Tokyo – Q1/2022
MARKETINMINUTES
Savills Research

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

Market corrections see further slowdown
Rental corrections have become less marked, and an equilibrium point could
be reached soon.
• Corrections in rent and changes in vacancy seen in thecentral five wards (C5W) have become increasingly gentle.
• Average Grade A office market rents in the C5W fell 1.2%
quarter-on-quarter (QoQ) and 7.0% year-on-year (YoY), andnow stand at JPY33,266 per tsubo1 per month.
• The average Grade A office vacancy rate in the C5W declined
0.1ppts over the quarter but increased 1.5ppts YoY to 2.7% in
Q1/2022.
• Average large-scale Grade B office rents declined to JPY25,143
per tsubo per month – a contraction of 1.5% QoQ and 7.8% YoY.
• The average vacancy rate in the Grade B market stayed flatover the quarter at 3.6%, translating to an increment of
1.4ppts YoY.
• Shinjuku has seen the largest correction in rents amongst theC5W since the pandemic. However, there is some divergence
between the performances of different submarkets.
• There is uncertainty in the global economy, and highcommodity and energy prices are likely to slow recovery.

However, the Japanese market is likely to steadily continue
approaching normalcy.

“Rental corrections in Japan’s
office market have slowed
over the past few quarters,suggesting that an equilibrium
point might soon be reached.
While uncertainty in the
global economy is likely toslow recovery, Japan’s market
should gradually approachnormalcy.”
SAVILLS RESEARCH & CONSULTANCY

1 1 tsubo = 3.306 sq m or 35.583 sq ft.

savills.co.jp/insight-and-opinion/

1

Yoshihiro Kanno
Senior Manager,
Research & Consultancy+81 3 6777 5275
ykanno@savills.co.jp
Simon Smith
Regional Head of
Research & Consultancy
Asia Pacific+852 2842 4573
ssmith@savills.com.hk
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Office Leasing

GRAPH 1: Office Rents and Vacancy in Tokyo’s C5W*,
2011 to Q1/2022
Average Grade B Vacancy
Average Grade B Rent (LHS)
16%
14%30,00012%

25,00010%

20,0008%

15,000

6%

10,000

4%

5,000

2%

0

0%
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1

35,000VACANCY RATE

RENT (JPY / TSUBO / MONTH)

Average Grade A Vacancy
Average Grade A Rent (LHS)
40,000

11

12

13

14

15

16

17

18

19 20 21 22

Source Savills Research & Consultancy*Chiyoda, Chuo, Minato, Shibuya, and Shinjuku

