacancy0.2%

0.0ppts-0.6ppts

Top Rent

35,000+00Source Savills Research & Consultancy

to lease 500 tsubo on the bottom floor of therecently completed Yodobashi Umeda Tower
later this year.
Yodoyabashi-Honmachi
The lower bound within this submarket
moved JPY1,000 higher to JPY14,000. The
upper bound held firm at JPY28,000 per
tsubo per month. Though vacancy remains
close to nil, average rents in this submarket
have not changed for the third period in arow. As a result, having had a slight premium
over average high-grade rents in H2/2018,
monthly rents now sit at a discount at
JPY21,333.
The Obic Midosuji Building, slated to becompleted in early 2020, has reportedly filled
half of its capacity, with advertised rents
around JPY25,000 per tsubo per month.
Shin-Osaka
The vacancy rate in Shin-Osaka comparedto the other submarkets is high, at 1.3%,
after increasing 0.3ppts YoY. The near 10%
vacancy in the Shin-Osaka Trust Tower isthe main culprit, largely as a result of thebullish rents demanded. Nonetheless, averagerents have risen to JPY21,625 per tsubo permonth, owing to a near 16% YoY increase. As
a result, both the lower and upper bounds

grew by JPY1,000 compared to the previous
period, now lying between JPY17,000 and
JPY28,000.
Samty is planning to construct the Samty
Shin-Osaka Building, due for completionin late 2020. The expected floorplate is 217
tsubo, while rents of JPY25,000 per tsubo permonth have been reported.
Outlook
The tightness of the market, with additional
supply not expected until 2022, coupled withsolid pre-leasing, is expected to keep vacancy
rates low for the time being. The combinationof these two forces should, therefore, be afillip for the office leasing market over the
shorter term. In addition, average all-grade
rents remain below 2008 levels suggestingthat there should be some upside potential.
Looking further ahead, the World Expo in
2025, a planned integrated resort, as well as
related infrastructure improvements, should
continue to draw people to the region and bea boon for the local economy.
Please refer to our Osaka report, drafted in
May 2019, for further information about theregion’s prospects.

7Regional Japanese Office Markets

NAGOYA CITY

GRAPH 13: New NRA Office Supply In Nagoya City, 2006 to 2021F
50,00045,00040,00035,000TSUBO

30,00025,00020,00015,00010,0005,000
0Source Sanko Estate, Biz Life Agent, Savills Research & Consultancy

