Tokyo – Q3/2021
MARKETINMINUTES

Residential Leasing

Savills Research

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
Yoshihiro Kanno
Manager, Research &Consultancy, Japan+81 3 6777 5275
ykanno@savills.co.jp

Downtrend in rents continues
Although rents have weakened, occupancy rates see a slow recovery.
• Rents in the Tokyo 23 wards (23W) fell by 0.9% quarter-onquarter (QoQ) and 3.6% year-on-year (YoY) to JPY3,929 per
sq m this quarter.
• Average mid-market rents in the central ﬁve wards (C5W)
saw a small decline this quarter and are now at JPY4,661 per
sq m – a fall of 0.2% QoQ and 3.6% YoY.
• The C5W premium has inched up to 17.9% – up 0.3
percentage points (ppts) from Q2/2021.
• At the ward level, some areas have posted growth thisquarter. In particular, the Outer East submarket has
displayed its strengths, with Edogawa growing 3.9% QoQ.
On an annual basis, Arakawa took the lead, with rents risingby 6.2%.
• In the C5W, average rents for units in the 15-30 sq m size band
have again decreased this quarter. However, the 30-45 sq m size
band saw a small increase in rents.
• The average occupancy rate in the 23W rose by 0.2ppts to
95.6%. The C5W saw a similar increment, increasing 0.2ppts
to 94.5%.
• The C5W has seen a population decline, driven by younger
families who appear to prefer larger units.

savills.co.jp/insight-and-opinion/“Occupancy rates haveslightly improved this quarter,
suggesting that future declines
may be less marked. While
the C5W continues to be themost negatively affected by
the pandemic, the mid-term
prospects of the submarket arebrighter thanks to the multiple
ongoing redevelopment
projects. At the same time,
public discourse regarding
post-pandemic life has started
to gain some traction.”
SAVILLS RESEARCH & CONSULTANCY

1

Simon Smith
Regional Head of
Research & Consultancy,
Asia Paciﬁc+852 2842 4573
ssmith@savills.com.hk
Savills plc
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permission from Savills Research.

Residential Leasing

MAP 1: Tokyo’s 23 Wards by Survey Area

Adachi

Itabashi
Kita
NerimaKatsushika
Arakawa

ToshimaNakanoBunkyoTaito

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 (23W) into
seven distinct geographical areas: Central(or “central ﬁve wards”), 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
apartments in Tokyo. Our benchmark rental
data is based on average advertised monthly
rents for units which ﬁt the following criteria:
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, and
3) properties located in Tokyo’s 23 wards
and situated within a ten-minute walk of thenearest station.

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

In contrast to the luxury residential
market, advertised or “asking” rents for midmarket 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 to closely reﬂect movements incontract rents for the Tokyo market.
OVERALL RESULTS
Having corrected last quarter, rents in boththe 23W and the C5W have again declined,
and now ﬁnd themselves at their lowest
levels since 2018. In fact, average rents inthe former are marginally lower than what
was observed in 2008 – a clear sign of thenegative market sentiment at present.
Ultimately, the continued population outﬂow
from the capital since June 2020 has taken its
toll on Tokyo rents.
The overall population of Tokyo prefecture
has decreased since its peak. Yet, looking alittle closer, the changes vary signiﬁcantly
depending on location. For instance, whilethe 23W has seen an outﬂux of people, thepopulations of cities outside the 23W have2

