Japan - December 2020

S P OT L I G H T
Savills Research

Regional JapaneseOﬃce Markets

Regional Japanese Oﬃce Markets

Fundamentals remain strong
despite the gathering of clouds
GRAPH 1: Investment-grade Office Performance, 2H/2020
2019 Rent

2020 Rent

2019 Vacancy

2020 Vacancy
1.6%

50,000Rent YoY

45,000
2.8%

2.0%

2.7%

3.8%

1.2%

1.4%
1.2%

35,0001.0%

30,0000.9%

25,0000.8%

0.7%

20,0000.6%

0.6%

VACANCY

JPY / TSUBO / MONTH

40,00015,0000.4%
10,000
0.2%
5,000

0.2%

0.2%
0.1%
0.1%

0

0.0%
Tokyo

Osaka

NagoyaFukuoka

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

GRAPH 2: Median Commuting Time and Places to Work
Live in the same prefecture

Live in a different prefecture

Median commuting time in the same prefecture (mins)
41

33

27

25

25

23 Wards

Osaka City

Nagoya City

Sendai City

18

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

CITIES TO WORK
Source Ministry of Internal Aff airs and Communications, Savills Research & Consultancy* Median commuting time is based on the Housing and Land Survey in 2018, and statistics on places to work
are based on the National Census in 2015.
** The data for workplaces excludes samples with unknown workplaces.

GRAPH 3: Workplace Traffic, February 2020 to November 2020
Tokyo

Osaka

Aichi

FukuokaMiyagi

Hokkaido% CHANGE VS THE BASELINE DAY

10
0
-10
-20
-30
-40

ALL-GRADE OFFICES2
The all-grade market continued to soften
as the pandemic persisted. Although rents
maintained growth on a YoY basis, it has

-50
-60
-70

Source Google LLC, Savills Research & Consultancy* Google LLC "Google COVID-19 Community Mobility Reports".
https://www.google.com/covid19/mobility/ Accessed: late Nov 2020** The baseline is the median value for the period between Jan 3, 2020 and Feb 6, 2020.
*** We have used a rolling seven-day average to smooth out weekly usage.
savills.co.jp/research

INVESTMENT-GRADE OFFICES1
As the global pandemic persists, thefundamentals of investment-grade oﬃces
have been gradually softening. For instance,
whilst rental growth has slowed, there havealso been cases of extended free rent periods
and building owners lowering target rents.
Vacancy has gradually increased, though
performances diﬀer depending on oﬃce
location and quality.
As for rents, growth was strongest in
Fukuoka in 2H/2020 at 3.8% year-on year
(YoY), followed by Nagoya at 2.7% YoY.
Although Osaka is the laggard, it stillachieved 2.0% growth YoY.
Whilst demand overall is unlikely toexperience strong growth until the economy
gains a solid foothold, supply continues to belimited in most submarkets, leading to tightvacancy rates.
Even so, tenants that can leverage theimpact of COVID-19, such as beauty clinics,
appear to be leasing up more space, which
was previously unavailable. Landlords havealso become more ﬂexible, and are now
willing to accept such businesses as tenants
under these testing times.
Another possible demand driver concerns
shared oﬃce operators, who have in recent
years been trying to snatch up space in new
regional oﬃce buildings. To be sure, demand
for shared oﬃce space does not appear as
strong in regional cities compared to Tokyo,
as those in the former tend to live and workin the same prefecture, or even in the same
city, resulting in shorter median commuting
times (Graph 2). Demand for satellite oﬃces
is comparatively weaker as a result. Indeed,
the impact of COVID-19 on workplace
footfall has been milder in regional cities
as well (Graph 3). That said, some sharedoﬃce operators have been active in regional
cities and may see any vacancy loosening as
an opportunity to increase space in primeoﬃce buildings that were hard to get due toextremely tight vacancy rates, perhaps except
in Fukuoka.

2

1 In each of Osaka, Nagoya, and Fukuoka, Savills monitors
about 50 “investment-grade” offi ce buildings typically with a
GFA of 15,000+ sq m (4,500 tsubo) and a building age of <25years.
2 “All-grade” refers to offi ces typically over 1,000 sq m GFA,
depending on the market. Data is sourced from Miki Shoji.

Regional Japanese Oﬃce Markets

become somewhat stagnant in Osaka,
Nagoya, and Sendai. Vacancy rates,
meanwhile, are edging up across the studied
markets, with Sendai recording the highest
vacancy.
Despite the above, fundamentals appear
sound. Vacancy rates remain close tohistorical lows and some increases are in mildcorrection territory rather than an outrightdownturn (Graph 5).
If this recession continues over a prolonged
period, however, regional cities, which havefewer head oﬃces, appear more vulnerable,with branch oﬃces usually ﬁrst on the
chopping block. Indeed, analysis of historicalWhilst market fundamentals are stillsound, the impact of COVID-19 is being
felt. Accordingly, vacancy rates haveloosened and rental growth momentum
is losing steam. If the downturn is
prolonged and large potential vacancy
materialises next year as new supply
comes online, the direction of themarkets may change abruptly.
data demonstrates that cities with fewer headoﬃces relative to oﬃce NRAs tend to havehigher average vacancy rates in the long term
(Graph 6). Furthermore, regions that housecompanies with a customer base that has ahigher exposure to the shrinking population
will likely be negatively aﬀected (Map 1).