GRAPH 14: Vacancy Rate In Nagoya City By Area, 2011 to 2019
Average

Meieki

FushimiSakae

Marunouchi

20.0%

VACANCY

15.0%

10.0%

5.0%

0.0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

Source Miki Shoji, Savills Research & Consultancy

GRAPH 15: Average Rent In Nagoya City By Area, 2011 to 2019
Average

Meieki

FushimiSakae

Marunouchi

15,000JPY / TSUBO / MONTH

14,00013,00012,00011,00010,000
9,000
8,000
2011

2012

2013

2014

2015

2016

2017

2018

2019

Source Miki Shoji, Savills Research & Consultancy

savills.co.jp/research

8

NRA
Supply in Nagoya is limited. A confluenceof drivers, namely the demolition of somebuildings and a lack of new projects has
kept the NRA below 1.0 million tsubo since
early 2018. However, supply conditions
should improve slightly as the number ofdevelopments pick up.
The K-Square building (formerly the
Kajima Fushimi Building), which wascompleted in September, has been the sole
addition to the market this period, bringing
some 3,100 tsubo of NRA online. Demandhas been sound, with only the first floor
currently available.
In the medium term, the largest single
project announced thus far is the tentatively
named Noritake Forest Project, locatednorth of the Meieki submarket. The
multi-purpose complex is expected to becompleted in 2021, adding approximately
6,800 tsubo of NRA to the market.
Vacancy
High-grade office supply remains extremely
tight with vacancy rates sitting at 0.1%.
Though a slight increase from the previous
period, where vacancy was non-existent,
it still demonstrates the dearth of options
available. Fushimi is currently the solesubmarket with any vacancy, albeit at 0.4%.
All-grade vacancy fell to 2.2% following a
0.7ppts YoY decline. Most of this change wasattributed to declines in Meieki and Fushimi.
The former narrowed by 1.1ppts and thelatter by 0.6ppts. Vacancy in Marunouchi,
having fallen below the 3.0% level in theprevious report, has seen rates reverse in
September. Following steady increases since
the start of the year, the vacancy rate of thissubmarket now sits at 3.4% - the highest of
all submarkets.
Rent
Rents for high-grade offices havedemonstrated sound growth yet again,
with the same submarkets leading the way,
namely Fushimi and Marunouchi. These
two submarkets grew 17.0% and 11.3% YoY,
respectively, as the former experienced athird consecutive period of double-digit
YoY growth, while the latter saw a second
consecutive period of such growth. Averagerents grew 7.8% YoY – a slight slowdown
from the previous period.
Solid growth was also seen in the all-grade
market, albeit not as impressive. Rents
grew 4.0% YoY – the quickest pace in recent
history – coming in at JPY11,516 per tsubo
per month. Average all-grade rents havenow surpassed the previous peak, set inearly 2009. Unlike the high-grade market,

Regional Japanese Office Markets

TABLE 4: Aichi Prefecture Key Macro Indicators*

JAPAN

TOKYO

AICHI

Real GDP (JPY trillion)

534.3

103.6

37.4

Real GDP (YoY%)

1.3

1.8

0.7

% of Japan (2015)

100%

20%

7%

Population (million)

126.2

13.9

7.6

Job to applicant ratio

1.6

2.1

1.9

Source Cabinet Office, Aichi Prefectural Government, Savills Research & Consultancy* Real GDP for Japan is as of Q2/2019, for Tokyo, Aichi and % of Japan, 2015.

TABLE 5: Nagoya High-grade Office

2H/2019

HOH

YOY

Rent

20,100

2.5%

7.8%

Vacancy

0.1%

0.1ppts-0.1ppts

Top Rent

36,000+0+1,000Source Savills Research & Consultancy

however, the pace of growth has quickened
since the start of the year, most likely
driven by those squeezed out of the prime
locations. Meieki once again leads the way
with rental growth of 6.5% YoY to JPY14,083
per tsubo per month.
MeiekiThe range of rents for towers in proximity
to the station has held steady, lying between
JPY34,000 and JPY36,000. Although supplyis scarce, rents are unlikely to exceed theupper bound anytime soon as it appears
to be around the limit of what tenants canafford. Average rents in the high-grade
Meieki submarket are substantially higher
than the other submarkets, having hit a
recent high of JPY28,308 per tsubo permonth following growth of 5.7% YoY. The
range of rents for large-scale offices is alsounchanged, remaining between JPY20,000
and JPY30,000.
Fushimi and Marunouchi
Average high-grade rents in these submarkets
experienced double-digit YoY growth, with
Fushimi leading the way. Despite the solid
growth, the range of rents was unmoved,
lying between JPY15,000 and JPY24,000 per
tsubo per month. The all-grade vacancy rate

in Fushimi temporarily loosened following
some relocations.
Outlook
Having experienced exuberant growthduring 2018, high-grade office rental growthin Meieki has started to slow in 2H/2019.
With rent at a record high, tenants’ financial
capacities are now being tested and thisin turn has been beneficial for the othersubmarkets.
Lofty rents in the high-grade office market
have also been a tailwind for the all-grade
market, as prospective tenants continue tobe squeezed out of premium locations. As aresult, all submarkets in this market segment
have experienced an increased rate of growthsince the last report, and this is expected tocontinue.
Rents in Nagoya have been growing at
a rapid pace recently, which is no surpriseconsidering the current supply conditions.
Though this is set to ease somewhat going
forward, the added supply is unlikely tosignificantly unbalance market forces,
allowing rents to continue their upward
trajectory. However, we may be witnessing
the emergence of a peak, especially in thehigh-grade office market.
For Nagoya, a risk worth considering

9is the ongoing US-China trade war. As amanufacturing hub for auto and aerospace
products, to name a few, the local economy
is at the most risk of being disrupted. Any
negative impact should, however, be largely
contained to firms directly operating in these
sectors.

