Tokyo – Q2/2020
MARKETINMINUTES
Savills Research

Residential Leasing

Savills team
Please contact
us for further
information
JAPAN
Christian Mancini
CEO, Asia Pacific(Ex Greater China)+81 3 6777 5150
cmancini@savills.co.jp

RESEARCH

Rents experience slight pullback
As expected, rental growth has taken a pause in Q2/2020 following solid
growth in the previous quarters, even as the population of Tokyo Prefecture
encouragingly reached the 14 million mark for the first time.
• Rents in the Tokyo 23 wards (23W) saw a slight pullback during
Q2/2020, now standing at JPY4,138 per sq m – a decrease of 0.4%
quarter-on-quarter (QoQ), but still 3.0% higher year-on-year (YoY).
• Growth in average mid-market rents in the central five wards(C5W) also halted during the quarter. Rents for Tokyo’s
flagship submarket are now at JPY4,859 per sq m after adecline of 1.2% QoQ, though the average is still up 1.7% YoY.
• The C5W saw its premium over the 23W average contract toaround 17%, as five of the six outer submarkets still managed
to post rental growth.
• At the ward level, Meguro was the top performer this quarter
following growth of 5.2% QoQ. Otherwise, Sumida marked
impressive growth on an annual basis, with rents surging 12.5% YoY.
• In the C5W, average rents for units in the 15-30 sq m size band
– which represent the majority of listings – remained flat,
while larger units faced a pullback. Interestingly, the nearopposite appears to have occurred across the 23W at large.
• With leasing activity suspended during the April and May
lockdown, the average occupancy rate for the 23W fell 1.5
percentage points (ppts) QoQ to 96.4% as of Q2/2020.
Looking ahead, occupancy should be bolstered as somelatent demand emerges over the coming months.
savills.co.jp/research• Even in the face of a pandemic, young residents continued
to flock to Tokyo during the quarter, leading the prefecture’s
population to achieve 14 million for the first time in history.

“After two quarters of solid
growth, average multi-family
rents across the 23W andC5W saw a slight pullback in
Q2/2020. It is, however, too
early to tell whether this isjust a short-term correction or
the opening salvo of a bearish
leasing market. Encouragingly,
Tokyo still witnessed an inflow
of young residents during the
lockdown.”
SAVILLS RESEARCH & CONSULTANCY

1

Tetsuya Kaneko
Director, Head of Research& Consultancy, Japan+81 3 6777 5192
tkaneko@savills.co.jp
Matthew D’Elia
Manager, Research &Consultancy, Japan+81 3 6777 5179
mdelia@savills.co.jp
Simon Smith
Senior Director
Asia Pacific+852 2842 4573
ssmith@savills.com.hk
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Residential Leasing

monthly rents for units which fit the following
criteria:

MAP 1: Tokyo’s 23 Wards By Survey Area

1) studio and one- or two-bedroom rental
apartments of up to 100 sq m in size,2) reinforced concrete structures built within
the last ten years, andAdachi

Itabashi
Kita
Nerima3) properties located in Tokyo’s 23 wards andsituated within a ten-minute walk of the nearest
station.

Katsushika
Arakawa

ToshimaNakanoBunkyoTaito

In contrast to the luxury residential market,
advertised or “asking” rents for mid-market
units fitting the above criteria are typically
non-negotiable and are not subject to incentives
such as rent-free periods. Savills mid-market
rental indices are therefore considered toclosely reflect movements in contract rents for
the Tokyo market.

SumidaShinjuku

Suginami

Edogawa

ChiyodaShibuya

Chuo

Koto

MinatoSetagaya
MeguroShinagawaTokyo 23 Wards
Central (C5W)
Ota

South
West
North (Inner)
North (Outer)
East (Inner)
East (Outer)

Source Savills Research & Consultancy

SURVEY GEOGRAPHY
In order to illustrate trends in the central
Tokyo residential market, Savills has
segmented Tokyo’s 23 wards into seven distinct
geographical areas: Central (or “central fivewards”), South, West, North (Inner and Outer)and East (Inner and Outer).