GRAPH 2: Grade A Office Rental Index by Ward,2011 to Q1/2022
ChiyodaShinjuku

210

Chuo
ShibuyaMinatoAverage

Q1/2012 = 100

190
170
150
130
110

Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1

90
11

12

13

14

15

16

17

18

19

20

21 22

Source Savills Research & Consultancy

GRAPH 3: Grade A Office Vacancy by Ward,
Q3/2020 to Q1/2022

6.0%

Q3/2020
Q3/2021

Q4/2020
Q4/2021

Q1/2021
Q1/2022

Q2/2021

5.5%
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
ChiyodaChuo

MinatoShinjuku

Shibuya

Source Savills Research & Consultancy

savills.co.jp/insight-and-opinion/

GRADE A OFFICESIn Q1/2022, the Grade A office market
saw another mild correction of 1.2% QoQ
to JPY33,266 per tsubo, a decline of 7.0%
YoY. Although rents have been contracting
continuously since the pandemic began,
the rate of decline has softened notably,suggesting that the market might beapproaching an inflection point. For the firsttime since the pandemic began, vacancy
rates saw an improvement, tightening 0.1ppts
QoQ to 2.7% - an increment of 1.5ppts YoY.
According to a Xymax survey2 in March 2022,
only 19.5% of respondents indicated a desire
to reduce office space, compared to 30.0%
in the same period in 2021. This improving
sentiment could partly explain the gentler
changes and gradual recovery seen recently.
At the submarket level, Shinjuku andMinato saw their vacancy improve, with
rates decreasing 0.7ppts and 0.5ppts QoQ,
respectively. On the other hand, Chuo’s
vacancy loosened 0.5ppts QoQ, partially due
to the closing of the Olympics offices in the
Harumi area. Looking at rents, Chuo had themost pronounced decline of 2.6% QoQ whileother wards saw declines of 0.4% to 1.2%.
A notable number of leasing transactions
have been observed this quarter. For
instance, one of the latest buildings to open
in the C5W, Tokiwabashi Tower, continues
to fill its vacant space. Elsewhere, the next
Grade A building to open this year in July,
Kudan Kaikan Terrace, has attracted large
leases, likely due to its effective marketing andsales strategy, and is on course to come online
fully pre-leased. In Chuo, Tokyo Midtown
Yaesu that is scheduled to be completed inAugust had a mediocre start in pre-leasing,but it is garnering interest, particularly fromfinancial institutions and prestigious firms
based around Tokyo station.
While 2022 has the smallest supply
seen in the last decade, 2023 is forecast to
introduce nearly three times that amount.
Nonetheless, the average supply between
2022 and 2025 will be lower than the averageof the past ten years, providing somebreathing room for the market overall. The
performance of new supply is expected tobe K-shaped, depending on the location andamenities. For instance, the Sakuragaoka
Redevelopment next to Shibuya station has
had a positive start to pre-leasing. On theother hand, some projects in inconvenientareas in Minato might face difficulties.
LARGE-SCALE GRADE B OFFICESThe Grade B market continued to loosely
mimic the performance of the Grade A market
in Q1/2022, as it has done throughout mostof the pandemic. Rents saw a decline of 1.5%
QoQ and 7.8% YoY to JPY25,143 per tsubo.
Meanwhile, vacancy stayed flat over thequarter, but increased 1.4ppts YoY to 3.6%.
2 Over 250 respondents whose offices are located primarilyin Tokyo

2

Minato saw the largest quarterly and annual
increment in vacancy in the Grade B market,
increasing 0.7ppts QoQ and 6.0ppts YoY to
7.5%, stemming mostly from older buildingsthat are located further from stations. Minato
also had the largest rental decline in the C5W
Grade B market at 2.0% QoQ and 8.9% YoY
to JPY24,053 per tsubo, concentrated mostly
around the Hamamatsucho area and otherbay areas that are somewhat inconvenientto access. In contrast, as we have seen
throughout the pandemic, newer buildings
with good access are performing better.
Some of the largest leasing transactions
this quarter involved Grade B buildings(Table 2), showing the market’s soundperformance. For instance, Infineon
Technologies Japan, a semi-conductor
company, will take 3,700 tsubo lease in
NBF Shibuya Garden Front. Elsewhere,
Nihon Setsubi Kogyo, a facilities equipment
maintenance company, leased a combined
1,200 tsubo in Daiwa River Gate.
As discussed last quarter in our [Tokyo
Grade B Office] report, we expect the Grade
B office market to stabilise before the Grade A
office market given that small-to-medium-sizedcompanies have a lower implementation rate of
telework compared to their larger counterparts.
GRADE A RENTS AND VACANCYRATES BY WARD
ChiyodaChiyoda’s vacancy levels loosened by 0.2ppts
QoQ and 1.0ppts YoY to 1.8%, but still remaintight compared to the C5W average. Meanwhile,rents contracted 1.2% QoQ to JPY40,541 per
tsubo, on par with the average rental decline in
the C5W. Chiyoda remains the most expensive
ward in the C5W, and its premium rent overthe Grade A market’s average is around 22%,the largest since 2013, showing the strong
performance of the ward overall.
Chiyoda has overall seen a sound amountof leasing activity. In particular, Otemachi
has seen deals of around 1,000 tsubo move
forward. The latest building to open in theward, Tokiwabashi Tower, which opened inJune 2021, is almost fully occupied while
Kanda Square, a building that opened in
February 2020, has become fully occupied.
Kioi Tower, which saw a major leasecancellation last year, appears to being
acquiring new tenants such as JLL, which istaking a 1,100 tsubo lease.
Looking ahead, the only Grade A building
to open in 2022 in Chiyoda, Kudan Kaikan
Terrace, has seen steady pre-leasing activity,and could be expected to come to the market
fully leased. For instance, the video gamedeveloper Creatures has pre-leased 1,000
tsubo in the building. The limited supply after
this building until 2024 should give Chiyoda
some breathing room. As such, Chiyoda
should be able to continue holding onto its
position as the premier ward in the C5W.