Regional Japanese Office Markets

FUKUOKA CITY

GRAPH 16: New NRA Office Supply In Fukuoka City, 2006 to 2021F
40,00035,00030,000TSUBO

25,00020,00015,00010,0005,000
0Source Sanko Estate, Savills Research & Consultancy

GRAPH 17: Vacancy Rate In Fukuoka City By Area, 2011 to 2019
Average
YakuinHakata Sta. Southeast

20.0%

Akasaka
Gion

TenjinHakata Sta. WestVACANCY

15.0%

10.0%

5.0%

0.0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

Source Miki Shoji, Savills Research & Consultancy

GRAPH 18: Average Rent In Fukuoka City By Area, 2011 to 2019
Average
YakuinHakata Sta. Southeast

Akasaka
Gion

TenjinHakata Sta. West11,500JPY / tsubo / month

11,00010,50010,000
9,500
9,000
8,500
8,000
2011

2012

2013

2014

2015

2016

2017

2018

2019

Source Miki Shoji, Savills Research & Consultancy

savills.co.jp/research

10

NRA
Unlike the other regional markets, Fukuoka
has seen its fair share of developments thisyear. However, each project has been smallin scale, adding less than 8,000 tsubo of
GFA overall, and subsequently, NRA has
remained fairly flat around the 700,000
tsubo mark.
Market conditions are expected tochange over the next five years thanks to
the relaxation of both floor area ratios andbuilding height restrictions. An outcomeof these changes is the Tenjin Big Bangdevelopment, which commenced in 2015. A
key tenet of the project is the redevelopmentof, a very ambitious, 30 towers by 2024
which is anticipated to add 95,000 tsubo of
GFA, if it should be fully executed. The firstproject to be completed is the tentatively
named Tenjin Business Centre, which will
add close to 18,500 tsubo of GFA in 2021.
The Hakata Connected Project, announced
in May this year, is also set to contributeto supply growth through the developmentof the areas surrounding Hakata Station.
The ambitious aim here is to redevelop
20 buildings within the next 10 years,
expanding the supply by up to 48,000 tsubo
of GFA.
Despite the above, given relocation
constraints, it is more realistic to assume
that supply for the next few years will notsignificantly exceed 10,000 tsubo of NRA
per year.
Vacancy
Despite high-grade vacancy holding steadyaround 0.1% in 2H/2019, over the year, rates
tightened by 0.2ppts. Vacancy in the Tenjin
submarket experienced the greatest change,
falling 0.6ppts to 0.2%. Hakata, having
experienced temporary vacancy a year prior,is back to nil.
As of September, all-grade vacancy rates
sit at 2.0%, having fallen 0.5ppts YoY. At thesubmarket level, vacancy rates have recently
diverged. The Akasaka submarket has avacancy rate of 4.4%, a 2.3ppts YoY increase,
while the tightest submarket, Yakuin, hasa vacancy rate of 0.8% following a 0.6ppts
YoY decline. The former’s sudden spike invacancy can be attributed to the completionof the Akasaka-mon Shijyou Building in
September, which added over 1,300 tsubo of
GFA.
Rent
The positive momentum observed in theprevious period has continued, as averagehigh-grade office rents in Fukuoka grew to
JPY18,087 per tsubo per month – a 4.5% YoY
growth. Despite vacancy rates being similar

Regional Japanese Office Markets

TABLE 6: Fukuoka Prefecture Key Macro Indicators*

JAPAN

TOKYO

FUKUOKA

Real GDP (JPY trillion)

534.3

103.6

18.2

Real GDP (YoY%)

1.3

1.8

2.1

% of Japan (2015)

100%

20%

4%

Population (million)

126.2

13.9

5.1

Job to applicant ratio

1.6

2.1

1.6

Source Cabinet Office, Fukuoka Prefectural Government, Savills Research & Consultancy* Real GDP for Japan is as of Q2/2019, for Tokyo, Fukuoka and % of Japan, 2015.