RENTAL INDEX DATACHARACTERISTICS
Savills collates thousands of leasing
comparables each quarter in order to analysetrends affecting “mid-market” rental
apartment units in Tokyo. Our benchmark
rental data is based on average advertised

RENTAL INDEX, Q3/2008 = 100

GRAPH 1: Mid-market Apartment Rental Index, Q3/2008 to Q2/2020

115

Tokyo 23 ward average
4 period Mov. Avg. (Tokyo 23 wards)

Central five wards
4 period Mov. Avg. (Central five wards)

110
105
100
95
90
85
Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2008 2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019 2020

Source Savills Research & Consultancy

savills.co.jp/research

2

OVERALL RESULTS
After achieving record highs in Q1/2020, boththe 23W at large and the C5W submarket saw aslight decline in average rents – an outcome thatwas not unexpected given the circumstances.
Indeed, even without factoring in the global
pandemic, the multi-family leasing market
tends to experience pullbacks after periods ofstrong rental growth. For now at least, averagerents in both the 23W and C5W remain above
their four-period moving averages, providing
some comfort that the market has yet to enter adownturn (Graph 1).
To be sure, as the impacts of COVID-19
continue to reverberate through Japan’s
economy, this mild pullback could be the initial
blow of a bearish multi-family leasing market.
While Japan has a more stable labour market
compared to other major economies, personal
incomes will invariably be dragged down, with
part-time and contract employees in the retailand hospitality sectors in particular bearing thebrunt. Further, the pandemic came after Japan
had already suffered an economic contraction
in Q4/2019 as a result of the consumption tax
hike implemented in October.
The impact of this slowdown will not
be uniform across the sector, however. For
instance, smaller units (15-20 sq m) in theouter wards could take a hit, though such
units account for less than 5% of our samples.
That being said, the typical tenant for units in
our monitored residential sample set – which
comprises newer, better-located units – tends
to have a more stable income, and therefore
the mid-market segment should remain fairly
stable.
With the drop in rents less pronounced forthe 23W as a whole, the C5W’s premium has
narrowed by around 1.2 ppts to 17.4% (Graph2). In fact, five of the seven submarkets in our
survey saw average rents grow on a quarterly

Residential Leasing

GRAPH 2: Rental Premiums/Discounts* vs 23W
Average, 2016 to 2020

PREMIUM / DISCOUNT TO 23W AVERAGE

25%

2016

2017

2018

2019

2020

20%
15%
10%
5%
0%
-5%
-10%
-15%

-20%
-25%

-30%
C5W

South

North East
(Inner) (Inner)

West

North East
(Outer) (Outer)

Source Savills Research & Consultancy* The above represents the average premium/discount over therespective year.

GRAPH 3: Mid-market Apartment Rents,
Q1/2014 to Q2/2020
Tokyo 23 Ward
West
East (Inner)
5,000

Central 5 Wards
North (Inner)
East (Outer)

South
North (Outer)