remained ﬂat. Indeed, this trend is to be
expected given the high levels of remote workthat have persisted throughout the pandemic.
More speciﬁcally, many large companies havecontinued to implement some form of remote
work, and this has provided an impetus foryounger oﬃce workers in particular, who livein the 23W, to move to areas with cheaper
rents or move back in with their parents. Evenso, this trend could see a reversal of sorts
once the risks of the pandemic recede, withmany companies likely to reduce the extent
of remote work and welcome employees backto the oﬃce. On a positive note, the Japanese
economy is exhibiting signs of recovery.
According to a survey conducted by the
Cabinet Oﬃce, consumer conﬁdence has
notably increased over the past quarter, andunemployment has also decreased from 3.0%
in May to 2.8% in August. Furthermore, thevaccination rate in Japan has been steadilyrising, and it is now higher than in the UnitedStates. In truth, it will likely have one of thehighest rates in due course, given Japan’s
strong peer pressure culture.
Much like the previous quarter, thecorrection in rents this time around was lessmarked in the C5W, and its premium over the
23W has inched up by 0.3ppts QoQ to 17.9%(Graph 2). Despite this slight expansion,
the gap remains the tightest since 2017. In
general, the spread between less expensive
regions and the 23W at large has also
narrowed considerably when compared withprevious years. In the mid-term, however,
the C5W is likely to see its premium expand
once more compared to other regions,
underpinned by the multiple redevelopment
projects in the pipeline that will make livingin the area more attractive.
MID-MARKET RENTAL TRENDS BYSURVEY AREA
Average multifamily asking rents in the 23W
decreased by 0.9% QoQ in Q3/2021 and now
sit at JPY3,929 per sq m. In fact, rents haveseen such contractions for many quarters,
resulting in a 3.6% drop over the year.
Broadly speaking, while all submarkets haveslumped slightly, the decline this quarter
was less prominent than what was seen in
the previous quarter, suggesting that these
corrections may be slowing somewhat. It
should be said, however, that the population
movement from the 23W to other regions inGreater Tokyo is likely to continue for thetime being. Overall, on an annual basis, thetrend of larger declines in more expensive
submarkets like the C5W and the South, aswell as less expensive regions like the Outer
East experiencing increases in rents, has
persisted. Indeed, the value of living closer tothe city centre has been diminishing.

Residential Leasing

GRAPH 1: Mid-market Apartment Rental Index,
Q3/2008 to Q3/2021
Tokyo 23 ward average
Central five wards
4 period Mov. Avg. (Tokyo 23 wards)
4 period Mov. Avg. (Central five wards)
RENTAL INDEX, Q3/2008 = 100

115
110
105
100
95
90

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

85

08 09 10

11

12

13

14

15

16

17

18

19

20 21

Source Savills Research & Consultancy

GRAPH 2: Rental Premiums/Discounts* vs 23W
Average, 2016 to Q3/2021
2016

2017

2018

2019

South

North
East
(Inner) (Inner)

2020

2021

PREMIUM / DISCOUNT TO 23W AVERAGE

25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%

-30%
C5W

West

North
East
(Outer) (Outer)

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

GRAPH 3: Mid-market Apartment Rents,
Q1/2014 to Q3/2021
Tokyo 23 Ward
West
East (Inner)
5,000

Central 5 Wards
North (Inner)
East (Outer)

South
North (Outer)

JPY / SQ M / MONTH

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

2014

2015

2016

2017

2018

2019

Q1

Q3
Q2

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q3

Q1

2,750
2,500

2020 2021

Source Savills Research & Consultancy

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

The C5W was the only submarket to see
its average rents decline consistently since
the start of the pandemic in Q1/2020. As
such, it has experienced the largest annual
contraction in the 23W, with rents decreasing
3.6% YoY. Rents in Shibuya have seen thesteepest drop in the 23W of 6.5% YoY,
although it is still the second most expensive
ward. In Q3/2021, most of the central wards
demonstrated a mild quarterly decreasein average rents, pushing the submarket’s
rents 0.2% lower QoQ to JPY4,661 per sq
m. Minato, the most expensive ward, wasthe only exception that saw an increase inrents over the quarter, primarily due to alarge number of new-unit listings. Overall,when compared to recent quarters, it would
appear that the decline in rents in the C5W
has lessened. In the longer-term, the C5W
looks forward to a spate of new developments
over the next decade that will likely further
increase the popularity of the submarket as aplace to live.
Rents in the South submarket now sit
at JPY4,083 per sq m after seeing a small
correction of 0.3% QoQ. Rents in most of
the submarket’s constituents have not seen
notable changes from the last quarter, withthe exception of Ota that saw a slight dip. On
an annual basis, the submarket as a whole has
declined by 2.1%, although the performanceof each individual ward varied signiﬁcantly.
For instance, this quarter, Meguro, thefourth most expensive ward in Tokyo, saw
the largest annual decline of 5.2%. Meguro’s
popularity as a residential area stems fromits abundance of greenery and the convenient
access it provides to oﬃces in the city centre,
especially those in Shibuya and Minato.
However, as seen in the population declinethat Meguro has experienced since the startof the year, extended levels of remote work
may have prompted some residents to ﬁnd
housing elsewhere, thus weakening rents.
Performance in the Inner North was
similar to the average of the 23W thisquarter, with rents contracting 1.2% QoQ
to JPY4,062 per sq m. One observation wasthat, although the Inner North submarket
has held its position as the second mostexpensive submarket since 2018, its averagerents fell slightly below the South submarket
this quarter. Bunkyo, the more expensive
member, again saw the larger annual declineof 2.9%. Toshima also saw rents decreaseby 1.8% YoY. Indeed, similar to Meguro, asigniﬁcant factor for the popularity of thetwo wards was the convenient access thatthey provide to the city centre, and the
reduced necessity of commuting to the oﬃce
has lessened that premium. Nonetheless,
especially for Toshima, rents may increase
going forward with the large-scale Minami-