TABLE 7: Fukuoka High-grade Office

2H/2019

HOH

YOY

Rent

18,100

3.0%

4.5%

Vacancy0.1%

0.0ppts-0.2ppts

Top Rent

25,000+0+2,000Source Savills Research & Consultancy

to Osaka and Nagoya, rent growth was
unable to follow suit, yet again lagging its
rivals by as much as 5%.
All-grade rents continue to exceed 2008
peaks and are now at levels not seen since
2002. Rents stand at JPY10,386 after growthof 5.2% YoY – the most out of the otherregions. The gap between the submarket
with the highest and lowest rate of growthappears to be widening, however. The
submarkets adjacent to the station bothposted gains of around 7% YoY, while
Yakuin, the laggard, grew 2.9% YoY.
Station Front
The range of high-grade rents in proximity
to Hakata Station has held firm this period.
The average rent, however, has made somegains, rising 6.3% YoY to JPY19,846 per tsubo
per month. Having up to now noticeably
lagged Tenjin, rents are within touching
distance.
TenjinTop high-grade rents in the Tenjin area haveincreased by JPY1,000 to range between
JPY14,000 and JPY25,000 per tsubo permonth. Pre-leasing for the Tenjin BusinessCentre appears strong, with rents as highas JPY30,000 rumoured. The Fukuoka

Building, also part of the Tenjin Big Bangdevelopment, slated for 2024, is anticipatedto fetch monthly rents of up to JPY35,000.
Outlook
The Fukuoka submarket has recently
experienced steady rental growth, with the
all-grade sector consistently outpacing its
regional peers. Leasing transactions are
currently taking more time, however, as thepreviously frantic pace cools, allowing themarket to calm.
Fukuoka is the only region in this report
predicted to experience strong population
growth over the long term. In fact, given thecity’s attraction for start-ups, much of thispositive net migration will be made up of theyounger demographic. Furthermore, against
a backdrop of supply tightness, Fukuoka
is undergoing major structural change. As
a result, the two development projects are
expected to add a significant number of jobs,
greatly benefitting the local economy.
However, risks abound. Despite theexpected boost to the local economy, thelarge supply of office space from theseprojects combined could destabilise
market forces if their ambitions areachieved, subsequently pulling rents down.
Furthermore, the Japan-Korea dispute may

11pose a risk given that Fukuoka attracts alarge share of Korean tourists, though theimpact on the office market specificallyshould be limited. Over the shorter term,
therefore, rents should be moderately
increasing, whilst longer term prospects are
more uncertain, given the relatively large
development pipeline.

Regional Japanese Office Markets

GRAPH 19: Vacancy Rate In Sendai City By Area, 2011
to 2019
Average
City Hall

30.0%

Station Front
Station East

1-bancho
Outer Area

25.0%

VACANCY

20.0%
15.0%
10.0%
5.0%
0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019
Source Miki Shoji, Savills Research & Consultancy

GRAPH 20: Average Rent In Sendai City, 2011 to 2019

Average
City Hall
11,000Station Front
Station East

1-bancho
Outer Area

10,500JPY / TSUBO / MONTH

10,000
9,500
9,000
8,500
8,000
7,500
7,000
6,500
6,000
2011 2012 2013 2014 2015 2016 2017 2018 2019
Source Miki Shoji, Savills Research & Consultancy