GRAPH 4: All-grade Office Performance, Q3/2020*2019 Rent

2020 Rent

2019 Vacancy

2020 Vacancy

40,0008%
Rent YoY

35,000

4.0%

2.3%

2.9%

6.1%

7%

3.8%

6%

5.2%

25,00020,000

5%
4%

3.4%
3.1%

4.1%

3.0%

15,00010,000

2.2%

2.0%
5,000

3.2%

2.0%

2.4%

3%

2.3%

2%

1.6%

VACANCY

JPY / TSUBO / MONTH

30,000

1.9%

1%

0

0%
Tokyo

Osaka

NagoyaFukuoka

Sendai

SapporoSource Miki Shoji, Savills Research & Consultancy*Market data as of Sep 2019 and Sep 2020.

GRAPH 5: Historical Office Vacancy by City, January 2002 to September 2020
Min-max range

Average

Sep 2025

VACANCY RATE (%)

20

15

10

5

0
Tokyo C5W

Osaka

NagoyaFukuoka

SapporoSendai

Source Miki Shoji, Savills Research & Consultancy

3

REGIONAL INVESTMENT
According to the bi-annual investor survey
conducted by the Japan Real Estate Institute(JREI) in October 2020, cap rates in all
the regional submarkets tightened by 0.1%
over the year. Although the same survey
shows that expectations for rental growth
have somewhat decreased among investors,
abundant liquidity continues to ﬂow into theJapanese real estate market.
Expected cap rates for all the regional
submarkets are already 0.2% to 0.5% below
their pre ﬁnancial crisis levels, though
they maintain a risk premium over Tokyo(Marunouchi). Save Osaka and Fukuoka,
spreads for Nagoya, Sapporo, and Sendai
are not as tight as those observed in 2007,
reﬂecting investors’ somewhat cautious viewson these regional submarkets.
Investment volumes continue to show adeclining trend as investors take a wait-andsee stance. Between Q1/2020 and Q3/2020,
overall investment volumes declined by 28%
compared to the same period in 2019, whilst
the oﬃce sector saw a decline of 32%. The
pandemic has clearly slowed investment
activity as investors were unable to conduct
due diligence processes eﬃciently.
That said, supported by the increasinglevels of dry powder, acquisition interest
remains strong. As such, some majortransactions took place in 2020, especially inOsaka. For instance, Gaw Capital acquired
the Toyobo Building from PGIM Real EstateRegional Japanese Oﬃce Markets

in September 2020 for JPY27 billion. Thistransaction follows others reported earlier
in 2020, including Gaw Capital once more,
who purchased the Matsushita IMP Buildingin April for a reported price of JPY39 billion,
as well as M&G Real Estate’s purchase of
Midosuji Front Tower for JPY33 billion. There
are multiple rumours of ongoing transactions
in regional cities and this strong trend
appears to have legs.

GRAPH 6: Vacancy Rate vs HQ Workers per a Thousand Tsubo of NRA
12.0%
AVERAGE VACANCY (2002-SEP 2020)

Sendai City
11.0%
10.0%

Sapporo City

Fukuoka City

9.0%
Nagoya City
8.0%
7.0%

Osaka City

6.0%
Tokyo C5W

5.0%
4.0%
100

150

200

250

300

350

HQ WORKERS PER A THOUSAND TSUBO OF NRA
Source Ministry of Internal Aff airs and Communications, Miki Shoji, Savills Research & Consultancy*Vacancy rates and NRAs are the averages of the periods between Jan 2002 and Sep 2020.
**The ﬁgures for HQ workers are based on the Economic Census of 2016.

MAP 1: Head Offices in Regional Prefectures and their Branch Offices
Other
Hokkaido
12.8

Miyagi

Other
Other

Osaka

5.4

26.8
TohokuOther

FukuokaKansai

12.4
Branch office location

Kyushu
Aichi
Other
19.9
Chubu

# of HQs (thousands)

Source Ministry of Internal Aff airs and Communications, Savills Research & Consultancy*The data is based on the Economic Census of 2016.

GRAPH 7: Expected Cap Rates for Grade A Offices, 2004 to 2H/2020

Osaka

NagoyaFukuoka

SapporoSendaiMarunouchi

9.0%

EXPECTED CAP RATE

8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%

1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H

1.0%
04

05

06

07

08

09

10

11

12

13

14

15

16

17

18

19

20

Source Japan Real Estate Institute, Savills Research & Consultancy

savills.co.jp/research

4

REGIONAL MACRO AND
DEMOGRAPHICS
Japan has been managing the COVID-19
pandemic relatively well, and the economy
has been gradually recovering. After Japan’s
GDP contracted by an estimated 29% YoY in
Q2/2020, its preliminary ﬁgure of Q3/2020
shows a reversal of 23% YoY, stronger thanwidely anticipated.
That being said, economic activity is still
falling short of pre-pandemic levels andthe recovery will certainly be a protracted
process. The Bank of Japan’s Regional
Economic Assessment in October 2020
echoed this cautious sentiment by indicatingthat though the outlook for the Japanese
economy has improved, the situation remains
severe.
Unsurprisingly, the employment
environment continues to be weak acrossJapan as uncertainty hangs over the global
economy. While job-to-applicant ratios
remain well above the devastating levels
experienced after the ﬁnancial crisis, they
are close to 1.0x in all the major cities wecover. Subsequently, oﬃce demand will likely
continue to lack drive as companies refrainfrom securing extra space in expectation of
future hiring, as seen prior to the pandemic.
OUTLOOK
Whilst society has adjusted to life alongside
COVID-19, and the economic conditions
have improved, the regional oﬃce markets
continue to experience a slow deterioration.
Although it has not yet fully appearedin the numbers, interviews with market
participants indicate that building owners are
more willing to negotiate on rents by slightly
reducing target rents and oﬀering free rents.
If increases in vacancy materialise next year
in response to a jump in supply, rents inregional cities may feel further downward
pressure.
That said, an element of this weakening
may be explained by the occurrence of anatural correction from years of robust
growth, rather than an outright downturnRegional Japanese Oﬃce Markets