Office Leasing

Chuo
Chuo’s rents saw the largest quarterly
contraction at 2.6% QoQ to JPY31,697 per
tsubo, translating to an annual decline of
8.6%. The ward also experienced the largest
quarterly vacancy increment, loosening
0.5ppts QoQ and 2.5ppts YoY to 3.2%,
suggesting that further rental contractions
might be needed to find an equilibrium pointwith prospective tenants. The Harumi areais the primary source of these corrections,partly because the Olympics offices that it
housed have closed. In addition, there areother rumoured lease cancellations thatare likely to further impact the submarket.
Elsewhere, the Tsukiji area has seen someloosening in vacancy as well.
The upcoming Tokyo Midtown Yaesu
scheduled to complete in August 2022 hasrecently seen an increased amount of interest
from financial institutions and is assumed to

GRAPH 4: Hiring Forecast of Large Companies(>1,000 employees), 2022 vs 2023
2022

2023

SHARE OF COMPANIES (N=1,142)

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

Unchanged

Decrease

Undecided

Ad hocHiringSource Recruit, Savills Research & Consultancy

be 40% pre-leased. The building is directly
connected to Tokyo station, which places
it in a strong position, especially as themarket has become more receptive of easily
accessible offices. Chuo may also see atemporary increase in demand as tenants
in other areas are displaced by upcoming
redevelopment projects.
MinatoMinato was the only member of the C5W tohave seen vacancy levels exceed 5% during
the pandemic. However, in Q1/2022, it saw
its vacancy decline for the first time since
the pandemic started, with rates tightening
0.5ppts QoQ to 5.0%. A number of leasingtransactions into the ward helped to improve
vacancy levels. Meanwhile, rents contracted
1.1% QoQ and 6.5% YoY to JPY30,855
per tsubo. The slowing decline in rentssuggests that rental levels in Minato may