SENDAI CITY
Supply and Demand
The Sendai office market has stabilisedaround 0.5 million tsubo of NRA due toa lack of large-scale developments since2013. However, change is looming. There
are plans for two developments in 2020,
with another to follow the year after. The
result should be up to 13,000 tsubo of GFA
coming online, with the largest of theseprojects being the development on theeast side of Sendai Station –expected to
add around 8,000 tsubo of GFA in 2021.
Since 2014, Sendai has been working
to rebrand itself as an attractive option
for start-ups by offering incentives, suchas subsidies, and it appears that these
initiatives have been bearing fruit. For
instance, according to the NLI ResearchInstitute, between 2014 and 2016,
Sendai ranked second, after Fukuoka,
for the proportion of start-ups createdlocally. On the back of this success, thelocal government has announced a new
initiative to support entrepreneurs tofurther grow the local economy by 2023.
The steady inflow of start-ups in Sendai
should, therefore, help to underpin thesustainability of office demand growth
going forward.
Vacancy
As of September, the average all-grade
vacancy rate in Sendai fell by 1.0ppts YoY
to 4.1% – the lowest level since 1992. The
most convenient locations, namely theStation Front and 1-bancho submarkets,as expected, have the tightest vacancies,
coming in at 2.7% and 3.2%, respectively.
However, the pace of change has started towane across most submarkets compared
to a year ago. The Outer Area is the soledetractor following a 0.6ppts compressionof vacancy rates to 7.9%, compared to a
0.2ppts decline in September 2018.

Since the start of the year, leasing
volumes have been low, with mostdeals, if any, being small or medium inscale. Accordingly, the vacancy rate has
hovered close to the 4.3% mark.
Rent
Despite rents growing for sevenconsecutive months between January andAugust, average all-grade rents in Sendai
remain below 2008 peaks. Compared tothe previous month, rents in September
fell to JPY9,169 per tsubo per monthdue to a slight downward revision indemanded rents. Over the year, however,rents rose 0.9%.
Rent growth amongst the submarkets
was, however, mixed. The Station Frontand 1-bancho submarkets continue toprop up average growth, with increasesof 1.7% and 1.6% YoY, respectively.
The Outer area, despite vacancy rates
tightening as discussed above, saw rents
decline 0.8% YoY to JPY7,017 per tsubo
per month – the lowest since mid-2016.
Outlook
Vacancy continues to tighten in Sendai,and the pace of this change has recently
outstripped its regional rivals. Despite
this, rents have been slow to react and still
sit below 2008 peaks. Given the absenceof new developments planned for the restof 2019, vacancy rates should continue
their downward trend for the time being,
though this is anticipated to changeslightly as supply is relaxed through largescale developments in the near future.
In the presence of this relatively
limited supply, we should see somerent growth over the shorter term withdemand perhaps being driven by theentrepreneurial community.

TABLE 8: Miyagi Prefecture Key Macro Indicators*

JAPAN

TOKYO

MIYAGI

Real GDP (JPY trillion)

534.3

103.6

9.3

Real GDP (YoY%)

1.3

1.8

1.8

% of Japan (2015)

100%

20%

2%

Population (million)

126.2

13.9

2.3

Job to applicant ratio

1.6

2.1

1.6

Source Cabinet Office, Miyagi Prefectural Government, Savills Research & Consultancy* Real GDP for Japan is as of Q2/2019, for Tokyo, Miyagi and % of Japan, 2015.

savills.co.jp/research

12Regional Japanese Office Markets

SAPPORO CITY

GRAPH 21: Vacancy Rate In Sapporo City By Area, 2011 to 2019

20.0%

Average

Station Front

Station East-WestPark South

Outer South

Station North

Supply and Demand
Sapporo has added supply to the market
every year since 2010, and this year has beenno exception. The completion of the Sousei
East Building and the Minami Odori Building
Ichijo in 1H/2019 has added around 3,900
tsubo of GFA combined. Yet, total office NRA
remains unchanged at around the 0.51 million
tsubo mark following some demolitions.
Going forward, however, office supply growth
should be achieved by the completion of
the tentatively named Shin-oroshi Centre
Building later this year – adding around
6,300 tsubo of GFA. In addition, over 8,000
tsubo of GFA is due in 2020, most of which
is attributed to the Daido Seimei Building,slated for completion in Q1.
Incentives provided by the local
government continue to support officedemand, and firms in the call centre industry,
especially, have benefitted greatly. Incentives,
such as JPY500,000 for each job created,have led to Sapporo becoming the number
one destination for call centres in Japan,
with around 81 facilities in total, according
to a study undertaken by Call Centre Japan
Magazine in July 2018.