GRAPH 8: Investment Volumes by Area for All Asset Types, 2007 to Q3/2020
Osaka

NagoyaSapporoFukuoka

SendaiTokyo

Yokohama

Other

PROPORTION OF INVESTMENT (%)

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

Source RCA, Savills Research & Consultancy*Transactions where speciﬁ c locations have not been identiﬁ ed are classiﬁ ed as other.

TABLE 1: BOJ Regional Economic Assessment, October 2020

CHANGE VS
JULY 2020

REGION

TREND

Hokkaido(Sapporo)“The economy has started to pick up with economic
activity resuming gradually, although it has remained in asevere situation due to the impact of COVID-19”

Tohoku(Sendai)“The economy has shown signs of a pick-up, although it has
been in a severe situation."

Kanto(Tokyo)“The economy has started to pick up with economic activity
resuming gradually, although it has remained in a severe
situation due to the impact of COVID-19 at home and abroad"

Tokai(Nagoya)"The economy has been picking up, even during the continued
severe situation.”

Kinki(Osaka)“The economy has shown signs of a pick-up recently, although
it has remained in a severe situation due to the impact of
COVID-19."

Kyushu(Fukuoka)“The economy has shown signs of a pick-up, although it hasremained in a severe situation due to the impact of COVID-19."
Source Bank of Japan, Savills Research & Consultancy

GRAPH 9: Job-to-applicant Ratios, Selected Prefectures, 2000 to September 2020
Tokyo

Osaka

Aichi (Nagoya)FukuokaMiyagi (Sendai)

Hokkaido (Sapporo)

2.5x

2.0x

1.5x

1.0x

0.5x

0.0x

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

5

in demand. In fact, some winners from thepandemic may even see an opportunity to
expand space in existing investment-gradeoﬃce buildings, that were previously notavailable to them.
One market worth mentioning here
is Fukuoka. Around six months ago, we
expected that a new historical high ofoﬃce rents might be diﬃcult to reach.
Now, however, it appears that this has beenachieved, albeit with the support from somefree rent agreements. Also, overall pre-leasing
activity for large supply in 2021 appears to go
well. Fukuoka’s market fundamentals may
turn out to be stronger than we thought.
Overall, regional markets have thus far
beneﬁted from supply being stubbornly
limited, resulting in solid rental levels.
However, as vacancy rates inch up, landlords
are likely to become more ﬂexible, andconsider oﬀering some incentives.
Additionally, there is an increasing amountof potential vacancy, where tenants havedecided to move out shortly, but vacancy is
not accounted for because the space is still
occupied. If demand remains weak, and thesetenants move out before new lessees sign up
for the space, the currently potential vacancy
could materialise next year, negatively
aﬀecting the market fundamentals.
Depending on pre-leasing activity for supply
due in 2021 and 2022, as well as secondary
vacancy, next year may be a turning point for
the regional oﬃce markets.

Regional Japanese Oﬃce Markets

GRAPH 10: New NRA Office Supply In Osaka City, 2006 to 2022

OSAKA CITY
Net Rentable Area (NRA)
With demolitions continuing to exceed
completions, the total NRA in Osaka has
maintained its gradual downtrend from ahigh of 2.2 million tsubo in February 2019.
The market is expected to see limited
supply in 2021, with the Honmachi Sankei
Building (9,000 tsubo in NRA) being themost notable. However, considering thatseveral oﬃces that opened in 2020 are not yet
fully leased, this addition could further soften
vacancy. Although the impact will likely
be moderate given its size, how the market
reacts will be a good indicator of demandleading up to a supply glut planed in 2022.

70,00060,000TSUBO

50,00040,00030,00020,00010,0000

Source Sanko Estate, Building Group, Savills Research & Consultancy

GRAPH 11: Vacancy Rate In Osaka City By Area, 2011 to Q3/2020
Average
Yodoyabashi-Honmachi
Shin-Osaka

Umeda
Semba

Minami-Mori
Shinsaibashi-Namba

25.0%

VACANCY

20.0%

15.0%

10.0%

5.0%

0.0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Source Miki Shoji, Savills Research & Consultancy

GRAPH 12: Average Rent In Osaka City By Area, 2011 to Q3/2020
Average
Yodoyabashi-Honmachi
Shin-Osaka