4,750
4,500
JPY / SQ M

4,250
4,000
3,750
3,500
3,250
3,000

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

2,750
2,500

2014

2015

2016

2017

2018

2019 2020

Source Savills Research & Consultancy

GRAPH 4: Rents By Unit Size, C5W,
Q1/2014 to Q2/2020
5,200

15-30 sq m

30-45 sq m

45-60 sq m

5,000

JPY / SQ M

4,800
4,600
4,400
4,200
4,000

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

3,800
2014

2015

2016

2017

2018

2019 2020

Source Savills Research & Consultancy

savills.co.jp/researchbasis, with the Outer East submarket leading
the pack at 2.3%. Only the C5W and Outer
North submarkets experienced quarterly
declines.
Overall, we have observed a substantial
increase in the number of residential listings,
indicating that some landlords appear to
be having difficulty leasing out space. Thisis further corroborated by the decline inoccupancy measured this quarter. Indeed,most leasing activity was suspended during
Tokyo’s state of emergency in April and May.
As such, the leasing market will naturally
take more time to recover, though this should
lead to some pent-up demand coming to theforeground in Q3.
MID-MARKET RENTAL TRENDS BYSURVEY AREA
Average multifamily asking rents for the 23W
have fallen by a slight 0.4% QoQ, landing at
JPY4,138 per sq m as of Q2/2020. Rents arestill 3.0% higher YoY, keeping average asking
rents higher than they were just prior to the
Global Financial Crisis. It is a similar story for
the C5W, where rents have seen a somewhat
more substantial drop of 1.2% QoQ, though
are still up 1.7% YoY. Average rents in Tokyo’s
flagship submarket are still 10% higher thanwhere they were at the market’s previous peak.
That said, the C5W has been underperforming
to some extent since 2018, when its premium
over the 23W average was at its highest. The 18
outer wards (18W), which can offer substantial
discounts compared to the C5W, had been
performing relatively well even before the
COVID-19 pandemic and it appears that thistrend is persisting for the time being (Graph 3).
With the exception of Shibuya, where growth
was flat, each ward in the C5W experienced
a quarterly decline in average rents. Despitea decrease of 1.9% QoQ, Minato continues tohold the top spot for average rents in the 23W,
a status that has recently been contested by
Shibuya. Shinjuku, which has underperformed
over the course of the year, saw only a modest
rental decline of 0.2% QoQ. Chiyoda also
experienced weakness on an annual basis,though Chuo, Minato, and Shibuya all posted
YoY growth of 3.6% or higher.
The South submarket continues to reassert
itself and, as of Q2/2020, has eliminatedits discount compared to the 23W average,
as rents grew 1.3% QoQ and 5.2% YoY toland at JPY4,172 per sq m. This uptick was
primarily led by Meguro, which posted
growth of 5.2% QoQ – the highest amongthe 23W this quarter – and 6.7% YoY. Officedevelopments and corporate relocations to
nearby Shinagawa, which also posted YoY
growth of 6.7%, may be a factor in this rise inmulti-family rents over the past year.
(Please refer to our Spotlight Report“Shinagawa” for further analysis on theSouth submarket)

3

Rental growth over the year in the Inner
North submarket was an impressive 8.2% - thehighest in the 23W. With quarterly growth of
1.1%, pushing rents to JPY4,295 per sq m, thesubmarket has further extended its premium
against the 23W average. However, rental
growth diverged substantially at the ward
level: Bunkyo saw robust growth of 4.4% QoQ
and 11.7% YoY, while Toshima posted a declineof 2.4% QoQ - which in turn weighed annual
growth down to 4.5%. Toshima remains far
cheaper than Bunkyo, however, and as suchthere may be more upside potential in the ward
going forward. In fact, Bunkyo rents are now
higher than those of Shinjuku in the C5W.
Among the 18W, the ward is second only to
Meguro.
Following annual growth of 7.5%, Inner East
rents have exceeded the JPY4,000 mark for the
first time on record. Sumida, still the cheapest
ward in the submarket, continues to lead rental
growth, with its average now sitting at JPY3,952
per sq m after growing 12.5% YoY. To be sure,while displaying impressive annual growth,
there has been a substantial slowdown on aquarterly basis, with rental growth falling below
1.0% in all three wards of the submarket.
The West submarket also held up fairly
well in Q2/2020. Average rents now stand at
JPY3,700 following growth of 1.3% QoQ and
5.4% YoY. After faltering through much of2019 and early 2020, Nakano led the market’s
growth this quarter, posting a gain of 3.2% on
a quarterly basis. Nerima, still the cheapest
ward in the submarket, continued to lead on anannual basis as rents grew 6.9% YoY to JPY3,384
per sq m, though rents remained flat overthe quarter. Suginami experienced a similarchange, with rents growing 6.5% YoY but only
0.4% QoQ.
Average rents in the Outer North submarket
faced a slight decline of 0.4% QoQ, in linewith the 23W’s movement this quarter, thoughoutperformed on an annual basis with growthof 4.7% YoY. Itabashi has reversed its twoquarter losing streak to some extent, bucking
the 23W trend and posting growth of 2.0% QoQ.
Average rents in the ward are still down 0.7%
on an annual basis, however, whilst Kita still
maintains a 10% premium over last year’s mark.
Finally, the 23W’s cheapest submarket, theOuter East, posted the strongest growth of all
surveyed submarkets this quarter, with rents
increasing 2.3% QoQ to JPY3,129 per sq m in
Q2/2020. Growth is still somewhat slower onan annual basis, marking an increase of only
4.6% YoY. Each ward in the submarket savefor Edogawa saw growth this quarter, with themost expensive ward of the group, Arakawa,
posting the strongest growth, rising 4.4% QoQ
to JPY3,451. The cheaper Adachi Ward was the
top performer on an annual basis with rents
growing 6.9% YoY.