3

Ikebukuro 2-chome redevelopment project
revitalising the area.
The Inner East submarket overall saw acontraction of 0.7% QoQ and 1.6% YoY to
JPY3,888 per sq m. However, the performanceof each constituent varied greatly. In detail,Koto and Taito saw quarterly declines of 1.5%
and 1.8% respectively and have declined on
an annual basis overall. On the other hand,
Sumida, traditionally the least expensive
member, saw an increase of 1.3% QoQ, andwas the only one to see an annual increment
in rents.
Rents in the West submarket saw a slight
dip of 0.3% QoQ to JPY3,708 per sq m, but
was one of the few submarkets to haveseen annual growth. However, this was not
distributed evenly within the submarket. For
instance, the more expensive wards, Nakano
and Suginami, both saw annual growth –likely due to their excellent access to JR ChuoLine. Meanwhile, Nerima, the least expensive
ward due to unfavourable access from thecity centre, saw a small annual decline of 1.3%
YoY.
The Outer North submarket saw a notablecorrection this quarter of 2.9% QoQ – thelargest quarterly decline exhibited in any
submarket. Both Kita and Itabashi saw many
new developments this quarter priced below
the market average, which led to part of thisdecline. Rents are now at JPY3,426 per sq m.
Despite this large quarterly drop, rents in theOuter North have remained ﬂat on an annual
basis. For instance, Kita, the more expensiveof the two constituents, has seen rents
increase by more than 8% over the last two
years. Rents in the submarket have, on thewhole, held more steadfast when comparedto others.
The Outer East submarket has been best
performer over the past few quarters, and it
was the only submarket that had growth thisquarter – growing 0.6% QoQ to JPY3,285 per
sq m. Moreover, it has exhibited the largest
annual increment of 2.7% YoY. Within thesubmarket, Arakawa and Katsushika saw
the most impressive yearly performances,increasing 6.2% and 5.6% YoY, respectively.
The overall market trend since the pandemic
has seen the spread between the more
expensive wards and less expensive wards
gradually narrow.
OCCUPANCY RATESDespite the population of the 23W shrinking
by around 12,000 since this June, occupancy
rates do not appear to have been adversely
impacted. On the contrary, they have actuallyrisen in the 23W by 0.2ppts from the previous
quarter, and now stand at 95.6%. Elsewhere,
occupancy rates in the C5W have also risen
0.2ppts QoQ to 94.5%, moving in tandem

Residential Leasing

GRAPH 4: Average Occupancy for J-REIT Residential
Assets, Q1/2016 to Q3/2021*
23-ward average
South
East

Central 5 wards
North & West

100%

98%

96%

94%

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

92%

2016

2017

2018

2019

2020

2021

Source Savills Research & Consultancy based on publicly disclosed
J-REIT property data
*Q3/2021 is as of August 2021

GRAPH 5: Rents by Unit Size, C5W,
Q1/2014 to Q3/2021
15-30 sq m

30-45 sq m

45-60 sq m

5,200

JPY / SQ M / MONTH

5,000
4,800
4,600
4,400
4,200

2014

2015

2016

2017

Q1

Q1

2019

Q3

Q1

2018

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q1

Q3

Q3

Q1

3,800

Q2
Q3

4,000

2020 2021

Source Savills Research & Consultancy

GRAPH 6: Net Migration Flows into the C5W*, 2019and 2020

2019

2020

Saitama,
Chiba,
Kanagawa

Saitama,
Chiba,
Kanagawa+7,511

C5W

-5
12

+2
,6
93

-2,854C5W

Other
prefectures-5,277

Tokyo

Tokyo

Other
prefectures+3,942

Source : Ministry of Internal Aff airs and Communications,
Savills Research & Consultancy*Does not include those moving in and out of Japansavills.co.jp/insight-and-opinion/