Umeda
Semba

Minami-Mori
Shinsaibashi-Namba

17,000JPY / TSUBO / MONTH

16,00015,00014,00013,00012,00011,00010,000
9,000
8,000
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Source Miki Shoji, Savills Research & Consultancy

savills.co.jp/research

6

Vacancy
Investment-grade vacancy rates in Osakaloosened slightly by 0.4 percentage points(ppts) YoY to 0.6% this period, with somevacancy in new Obic Midosuji Building
remaining. Although it has not yet materialisedin the numbers, some companies appear tohave decided to reduce leased space, which may
result in increases in vacancy rates in the future
if the economic conditions do not improve.
All-grade vacancy rates have been
gradually increasing since the beginningof 2020 due to a dent in demand caused by
COVID-19. Given the limited new supply
expected until 2022, however, market
conditions should somewhat lessen theimpact of COVID-19 on the market.
Rent
Rents for Osaka’s investment-grade oﬃces
continued to increase YoY by 2.0% but
declined slightly half-year on half-year(HoH). With many market participants
trying to foresee how the economy will turnout, rents are hard to increase. Umeda, which
led rental growth last time around, recorded a
2.7% rental decline from 1H/2020.
All-grade rents are holding up despite
a loosening of vacancy. Speciﬁcally, rents
in Osaka grew 2.3% YoY. Rents in Umeda
continue to be on the rise, increasing by 3.9%
YoY, though growth is noticeably slowing
down amidst the vulnerable economic
environment. As for Shinsaibashi-Namba,
though the submarket recorded the highest
growth of 5.2% YoY, rents remain 17% below
its pre-ﬁ nancial crisis peak.
Umeda
Whilst the range of investment-grade rents
in the most expensive submarket remained

Regional Japanese Oﬃce Markets

TABLE 2: Osaka Prefecture Key Macro Indicators*

TOKYO

OSAKA

Real GDP (JPY trillion) (FY2017)

105.4

39.0

Real GDP (YoY%)

0.8

2.9

% of Japan (FY2017)

19%

7%

Population (million)

14.0

8.8

Job to applicant ratio

1.2

1.1

Source Cabinet Offi ce, Osaka Prefectural Government, Savills Research & Consultancy

TABLE 3: Osaka Investment-grade Offices

2H/2020

HOH

YOY

Rent

23,100

-0.2%

2.0%

Vacancy

0.6%+0.1ppts+0.4ppts

Top Rent

35,000+00Source Savills Research & Consultancy

unchanged at JPY20,000 to JPY35,000 per
tsubo, there are signs that a correction isin progress as average rents declined by
2.7% HoH. Speciﬁcally, discounts were
noticeable among oﬃces that were charging
over JPY30,000 per tsubo. That being said,
demand in this area was still sound, andthe vacancy remained airtight at 0.1%. In
some cases, tenants moved to smaller but
more expensive oﬃces, which helped theinvestment-grade segment.
Yodoyabashi-Honmachi
Whilst this submarket saw strong rental
growth of 4.7% YoY in 1H/2020, themomentum did not carry over into 2H/2020.
Investment-grade rents were unchanged,
though vacancy rates did remain anchoredat 0.0%.
If the aforementioned Honmachi Sankei
Building struggles with its pre-leasing,
however, this submarket will see some uptick
in vacancy.
Shin-Osaka
Shin-Osaka still has the highest levels of
vacancy in the region at 1.3% – up by 0.4ppts

from 1H/2020. Understandably, new supply,
such as S-Building Shin-Osaka (completed inAugust 2020), has softened the market.
In 2H/2020, investment-grade rents inthis submarket ranged between JPY15,000
and JPY25,000. Average rents rose by around
0.6% over the half-year to JPY21,600 per
tsubo, though it remained unchanged YoY.
This submarket will welcome multiple
waves of new supply from 2020 to 2022,
including a PMO building, the oﬃce projectby West Japan Railway, and the tentatively
named Shin-Osaka Dai-Go Doi Building,which could result in a further loosening invacancy. Indeed, this year’s supply entersa market already facing vacancies, thoughpartly due to the pandemic.
OutlookThe underlying fundamentals in the Osaka
market remain ﬁrm as illustrated by airtightvacancy and rental growth. That said,
there are signs of rent corrections in somesubmarkets as the economic conditions
remain bleak. Osaka’s real test is the ﬁrst
wave of supply in 2022. If the economic
recovery in 2021 is not suﬃciently strong,7

new supply will likely cause vacancy to riseand negatively aﬀect rents.
Shared oﬃce operators may want tofurther expand. Although the need forthese facilities in Osaka is not as much as
Tokyo, there is still a need. Since the market
was previously too tight, there should
be some pent-up demand. Additionally,some companies may choose to move theiroperations to shared oﬃce space with theeconomic conditions remaining uncertain.
Overall, Osaka’s market fundamentals still
appear sound. Some submarkets, however,may see further rental decreases as vacancy
rises.

Regional Japanese Oﬃce Markets

GRAPH 13: New NRA Office Supply In Nagoya City, 2006 to 2022

NAGOYA CITY

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 Q3/2020
Average

Meieki

FushimiSakae

Marunouchi

20.0%

Vacancy

15.0%

10.0%

5.0%

0.0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Source Miki Shoji, Savills Research & Consultancy