TABLE 1: Tenant Relocations, Q1/2022
ORIGIN
ChiyodaChuo

MinatoShibuya

Shinjuku

Other

16

4

17

8

5

15

11

2

5

3

3

1

1

1

12
1

1

1

DESTINATION
18

Chiyoda

7

Chuo

2

3

19

Minato5

12

9Shibuya1

2

3

Shinjuku

9

Other

2

5

Source Nikkei RE, Savills Research & Consultancy

TABLE 2: Notable Office Leasing Transactions, Q1/2022

COMPANY

BUSINESSSECTOR

TYPE

ByteDance

Application
Developer

Relocation

Infineon Technologies
Japan

Semiconductor
Manufacturer

Relocation

TSI Holdings

ApparelConsolidation

NissinRecruit

Logistics

Publishing andStaffing

Relocation

Expansion

FORMER/CURRENTLOCATION

NEW LOCATION

Shinjuku Sumitomo Building

Shibuya Hikarie

Shinjuku

ShibuyaGate City Ohsaki East Tower

NBF Shibuya Garden Front

ShinagawaShibuya

Various

Sumitomo Fudosan Aoyama
Building East

Various

MinatoEishin Building

Sumitomo Fudosan Hanzomon
Ekimae Building

ChiyodaChiyodaGran Tokyo South Tower

Gran Tokyo South Tower

ChiyodaChiyodaAPPROXIMATE SPACE
TSUBO

SQ M

4,600

15,2003,700

12,200

2,668

8,800

1,500

4,900

1,300

4,300

Source Nikkei RE, Savills Research & Consultancy

savills.co.jp/insight-and-opinion/

3

Office Leasing

be approaching a price point in line with tenant
expectations.
Some buildings that previously saw notable leasecancellations during the pandemic have seen somerecovery. For example, Yokohama Rubber will takea 600 tsubo lease in Shinagawa Intercity Tower C,
where Fujitsu made a large lease cancellation in late
2021. The company reportedly plans to consolidate
and centralise its operations to support remotework. In addition, Akasaka K-Tower has become
fully occupied after Nikkeisha, an advertising
agency, took a 800 tsubo lease in the building.
Texas Instruments will also take a 1,000 tsubo
lease in Shinagawa Season Terrace, a building thatexperienced some difficulty during the pandemic.
Looking ahead, a large amount of high-quality
supply is forecast for the ward in 2023, and therelatively slow pace of the pre-leasing activity ofthese new buildings might be a cause for worry.
That said, the A District of the Toranomon
Azabudai Project is assumed to be 40% pre-leased.
Furthermore, the minimal supply in 2022 will givethe market some time to recover, especially theolder buildings with more inconvenient access.
Indeed, the high level of leasing activity again
this quarter from various industries, in particularin the bay area that has struggled during the
pandemic, should help to absorb the glut of supply
and potential secondary vacancy. Furthermore,
multiple ongoing infrastructure projects should
improve accessibility and help various areas of
Minato that suffer from poor access.
ShibuyaShibuya’s vacancy contracted 0.2ppts QoQ,
loosening 0.1ppts YoY to 1.6% and becoming
the ward with the lowest vacancy rate in the
C5W. Rents saw a mild contraction of 0.4% QoQ
and 3.9% YoY to JPY35,571 per tsubo. Shibuya
has maintained its position as the second mostexpensive ward in the C5W.
The rental corrections in Shibuya have likely
contributed to some newfound interest in theward. For instance, TikTok operator ByteDance
has leased 4,600 tsubo in Shibuya Hikarie, taking
up around the same amount of space cancelled byDeNA in 2021. In addition, Rakus, a cloud service
provider, is taking a 1,000 tsubo lease in Shinjuku
Maynds Tower. While the outer edges of the ward,
such as Ebisu, have struggled since the pandemic
began, market rumours suggest upcoming
movements into some of these areas, which should
contribute to the overall recovery of Shibuya.
Looking ahead, the Sakuragaoka Redevelopment
project, which will open in 2023, has had an
impressive start to pre-leasing. The project’s
strategic location next to Shibuya station, its mixeduse nature, and the ongoing improvements to thewalking infrastructure around the station should
ensure its popularity overall.
Shinjuku
Shinjuku’s rents contracted by 0.9% QoQ and
12.2% YoY to JPY27,667 per tsubo. Rents haveoverall seen a decline of nearly 20% since thepandemic began – close to double what any otherwards have seen. Indeed, the market has seen ashift toward the popularity of newer and easily
accessible buildings, in contrast with the older
stock in Shinjuku with poor accessibility. There
are market rumours of large tenant movements
out of the ward, suggesting that Shinjuku is likely tocontinue struggling in the near future.
However, the correction in rents has also allowed
it to experience the largest improvement in vacancy
this quarter, with rates decreasing 0.7ppts QoQ to
1.8%, with leasing transactions of around 100 tsubo
observed. Overall, while the current climate of themarket is not favourable for Shinjuku, there is stillmuch potential in the ward to be explored, which is
discussed in greater detail in the next section.
A CLOSER LOOK AT SHINJUKU
Since the financial crisis, Shinjuku’s rents haveconsistently been the cheapest in the C5W, lagging
around 10% behind the average of the C5W. Its
relative affordability contributed to helping it
maintain low vacancy rates, which were virtually
0% since 2016 until the pandemic. The excellent
accessibility of Shinjuku station from primaryresidential areas played a part in the popularity of
the ward overall.