Residential Leasing

GRAPH 5: Average Occupancy For J-REIT Residential
Assets, Q1/2013 to Q2/2020*
23-ward average
South
East

100%

Central 5 wards
North & West

98%

96%

94%

92%

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

90%
2013

2014

2015

2016

2017

2018

2019 2020

Source Savills Research & Consultancy based on publicly disclosed
J-REIT property data (Advance Residence and Nippon
Accommodation Fund)* Q2/2020 is as of May 2020

GRAPH 6: Tokyo Population Change By Month,2018 to 2020
2018

2019

2020

40,00035,000

Lockdown
PeriodPOPULATION CHANGE

30,000≈16,000

25,00020,00015,00010,0005,000
0-5,000Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source Tokyo Metropolitan Government, Savills Research &Consultancy

savills.co.jp/research

RENTS BY UNIT SIZETokyo’s rental market is principally made up
of compact single-occupier units, typicallyless than 45 sq m (13.6 tsubo) in size. Such
units can often make up as much as 75% ormore of the 23W area’s rental listings. Unlike
other major global cities such as London
and New York, house or apartment sharing
does not form a major segment of the rental
market. As a result, there is a large, stable
market for small- to mid-sized units.
As always, units between 15 and 60 sq m
dominated supply, accounting for nearly
all listings in Q2/2020. This quarter has
witnessed a clear divergence amongst units
within this group, however. Units in thesmaller size band (15-30 sq m), which are themost numerous in our sample set, remained
flat in the C5W. Larger unit sizes, having
seen more robust growth since the beginningof 2019, saw a more marked pullback on aquarterly basis, with average rents amongst
30-45 sq m 45-60 sq m units falling 1.8% and4.4%, respectively (Graph 4).
Interestingly, the near-opposite appears
to have occurred across the 23W at large,
with smaller units seeing a slight pullback
while larger units posted growth for thequarter. This could be the result of the
lockdown’s impact on migration to Tokyo,
as incoming university students and recent
graduates are far more likely to lease units
in the 15-30 sq m size band in the 18W.
As mentioned previously, quarterly
contractions after periods of rapid growth
are common in the multi-family sector
and, moreover, sample sizes are smaller
for larger units, causing more noticeablefluctuations each quarter. Therefore, it may
be premature to assume that the downward
shift is anything more than a temporary
correction. To wit, on an annual basis, rents
in the 15-30 sq m, 30-45 sq m, and 45-60
sq m size bands are up 1.0%, 4.0%, and 2.8%,
respectively.
OCCUPANCY RATESWith leasing activity suspended during
the April and May lockdown, the averageoccupancy rate in the 23W fell 1.5ppts QoQ
to 96.4%, and this trend was most noticeable
in the East submarket (Graph 5). Although
this is a relatively sharp quarterly drop,
occupancy rates have tended to fluctuate
within the 96% to 98% range over the
past several years. Indeed, this downward
fluctuation was much less pronounced on
an annual basis: average occupancy forthe 23W fell only 0.5ppts YoY, while C5W
vacancy remained flat over the same period.
Occupancy could very well bounce back next
quarter as latent demand begins to come tothe foreground over the coming months.