GRAPH 15: Average Rent In Nagoya City By Area, 2011 to Q3/2020
Average

Meieki

FushimiSakae

Marunouchi

16,000NRA
Oﬃce supply added this year in Nagoya has
been well below long-term averages. In fact,
the NRA has actually declined to below 1
million tsubo as of September 2020, which is
the lowest level in ﬁve years.
In 2021, the largest single project
announced thus far is the tentatively named
Noritake Forest Project, located north of
the Meieki submarket. The multi-purpose
complex is expected to add approximately
6,800 tsubo of NRA to the market. Although
the project is gaining interest thanks to its
unique concept of oﬃce space in a shopping
mall, it appears to be struggling to securetenants probably due to its distance from
Nagoya as well as target rents.
Beyond 2021, the next signiﬁcant jump isslated for 2023. Here, the redevelopment of
the Chunichi Building, located in the Sakae
submarket, is poised to add over 10,000 tsubo
of NRA to the market.
Meanwhile, Meitetsu’s redevelopment
project around Nagoya station is now on
hold. What’s more, the delay in the Chuo
Shinkansen (the Maglev line) development,
amid some disagreements, could add anotherlayer of uncertainly for the redevelopment
project.
Vacancy
The damage wrought by the global pandemic
has unsurprisingly continued into 2H/2020.
Despite the clear economic hardship,
however, the investment-grade oﬃce market
in Nagoya remains tight. To wit, vacancy
rates over the year have gone from nonexistent to around 1.2%. Global Gate West
Tower is again the main culprit, with rates
creeping higher once more.
The global pandemic is clearly having an
impact on the all-grade market too. Here, thevacancy rate has breached the 3.0% mark forthe ﬁrst time since mid-2018.

JPY / TSUBO / MONTH

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

2012

2013

2014

2015

2016

2017

2018

2019

2020

Source Miki Shoji, Savills Research & Consultancy

savills.co.jp/research

8

Rent
Much like vacancy rates, the impact of
COVID-19 has started to weigh on bothinvestment-grade and all-grade rents. To be
sure, rents in the former did experience an
uptick to approximately JPY20,700 per tsubo.
The momentum seems to be ﬁzzling out,
however, with the rate of growth noticeably
slowing to 2.7% YoY in 2H/2020 – the lowest
on record.
The story was very similar for all-grade
rents, with a matching growth rate to bootRegional Japanese Oﬃce Markets

TABLE 4: Aichi Prefecture Key Macro Indicators*

TOKYO

AICHI

Real GDP (JPY trillion) (FY2017)

105.4

38.6

Real GDP (YoY%)

0.8

2.9

% of Japan (FY2017)

19%

7%

Population (million)

14.0

7.5

Job to applicant ratio

1.2

1.0

Source Cabinet Offi ce, Aichi Prefectural Government, Savills Research & Consultancy

TABLE 5: Nagoya Investment-grade Offices

2H/2020

HOH

YOY

Rent

20,700

-0.1%

2.7%

Vacancy

1.2%+0.5ppts+1.2ppts

Top Rent

35,000+-2,000-1,000Source Savills Research & Consultancyin 2H/2020. Like last time, Sakae is thelaggard, with growth now grinding to a halt.
Elsewhere, despite the material softeningof vacancy rates, Meieki continues todemonstrate the beneﬁts of location andquality. Here, rental growth remained a solid
4.9% YoY, further widening its premiumcompared to its peers.
Meieki
Meieki remains the most expensive
submarket in the Nagoya region thanks to
its convenience and quality. Yet, perhaps asa result, it was also the only submarket tosee rents unmoved over the year at around
JPY28,300 per tsubo. The submarket’s
premium over the next in line, Fushimi,
whilst still over 50%, has contracted by
5.0ppts as a result.
With the overall momentum weakened by
the impact of COVID-19, the towers aroundthe station have witnessed rents slightly
soften to JPY35,000 per tsubo in 2H/2020.
Meanwhile, partly as a result of somenew pockets of availability in the recently
completed Daiya Meitetsu building, thevacancy rate in this submarket has moved
from close to zero to 0.5% over the year.

Fushimi and Marunouchi
Despite the ongoing uncertainty, tenant
relocations within the Fushimi andMarunouchi submarkets were limited in
2H/2020. As such, market tightness has
prevailed and vacancy rates are 0.1% and0.9%, respectively. In fact, thanks to someleasing activity in Fushimi K Square, Fushimi
was the only submarket to have experienced acontraction this period (0.3ppts YoY).
The tight supply notwithstanding, therange of rents in the two submarkets has
stayed the same compared to the previous
period – between JPY16,000 and JPY24,000.
Having said that, over the year, Marunouchi
saw the higher level of growth of the two,with rents rising by over 7%.
Outlook
It would be fair to say that the Nagoya oﬃce
market peaked in late-2019. Fast forwarding
to late-2020, and under the spectre of a global
pandemic, the region now ﬁnds itself in an
adjustment phase, and its prospects remain
unclear. Even so, what is evident is that
supply is still tight, helped by only a handfulof small-scale cancellations. Meanwhile,
though rents have slightly softened, it is yet to9

be at a level of concern.
What is somewhat troubling, however,is the level of pre-leasing activity insome upcoming projects, though thishas understandably been impeded by the
pandemic. Of course, whilst this is not yet
a widespread issue, if signs of an economic
recovery are not forthcoming, market
sentiment could take another turn for theworse, especially if new large supply comesto the market with large availability stillpresent.
On the other hand, redevelopment acrossthe city is enhancing property value incertain areas. For instance, Mitsui Fudosan
opened RAYARD Hisaya-oodori Park in
September. The project involves retail shops
within a park that stretches one kilometre
north to south and appears to be contributing
to price increases of nearby condominiums.
Additionally, the Noritake project attracted
great interest, and the neighbouringcondominium, The Parkhouse Nagoya, waspriced very highly by Nagoya standards.