However, the pandemic has exposed manyof Shinjuku’s weaknesses. Indeed, many ofShinjuku’s buildings are old and have relatively
poor accessibility. Overall, its Grade A rents
have contracted 19.4% since the pandemic –close to double what any other ward has seen.
The robust office market in pre-pandemic times
and lack of availability meant that some offices
in Shinjuku had bullish rents and had to face
notable corrections when the pandemic struck.
In comparison, Shinjuku’s Grade B rents, whichwere not priced as expensively, have contracted
13.5%, the second largest decline in the GradeB market, behind Shibuya. At the same time,
vacancy rates in Grade A offices increased 1.8ppts
versus pre-pandemic times, whereas Grade B
offices increased 3.7ppts, suggesting that there isgreater demand for higher-quality offices if they
are priced correctly.
Nonetheless, a closer inspection of Shinjuku
reveals that the performances of different areas
vary significantly. For instance, Grade A and B
offices located within a seven-minute walk from
Shinjuku station in the “Shinjuku Station Area”
submarket only saw a 15.7% decline in rents,
and an increment of 2.3ppts in vacancy versus
pre-pandemic times (Table 3). While the officestock in this submarket is ageing, the submarket’s
proximity to Shinjuku, the principal terminal
station in Tokyo, has strongly aided its popularity.
This submarket has the oldest office stock because
there were very few redevelopments. However,the Shinjuku West Exit Redevelopment Projectin 2029, spearheaded by large corporations
including Odakyu and Tokyu, will add new highquality office space right next to the station andredevelop the Odakyu Department Store. This isa major project for the submarket, and is expected
to increase the popularity of the area.
In contrast, offices located in West Shinjuku
that are further than or equal to eight minutes
away from Shinjuku station (categorised as “WestShinjuku” in Table 3) have seen a 19.4% decline inrents, and a 3.0ppts increment in vacancy versus
pre-pandemic times. Many of these offices are

TABLE 3: Comparison of Shinjuku’s Various Submarkets’ Grade A and B Performance During the Pandemic

RENT JPY/TSUBO/MONTHVACANCY
Q1/2020

Q1/2022CHANGE FROM
PRE-PANDEMIC
LEVELSAVERAGE FREEAVERAGERENT PERIODYEAR OF(MONTHS)CONSTRUCTION

Q1/2020

Q1/2022CHANGE FROM
PRE-PANDEMIC
LEVELS

Shinjuku Station Area

34,50029,100-15.7%

0.0%

2.3%

2.3ppts

2.6

1988

West Shinjuku(≥8 minutes from Shinjuku station)

29,90024,100-19.4%

0.0%

3.0%

3.0ppts

4.0

1993

Other Areas

25,90023,000-11.2%

0.0%

1.6%

1.6ppts

2.3

1999

Overall

29,80025,000-16.1%

0.0%

2.5%

2.5ppts

3.2

1993

Source Savills Research & Consultancy

savills.co.jp/insight-and-opinion/

4

Office Leasing

MAP 1: Average Rents Per Tsubo in Selected Submarkets, Q1/2022

¥30.4

¥28.8
¥31.6

¥45.2
¥35.5

¥31.1

¥23.1

¥35.4
¥28.2

¥37.3

Source Savills Research & Consultancy
Grade A Office, average passing rent + CAM per tsubo per month in thousand JPY. Coloured areas for illustrative purposes only.