with the 23W. However, it should be notedthat the occupancy levels of both markets arelower than what they were in the same period
last year, with the 23W falling 0.3ppts and theC5W falling 0.1ppts. Overall, occupancy rates
leading up to the pandemic were very high,and it is unlikely that similar levels will beattained in the near future. It would appear
that the markets have settled into a cycle
where average occupancy rates are a few ppts
lower than 2019 levels, bearing resemblance
to the average occupancy seen in 2015.
Nonetheless, investors can ﬁnd solace inthe fact that occupancy rates are still highin general. They are unlikely to see further
signiﬁcant dips and should thus not be taken
as a major setback.
Occupancy levels in all other submarkets
have seen annual declines. However, mosthave also encouragingly seen a small increasein occupancy this quarter and appear to havereturned somewhat to their seasonal cycle.
A gentle recovery could also be expected in
the next quarter, especially if the prospects
surrounding COVID-19 improve. One trendthat has become more apparent is thatoccupancy levels in the C5W have become
the lowest in the 23W. This observation iscoherent with the trends seen in rental levels– the C5W has weakened the most. Not all
is doom and gloom for the C5W, however, as
future developments in the pipeline should
gradually help bring it back into the spotlight,
and with it more hopeful residents.
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.
While units measuring 15-30 sq m havealways dominated the number of available
units in the C5W, the proportion of units
in this category has only risen with the
pandemic. This increment is likely aproduct of the relatively fewer number ofyounger people moving to the C5W for workand education because of the pandemic.
Moreover, the prevalence of remote work
may have prompted single residents living
there to move to somewhere less expensiveor even to their parents’ house. This trend
seems to have persisted somewhat into thisquarter with rental levels in this band again
experiencing a slight dip of -0.7% QoQ.
The largest 45-60 sq m band experienced
a similar decrease of 0.9% QoQ, seeing

4

multiple consecutive declines in averagerents, although it should be noted that
this band has the smallest sample size,
thus making it more susceptible to market
ﬂuctuations. Meanwhile, the 30-45 sq m bandhas bucked the trend having seen an uptickof 0.7% QoQ in rents. Overall, the two larger
bands still hold a premium over the smallest
band, likely due to the prevalence of remote
work that has made larger apartments moresought-after. However, it should also be notedthat the number of units available in the 3045 sq m and 45-60 sq m band has risen since
the pandemic as the population of the C5W
has decreased.
A CLOSER LOOK AT THE CENTRALFIVE WARDS
Until 2019, the C5W was growing at a
comfortable pace, with a steady ﬂow of people
moving into the central region every year, andrents steadily increased as a result. However,
COVID-19 has thrown a spanner in the works.
Indeed, this growth has been signiﬁcantly
disrupted by the introduction of higher
levels of remote work, leading to a noticeable
demographic shift in the C5W.
According to data from the Ministry ofInternal Aﬀairs and Communications, in
2019, more than 10,000 people from otherprefectures moved to the C5W, which
represents about 0.9% of its population. In
the same year, around 3,000 residents of theC5W moved to other parts of Tokyo, mostly
the other members of the 23W, resulting
in a net increase of around 7,000 people
in the C5W submarket. A majority of thosemoving into the C5W are young professionals
between 20 and 29 years old, who historicallyrelocated to the capital for employment
purposes.
However, these population dynamics havebeen completely re-shaped by the pandemic.
Looking at Graph 6, 2020 saw fewer people
from other prefectures move to the C5W, andthere was even a population outﬂux to the
nearby prefectures of Saitama, Chiba, andKanagawa. At the same time, more people
from the C5W moved out to other parts ofTokyo.
Upon inspecting the population changes
more closely, a deeper insight can be gained
about who is moving, and where they
are moving to. For instance, the largest
population declines in the C5W in 2020
were from the 30-to-39-year-old, 40-to-49year-old, and 0-to-9-year-old age groups,
suggesting that many younger families
contributed to this change. In terms of
where they are moving to, other cities inTokyo and neighbouring prefectures (Chiba,
Saitama, and Kanagawa) are unsurprisingly
major destinations. Larger housing in theseResidential Leasing