Regional Japanese Oﬃce Markets

GRAPH 16: New NRA Office Supply In Fukuoka City, 2006 to 2022

FUKUOKA CITY

30,00025,000TSUBO

20,00015,00010,0005,000

0Source Sanko Estate, Building Group, Savills Research & Consultancy

GRAPH 17: Vacancy Rate In Fukuoka City By Area, 2011 to Q3/2020
Average
YakuinHakata Sta. Southeast

Akasaka
Gion

TenjinHakata Sta. West

20.0%

VACANCY

15.0%

10.0%

5.0%

0.0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Source Miki Shoji, Savills Research & Consultancy

GRAPH 18: Average Rent In Fukuoka City By Area, 2011 to Q3/2020
Average
YakuinHakata Sta. Southeast

Akasaka
Gion

TenjinHakata Sta. West13,00012,500JPY / TSUBO / MONTH

12,00011,50011,000

NRA
Despite 2020 welcoming an above-averagelevel of supply in Fukuoka, oﬃce NRA isactually at its lowest level in over a decade.
Nonetheless, the reaction to this new supply
has been positive.
Perhaps even more encouragingly, despite
the signiﬁcant levels of oﬃce supply expected
in 2021, the market has coped surprisingly
well, with pre-leasing activity sound thus
far. For instance, target rents at the Tenjin
Business Centre (set for completion in
September) appear on course to hit a record
high of JPY30,000 per tsubo. This is certainly
a promising start to what will be a historic
year.
Over the longer term, projects such as
Tenjin Big Bang and Hakata Connects are
expected to add substantial levels of supply
come 2028. As we have previously alluded to,
Fukuoka’s oﬃce stock is relatively old, and assuch, these projects in unison should provide
the market with a much-needed makeover.
Vacancy
For the ﬁrst time in four years, theinvestment-grade vacancy rate in Fukuoka
is closer to 1% than it is to 0%. In fact, the0.7ppt rise over the year is the highest on
record, as a COVID-induced softening ofunderlying fundamentals has emerged in thisonce-buoyant region.
Indeed, amid the multiple waves ofinfections, small and medium sized oﬃces
were unsurprisingly the ﬁrst to be impacted.
More recently, however, this has seemingly
spread to larger oﬃces, with tenants starting
to return surplus space and subsequently
downsizing to cut costs.
Tenjin has by far the highest vacancy ratein 2H/2020, taking the title from Gion. The
latter actually saw its rate decline back to lessthan 1.0% in 2H/2020 as some supply wasabsorbed at the Hakata Mitsui Building.
In isolation, the Fukuoka all-grade market
appears fairly tight with the vacancy rate at
3.2%. Beneath the surface, however, somefragility has emerged, as evidenced by amaterial expansion of 1.1ppts YoY.

10,50010,000
9,500
9,000
8,500
8,000
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Source Miki Shoji, Savills Research & Consultancy

savills.co.jp/research

10

Rent
In 2H/2020, Fukuoka was the only region tohave experienced investment-grade oﬃce
rental growth during the half-year, whilst
it also led annually. Over the latter, growthcame in at over 3.0%, pushing rents to around
JPY18,800 per tsubo.

Regional Japanese Oﬃce Markets

TABLE 6: Fukuoka Prefecture Key Macro Indicators*

TOKYO

FUKUOKA

Real GDP (JPY trillion) (FY2017)

105.4

19.0

Real GDP (YoY%)

0.8

2.3

% of Japan (FY2017)

19%

3%

Population (million)

14.0

5.1

Job to applicant ratio

1.2

1.0

Source Cabinet Offi ce, Fukuoka Prefectural Government, Savills Research & Consultancy

TABLE 7: Fukuoka Investment-grade Offices

2H/2020

HOH

YOY

Rent

18,8000.6%

3.8%

Vacancy

0.9%+0.5ppts+0.7ppts

Top Rent

25,000+00Source Savills Research & Consultancy

Perhaps driven by the much-improved
fundamentals in Gion, rents in the submarket
saw an impressive uplift of over 9.0% YoY.
All-grade rents in Fukuoka increased to
JPY11,018 per tsubo in Q3/2020 – the highest
level on record. Like its regional peers,
however, growth has noticeably slowed. Thatsaid, Fukuoka is in an envious position witha rate of change of over 5% YoY, comfortably
ahead of the next closest region, namely
Sapporo with less than 4% YoY growth.
Station Front
Having ﬁnally reached the JPY20,000 marklast period, the Hakata submarket did not reston its laurels. Rents have continued to risein 2H/2020, and now stand at JPY20,300 per
tsubo. What’s more, the spread compared tothe most expensive submarket, Tenjin, hasnarrowed to 2%.
All that said, rental growth has slowed.
So much so that the submarket has once
more marked the least change in the region.
Perhaps as a consequence, the range ininvestment-grade rents has remained ﬁrmly
between JPY17,000 and JPY25,000. Vacancy
rates, meanwhile, remain airtight in thissubmarket at 0.3%.