4

TOKYO POPULATION REACHES 14MILLION
Even as Japan’s population declines, Tokyo– the political, economic, and cultural centreof Japan – continues to buck the trend. The
primary driver of the prefecture’s population
growth is a continuous stream of youth seeking
education and employment opportunities.
Despite the fact that Tokyo was the epicentre ofJapan’s COVID-19 outbreak and therefore undera “soft” lockdown for the months of April andMay, a large number of young people still moved
to the prefecture, driving the total population to
the 14 million mark for the first time in history.
As April marks the start of the Japanese fiscal
year, companies have chosen this period tocommence employment for recent graduates,whilst universities likewise commence theiracademic years on the same schedule. As such,
the April-to-June period tends to see the largest
influx of new residents during a given year.
That said, the COVID-19 state of emergency
declaration clearly weighed on relocations
to Tokyo in May, with population growthunderperforming the same month in 2018 and2019 by around 16,000 people (Graph 6).
It is unclear how large the population
rebound will be now that the state of
emergency has been lifted. Universities arestill conducting courses online and many
companies, particularly large firms, have begun
implementing remote working strategies andmay not need new employees to move to thecapital for the time being. Encouragingly, thepopulation increase in April 2020 exceeded thelevels seen in the same month over the past two
years – indicating that the underlying growthtrend is still robust.
To be sure, the concentration of people inTokyo is not necessarily a positive for Japanas a whole and there could very well be some
negative pressures on further population
inflows going forward. It is worth noting that,even after increasing somewhat, the prefecture
continues to have the lowest fertility rate in the
country. This is not surprising given that livingin the capital is substantially more expensive
than in other regions and, therefore, residents
may be more hesitant to start a family.
Indeed, concentration risk is by no means new
to Japan. Prior to the pandemic, the governmentand some private organisations had alreadybeen considering decentralisation measures inorder to mitigate the risk presented by natural
disasters. This has unsurprisingly become
even more of a concern in recent months. If thegovernment does - as they are now discussing decide to disperse certain functions to regional
cities, then some corporations and residents
are likely to follow. This push may rapidly
decelerate, however, if a viable vaccine becomes
available in the near future. In the end, even if
there is some dispersion to regional markets,
Tokyo should remain Japan’s flagship city for theforeseeable future.

Residential Leasing

OUTLOOK
After achieving record highs in the previous
quarter, average rents in the 23W saw a slightdecline in Q2/2020 – an outcome that was not
unexpected considering the robust growth
witnessed to date and, of course, the COVID-19
pandemic. Indeed, after nearly seven years of
economic growth, the longest expansion since
the end of World War II, the combination of aconsumption tax hike and a global pandemic havefinally disrupted Japan’s historic bull run, placing
the country into a technical recession. While
Japan has a more stable labour market comparedto other major economies – as of May, the national
unemployment rate stands at 2.9% and the jobto-application ratio in Tokyo is at 1.55x – personal
incomes will invariably take a hit. Rental growth,
if any, should therefore be modest at best while
the economy recovers. Given the above, we predictsavills.co.jp/researchthat rental movements are likely to stay flattish
for the time being, while occupancy should hold at
the lower end of the 96%-98% range. With a larger
number of listings than during the air-tight pre
COVID-19 era, aggressive pricing is unlikely to beobserved - even at brand-new apartments.
Encouragingly, even as Japan’s population is
declining, Tokyo continues to buck the country’s
demographic destiny, as youth continue to flock to
the capital in search of education and employment
opportunities. Despite the fact that Tokyo was theepicentre of Japan’s COVID-19 outbreak in April
and May, and therefore under a “soft” lockdown
during that period, young people continued tomove to the prefecture in large numbers, driving
the total population to the 14 million mark forthe first time in history. Further, five of the six
outer submarkets in the Tokyo 23W, which tend
to be more popular than the C5W amongst young

5

residents, posted rental increases over the quarter.
These favourable demographic drivers continue
to make Tokyo multi-family residential a stable,
defensive asset type.
To be sure, the economic and social impacts of
COVID-19, particularly on the wallets of Tokyo
residents, may lead some to consider moving toperipheral areas of Greater Tokyo - such as theTama Region, Kanagawa, Saitama, and Chiba – oreven abandoning the capital region entirely. Thatsaid, even if there is some reverse migration backto regional areas, Tokyo’s position as Japan’s top
economic powerhouse is not going to change
anytime soon. As such, we can expect to see
younger residents, a key demand driver for midmarket, multi-family residential units, continue to
set their sights on Tokyo for the foreseeable future,thus stabilising rents for the longer term.