VACANCY

15.0%

10.0%

5.0%

0.0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

Source Miki Shoji, Savills Research & Consultancy

GRAPH 22: Average Rent In Sapporo City By Area, 2011 to 201912,000

Average
Park South

Station Front
Outer South

Station East-West
Station North

JPY / TSUBO / MONTH

11,000Vacancy
The average all-grade vacancy rate for
Sapporo has seesawed between 2.0% and3.0% since June 2017. As of September 2019,
after a slight increase of 0.1ppts YoY, vacancy
sits at 2.4%. Station North retook the statusof tightest submarket despite a 0.5ppts YoY
loosening of vacancy rates to 1.0%. This washelped by the significant increase in vacancy
of 2.3ppts YoY in the Station Front submarket– a seventh consecutive month of loosening– following multiple cases of large-scale
cancellations.

10,000

9,000

8,000

7,000

6,000
2011

2012

2013

2014

2015

2016

2017

2018

2019

Source Miki Shoji, Savills Research & Consultancy

TABLE 9: Hokkaido Prefecture Key Macro Indicators*

JAPAN

TOKYO

HOKKAIDO

Real GDP (JPY trillion)

534.3

103.6

18.3

Real GDP (YoY%)

1.3

1.8

1.1

% of Japan (2015)

100%

20%

4%

Population (million)

126.2

13.9

5.3

Job to applicant ratio

1.6

2.1

1.2

Source Cabinet Office, Hokkaido Prefectural Government, Savills Research & Consultancy* Real GDP for Japan is as of Q2/2019, for Tokyo, Hokkaido and % of Japan, 2015.

savills.co.jp/research

13Regional Japanese Office Markets

Rent
All-grade rental growth has exceeded 4%
YoY for the first time since the data was firstcollected, and as a result, 2008 peaks havebeen surpassed. Average rents now standat JPY9,072 tsubo per month following arise of 4.2% YoY. The three most expensive
submarkets have also followed suit, namely
Station Front, Station East-West and Station
North. As the most expensive submarket,
Station Front commands rents of JPY11,667
per tsubo per month. With demand
outstripping supply in these convenient
locations, the Station East-West submarket,
for example, experienced a solid 6.5% YoY
growth. Park South, which had demonstrated
annual growth exceeding 5% for most of theyear, has seen a decline, however, slowing to again of 3.3% YoY.

A major source of this demand has comefrom call centres, and to some extent, IT
firms, which have made use of the subsidies
provided by the local government. However,change is on the horizon. Cost pressuresarising from wage increases, as a result of
demographic headwinds, combined withrising rents, are squeezing profits for thesebusinesses. Furthermore, business continuity
plan considerations and a shift in focus
towards technologies that can reduce costs,
as well as the need for office space, may start
to impact Sapporo’s appeal, and thus officedemand.
Given the level of rents at present, it
is not surprising to see some rationality
return to the market. This normalisation ofmarket forces, therefore, may result in rents
remaining flattish for the time being.

Outlook
The office market in Sapporo has hitherto
been supported by tight supply and sounddemand. Following rental increases in themost convenient submarkets, average rents
now exceed 2008 peaks.

For more information about this report, please contact us
Savills Japan

Savills Research

Christian Mancini
CEO, Asia Pacific(Ex. Greater China)+81 3 6777 5150
cmancini@savills.co.jp

Tetsuya Kaneko
Director, Head of Research& Consultancy, Japan+81 3 6777 5192
tkaneko@savills.co.jp

Simon Smith
Senior Director
Asia Pacific+852 2842 4573
ssmith@savills.com.hk

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