TenjinTo be sure, this submarket enjoys regionleading rents of JPY20,700 per tsubo. Yet,this ﬁgure has actually contracted over thehalf-year, as Tenjin’s aﬀordability is tested
under the current situation.
Vacancy rates were unfortunately also thehighest in the region, with pockets of vacancy
at the Fukuoka Hakata Centre Building being
the main culprit of this phenomenon.
Outlook
The Fukuoka oﬃce market appears tohave weathered the uncertainty fairly wellthis year. Indeed, it remains extremely tightdespite a slight uptick in new supply, andthere have not been many incidences oflarge-scale cancellations. Yet, this may not
be enough to calm the nerves heading into
the largest phase of redevelopments in overa decade. With oﬃce supply undoubtedly
surging, the question remains whether thedemand is there to match.
Even so, as we head into the new year,
concerns over the historical level of supply
appear to have started to recede. Positive
signs such as the Tenjin Business Centre
capturing a record level of rents, even under11

these testing times, certainly give some hopefor the imminent future.
Looking ahead, secondary vacancy as aresult of the inﬂux of supply in 2021 and2022 may materialise from late next year.
Speciﬁcally, under a scenario where theeconomic recovery is drawn out, leasing
activity may turn out to be more challenging
than initially hoped. If this actually occurred,some landlords may become more open to
rent reductions in order to ﬁll the vacatedﬂoor space, subsequently altering thedirection of the market. Still, with more thanhalf year remaining as a buﬀer, the market
should have some time to adjust accordingly.

Regional Japanese Oﬃce Markets

GRAPH 19: Vacancy Rate In Sendai City By Area, 2011 toQ3/2020
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 2020
Source Miki Shoji, Savills Research & Consultancy

GRAPH 20: Average Rent In Sendai City By Area, 2011
to Q3/2020
Average
City Hall
12,000Station Front
Station East

1-bancho
Outer Area

JPY / TSUBO / MONTH

11,00010,000SENDAI CITY
Supply and Demand
After a long pause, Sendai welcomed
several new oﬃce buildings in 2020. While
NRA has only grown by 0.5% since thebeginning of 2020, these new oﬃces, alongwith planned redevelopment projects, will
refresh the ageing building stock in the
Sendai market.
In the near term, new supply in 2021
will include the Sendai Station East Gate
Building (8,000 tsubo of GFA) and the
Milene T Sendai Building (3,000 tsubo of
GFA). WeWork plans to lease two ﬂoors
in the former with 485 desks. This follows
another premium coworking space,
SPACES Sendai by Regus, which opened
in May.
IT companies, as well as call centres
continue to support oﬃce demand in
Sendai. In September, KDDI Evolva opened
its fourth business process outsourcing andcontact centre in the new Sendai Miyagino
Building, for example. In November, GMO
Internet opened its local oﬃce in the
Taiju Seimei Sendai Honcho Building, andRakuten Mobile opened a call centre in the
MetLife Sendai Eki-mae Building with aplan of hiring 250 staﬀ. Earlier this year,
Rakuten Card also added a new contact
centre in the new Sendai Kakyoin Terrace.

9,000

8,000

7,000

6,000
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source Miki Shoji, Savills Research & Consultancy

TABLE 8: Miyagi Prefecture Key Macro IndicatorsTOKYO

MIYAGI

Real GDP (JPY trillion) (FY2017)

105.4

9.2

Real GDP (YoY%)

0.8

0.5

% of Japan (FY2017)

19%

2%

Population (million)

14.0

2.3

Job to applicant ratio

1.2

1.2

Source Cabinet Offi ce, Miyagi Prefectural Government,
Savills Research & Consultancy

savills.co.jp/research

Vacancy
While expansion demand exists amongsome companies, vacancy has been risingsince June 2019, even before the COVID-19
outbreak. A few buildings were vacatedas some Tokyo-based companies decided
to reduce their satellite oﬃce space.
Additionally, a move to a newly-built
company-owned building and secondary
vacancy caused by new supply also
contributed to this trend.
The Station Front submarket saw signsof recovery in October after vacancy
rose from 2.5% in June 2019 to 6.0% in
September 2020 – the highest level sinceJune 2017. Although it is too early to say
if this is the beginning of a tightening invacancy, several IT companies are taking
up space in this submarket, as mentioned
earlier. Vacancy in Station Front may
ﬂuctuate for a while as performance varies
depending on oﬃce location and quality.
Station East’s vacancy tightened below
3% for the ﬁrst time since Miki Shoji
started tracking data in 1992. A large
space was reportedly leased up in thissubmarket which contributed to the fallingvacancy rate in September. While this is12

an encouraging sign prior to the openingof the JR Sendai East Gate Building inJanuary 2021, the submarket’s vacancy
rate has historically jumped when supply isadded. Given the current fragile economic
conditions, new supply may increasevacancy again.
Rent
Despite a loosening of vacancy, averagerents have been generally increasing in
Sendai. Whilst new oﬃces completed thisyear contributed to growth, existing space
has also successfully increased rents.
However, growth is sporadic amongsubmarkets, as is the case in recent years.
The Station Front submarket remains
the most expensive at nearly JPY11,000
per tsubo – over 9% higher than second
placed Station East. With rental growth of
3.4% and 3.2% YoY, respectively, these two
submarkets contributed to the bulk of theregion’s performance over the year. At theother end, rents in the Outer Area are thecheapest and remain unchanged over theyear at around JPY7,030 per tsubo – a 35%
discount to Station Front rents.
Outlook
Although Sendai demonstrated its
resilience by reducing vacancy from over
20% to less than 5% over the past decade,the market might be running out of gas.
Vacancy began to rise from 2019 and thistrend has been accelerated by COVID-19.
Additionally, the potential demographic
headwinds continue to hang over theregion, with Miyagi forecasted to see an
estimated 8% decline in the population
between 2015 and 2025 – the most outof the major regions. Overall Tohoku’s
declining and ageing population does
not bode well for regional oﬃce demandin Sendai. That said, Sendai has several
high-level educational institutions, suchas Tohoku University, that attract a young
competent crowd, leading to one of highest
ratios of the 20-39 years old demographic.
Furthermore, relatively new, qualityoﬃce space has been capturing expansion
demand from IT ﬁrms, which iscontributing to increases in the averagerent. The competitive advantage of newer
buildings is clear, considering about 40%
of oﬃces in the central area were built
based on the old seismic code before 1981,
according to the City of Sendai. Overall,rental dispersions among submarkets arelikely to widen.