located more than ten minutes away from Shinjuku
station, or are only accessible via relatively minor
train stations, and this comparatively poorer
accessibility has negatively impacted the submarket.
Indeed, West Shinjuku has the highest averageamount of free rent offered to new tenants, andsome of the offices with notable amounts of vacancy
are also located in this submarket, suggesting
the difficulties faced in attracting new tenants.
However, one consolation for this submarket isthat many offices are connected to Shinjuku station
through an extensive underground network, which
provides some level of convenience, and might help
with the eventual recovery of the submarket.
In Table 3, offices that are located in other partsof Shinjuku, including Yotsuya, Takadanobaba,
and Iidabashi, are categorised in the “Other”
submarket. This submarket has performed thebest overall, with rents only decreasing 11.2% andvacancy increasing 1.6ppts. Many of the buildingsin this submarket tend to be newer, and are locatedclose to train stations. Furthermore, unlike many
offices concentrated around West Shinjuku,
offices in the submarket tend to be more spreadout, which makes the supply easier to absorb. This
combination of newer buildings, good accessibility,
and achieving niches in specific areas have helped
the submarket perform well during the pandemic.
Overall, the trends observed in the Shinjuku
submarkets reaffirm the notion that newer
offices with greater accessibility are faring better,

while older offices with poor accessibility havebeen struggling. Shinjuku station is the busiest
in the world and serves as an important hub forcommuters, and the offices surrounding the station
have seen amicable performance despite their age.
In contrast, offices located more than a sevenminute walk away from Shinjuku station havesuffered more from the pandemic, and might takelonger to recover. Elsewhere, offices located in otherhubs of Shinjuku that tend to be newer and close tostations have seen the best performance overall.
Going forward, Shinjuku will see major
improvements to its infrastructure around West
Shinjuku and Shinjuku Station that will help
revitalise the area. The major players in Shinjuku,
Odakyu and Keio, both have major redevelopment
plans for the ward over the next decade. For
instance, Odakyu will start construction on their85,200 tsubo mix-used skyscraper west of thestation in October of this year, and include walking
infrastructure improvements like a sky walkway
around the west exit that should improve theaccessibility of West Shinjuku.
OUTLOOK
Rising corporate profits in Q4/2021 and somedecline in remote work initially boosted businessand consumer confidence in the market. However,tensions surrounding the conflict in Ukraine
have clouded such optimism. Rising commodityand energy prices will put additional pressure on

the global economy and will likely slow recovery
from the pandemic. Furthermore, the spike of
COVID-19 cases in Q1/2022 stemming from theOmicron variant has also delayed some return tothe office.
Despite the worldwide uncertainty, the officemarket in Japan has made some progress towardnormalcy. Rental corrections have become
increasingly gentle over the past few quarters,and vacancy increments have also been mild.
The slower adjustments observed suggest thatthe market could be approaching an equilibrium
point between rent pricing and tenant demand.
Furthermore, the low office supply forecast for2022 should aid the market in achieving greater
stability.
Going forward, many companies are likely tocontinue a hybrid work model where employees
predominantly commute to the office, with someflexibility of conducting remote work. On the other
hand, the number of companies looking to reduce
office space has decreased, which is a positive signfor the market. Indeed, many companies appear
eager to welcome new employees entering in April
to the office, which should be able to provide amore conducive training environment. Overall,
the Japanese economy is gradually opening up,
and should become like many countries in thewest where people have started to choose tocoexist with COVID-19.

Savills monitors rents and vacancy levels at more than 500 buildings located in Tokyo’s central five wards with a GFA of 3,000 tsubo (10,000 sq m) or above.
Unlike similar market information issued by other research institutions, the rental data provided relates to estimated passing rents, inclusive of common area
management fees, as opposed to asking rents. Meanwhile, vacancy figures reflect current vacant space without the inclusion of ‘expected’ vacancy, or thatreported prior to tenants vacating their premises. As a result, benchmark figures, particularly vacancy rates, tend to be lower than other market indices.
savills.co.jp/insight-and-opinion/

5