prefectures are more aﬀordable, and are stillcommutable from Tokyo, and these factors incombination with increased remote work may haveprompted some to move.
On the other hand, the 20-to-29-year-old
category has been the least aﬀected, with both 2019and 2020 seeing a net increase of approximately
9,000 people in this age group, which largely
oﬀsets negative trends in other age groups.
Considering that the major source of net-migrationin this age group comes from other prefectures
outside of Greater Tokyo, they appear to have lesspropensity to stay or return to their hometowns.
Nonetheless, there were fewer people in this age
category moving in from other prefectures. Thisdecline was perhaps counterbalanced with anincrement in the number of people moving into theC5W from the rest of the 23W, likely by those who
saw the opportunity to move into the C5W at more
aﬀordable prices.
When looking at trends by gender, women havea higher propensity to come to and stay in the C5W
than men, although this tendency is admittedly alsopresent in the whole of Tokyo prefecture as well.
However, there were fewer women in the 20-to-29year-old category that moved into the C5W in 2020.
As of August 2021, Tokyo prefecture has around
260,000 more women than men, showing that thishas been an ongoing trend in the prefecture.
More recently, population declines havecontinued in the C5W since August 2021, though
the rate of decline is slowing, particularly among
the Japanese contingent. While the C5W has lost
some of its lustre over the past year, the numerous
redevelopment projects planned in the submarket
should reignite its appeal. For instance, theupcoming Toranomon-Azabudai project in 2023
looks to add new oﬃce, retail, residential andsavills.co.jp/insight-and-opinion/

recreational space to Minato ward that should
spark increased interest in the area. Other plans in
the pipeline include the Takanawa Gateway project
and the redevelopment of Shinagawa station
area. Overall, the future of the C5W remains
promising with these projects looking to revitalise
the submarket as a residential area, especially
Toranomon-Azabudai area in the near future.
OUTLOOK
The downturn observed in the previous quarterhas extended into Q3/2021, and average rents haveagain seen a slump. As a result, the corrections
seen since 2020 have eﬀectively wiped out thegrowth seen in 2019. Before the pandemic, rents
in the 23W were steadily growing on the back of
the steady population inﬂux into Tokyo and astable economy, and demand for oﬃces in the city
centre was naturally high. Speciﬁcally, the 23W
saw rents increase by almost 15% between Q1/2016
and Q1/2020, and rents in the C5W rose by morethan 17% in the same period. However, when the
pandemic struck, the population of the 23W began
to shrink, and consequently reduced the demandfor housing. While these corrections have been
relatively large, they were partly in response to
the market that had seen marked increases inrents in some areas pre-COVID. The decline wasparticularly notable for single units in central
locations – especially in wards that saw a reductionin their foreign population.
Rents in the 23W are still comfortably above2018 levels but may face potential risks. To be
sure, residential leases in Japan usually span two
years while the length of an average occupancy canspan about four years. However, a large residential
J-REIT has recently noted that there has been
an increase in the number of tenants who have5

decided to move out after only two years, before
the renewal fee is due. This was especially thecase for those who entered their contracts whenrents were close to their peak in 2019. This implies
that the market may need more time to digest therental adjustments derived from the pandemic.
Amidst the gloom, occupancy levels have seen asmall uptick from the previous quarter, showingthat there is still sound demand for quality
accommodation. That said, less popular units may
see further corrections in order to attract tenants.
One silver lining for the market is the steady riseof fully vaccinated individuals in Japan despite its
early hurdles. In fact, the rate is actually higher
than that of the United States. Given Japan’s strong
peer pressure culture, the nation’s uptake is likely
to be one of the highest in the world in due course.
There is greater conﬁdence that the pandemic
era is nearing a close and the public discussion on
post-pandemic life has started. One of the greatest
factors that will impact the residential market isthe continuity of remote work. Many companies
have indicated that they expect most workers to
be back in the oﬃce post-COVID, but many alsoplan to retain the option of partly working fromhome. Residents may have to look for apartmentsthat strike a balance between the convenience ofcommuting and the space to comfortably workfrom home. The level of demand returning to theC5W, therefore, needs to be closely monitored
moving forward.