Regional Japanese Oﬃce Markets

GRAPH 21: Vacancy Rate In Sapporo City By Area, 2011 to Q3/2020
Average
Park South

Station Front
Outer SouthSAPPORO CITY

Station East-West
Station North

20.0%

VACANCY

15.0%

10.0%

5.0%

0.0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Source Miki Shoji, Savills Research & Consultancy

GRAPH 22: Average Rent In Sapporo City By Area, 2011 to Q3/2020
Average
Park South

Station Front
Outer South

Station East-West
Station North

13,000JPY / TSUBO / MONTH

12,00011,000

Supply and Demand
Supply in Sapporo remains limited despite
its ageing oﬃce stock. The newest oﬃce
completed in 2020 is the Daido-Seimei Sapporo
Building – a mixed-use facility with over 7,000
tsubo of GFA. While rents were substantiallyhigher than the market average, the oﬃce wasstill able to capture demand from local sharedoﬃce providers, as well as a call centres.
Indeed, the latter remains a primary driverof oﬃce demand, particularly for new oﬃce
space, in Sapporo. In the 14F Daido-Seimei
Sapporo Building, Bellsystem24, the second
largest call centre operator in revenue,
snatched up three ﬂoors in its ﬁfth locationin the city. This follows the new call centre
added by Trans Cosmos, the largest callcentre operator in revenue, in Sapporo Sosei
Square, which was completed in 2018.
While call centres are in a precarious
situation given the reported outbreaks ofinfection clusters at these locations, demand
appears to be increasing on the back ofoperators’ improving performance. In thelong term, however, demand for call centres
could weaken if ﬂexible working practices andthe use of AI reduces the need of oﬃce space.

10,000
9,000
8,000
7,000
6,000
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Source Miki Shoji, Savills Research & Consultancy

Vacancy
While the average all-grade vacancy rate for
Sapporo has been slowly rising since March,
concurrent with the onset of COVID-19, it
remains tight at 2.3% as supply is limited.
Although Station Front, the primarysubmarket in Sapporo, had been experiencing
a loosening of vacancy from March, it began
to tighten again from August. Station North

TABLE 9: Hokkaido Prefecture Key Macro Indicators*

TOKYO

HOKKAIDO

Real GDP (JPY trillion) (FY2017)

105.4

18.6

Real GDP (YoY%)

0.8

1.3

% of Japan (FY2017)

19%

3%

Population (million)

14.0

5.2

Job to applicant ratio

1.2

1.0

ource Cabinet Offi ce, Hokkaido Prefectural Government, Savills Research & Consultancy

savills.co.jp/research

13Regional Japanese Oﬃce Markets

remains the tightest submarket at 1.3%,
reﬂecting sound demand, especially for largescale oﬃces in the area. However, vacancy
could rise in 2021 as Keihan Real Estate plans tocomplete two oﬃce buildings with a combined
GFA of about 6,700 tsubo, equivalent to 7% of
total GFA of the submarket.
Rent
Although vacancy has been creeping up, allgrade rents in Sapporo continued to expandby 3.8% YoY, and now lie at around JPY9,400
per tsubo – comfortably above pre-ﬁnancial
crisis highs. Whilst openings of new oﬃces
with higher rents contributed to growth,rents for existing space improved as well.
Rents in the Station Front submarket
remain the highest in this region at around
JPY12,400 per tsubo, and rental growth over
the year was sound 6.3% YoY, largely helpedby the Daido-Seimei Sapporo Building.
Rental growth is also noticeable insecondary submarkets with lower rent levels.
Speciﬁcally, all-grade rents in Park South andOuter South increased 3.7% YoY and 2.9%
YoY, respectively, indicative of sound demandacross the Sapporo market.

Outlook
Although there were signs of a softening
earlier this year, the Sapporo market has
been holding up well amid the COVID-19
outbreak. Vacancy remains tight and rents
have continued to rise, reﬂecting sounddemand. Indeed, the quick absorption of new
space added in recent years demonstrates theneed for quality oﬃce stock. Redevelopment
projects are underway by Sapporo Stationand the Sousei River East area, which could
revitalise the city.
That said, Sapporo faces an uphill battle
as demand from call centres, which was a
primary driver, may not persist in the longterm. Although the city hopes to energise
the local IT industry, once called “Sapporo
Valley”, IT ﬁrms in Sapporo are mainly small
contractors, which are likely to suﬀer in a
prolonged recession.
Going forward, the recovery of inboundtourism may be one of key factors for thecity’s revitalisation. Since redevelopment
projects by Sapporo Station plan to feature
upscale hotels, as well as oﬃces, the reboundof tourists is deemed necessary for successful
launches of these projects.

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

Savills plc: Savills plc is a global real estate services provider listed on the London Stock Exchange. We have an international network of more than 600 offi ces and associates throughout the Americas, the UK,continental Europe, Asia Paciﬁc, Africa and the Middle East, offering a broad range of specialist advisory, management and transactional services to clients all over the world. This report is for general informative
purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. While every effort has
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14