Japan - December 2023

S P OT L I G H T
Savills Research

Regional JapaneseOﬃce Markets

Regional Japanese Oﬃce Markets

Moderate growth to continue, with someweaknesses in absorbing upcoming supply
Summary• Changes in the investmentgrade offi ce market have beenmoderate, with rents rising yearon-year (YoY) in Nagoya but
contracting YoY in Osaka andFukuoka. Meanwhile, vacancy
loosened in Fukuoka andNagoya, but tightened in Osaka.
• All-grade offi ce rental
performance was largely
positive over the past year.
Rents in Sapporo increased bya notable margin, while all otherregional markets experienced
moderate increments.

OVERVIEWThe Japanese economy and society have largely
returned to a state of normalcy throughout
2023. Although hybrid work arrangements
remain in place amongst many large
corporations across the country, the overall
expansion of oﬃce participation, coupledwith record corporate proﬁts and improved
business sentiment, are providing a muchneeded boost to regional oﬃce markets.
This bodes well for further growth in leasing
demand, especially given the large inﬂux of
new oﬃce supply forecast for completion in
2024 that threatens to disrupt the current
stable situation.

GRAPH 1: Investment-grade Office YoY* and HoH** Performance, 2H/2023
2022 Rent• New supply has been moderate
across most submarkets, butabsorption appears to takemore time. This was especiallythe case in Fukuoka, which
welcomed particularly large
amounts of new offi ce space in
1H/2023.

2022 Vacancy

2023 Vacancy
14%

RENT YOY

60,000

-1.2%

-0.8%

0.6%

-0.5%

1.0%

-1.2%

50,000

-0.4%

-0.6%

7.9%

40,000

10%

8%

7.7%
30,000

5.1%

4.8%

6%

4.2%
20,000

4%
3.8%

3.4%
10,000

2%
2.2%

0

0%
Tokyo

Osaka
#

NagoyaFukuoka

Source Savills Research & Consultancy
Tokyo data represents Grade A offi ce performance in the C5W.
*YoY market data as of September 2022 and September 2023.
**HoH market data as of March 2023 and September 2023.

GRAPH 2: All-grade Office YoY and HoH Performance, 2H/2023
2022 Rent

2023 Rent

2022 Vacancy

2023 Vacancy
11%40,000
RENT YOY

35,000

-2.0%

0.6%

1.7%

0.7%

0.2%

3.4%

9%

JPY / TSUBO / MONTH

RENT HOH

30,00025,00020,000

-0.6%

0.7%

10%

1.4%

0.0%

5.8%

5.8%

0.3%

2.5%

8%
7%

6.5%
6.2%

5.1%

5%
5.1%

15,000

6%

5.4%

5.7%

4.5%

4.7%

4%
2.9%

10,0002.2%

5,000

VACANCY• The spotlight will be on Osakain 2024, with massive amountsof new offi ce supply scheduled
for completion. A majorityof upcoming developments
will have high target rents,and observers should expect
noticeable ﬂ uctuations in the
Osaka market.

12%

RENT HOH

VACANCY• Year-to-date (YTD) investments
in office assets as of Q3/2023
declined by nearly 40%
compared to the same period in
2022, while overall transaction
volumes also contracted at amilder rate of 20%.

2023 Rent

70,000JPY / TSUBO / MONTH• Osaka and Sendai saw further
cap rate compression in
2H/2023, and all other regional
submarkets remain relatively
tight.

Completions have been moderate throughout
2023, but the reception of new developments
appears to have been mixed. For instance,a handful of major new additions appear tohave struggled to gain traction in Nagoya
and Fukuoka, and the large upcoming new
supply in both cities in 2024 may likely trigger
some ﬂuctuations as both cities deal with theexisting backlog of vacant space. Meanwhile,
relatively large amounts of new supply arrived
in the Sendai and Sapporo markets in 2023,
and a number of major developments exhibited
elevated vacancies upon completion. That said,
the resilience of both submarkets and limited
available oﬃce stocks should ensure that new

3%
2%
1%
0%

0
Tokyo

Osaka

NagoyaFukuoka

Sendai

SapporoSource Miki Shoji, Savills Research & Consultancy

savills.co.jp/insight-and-opinion/2

Regional Japanese Oﬃce Markets

supply is gradually absorbed with minimal
issues moving forward.
The situation in Osaka appears challenging
in 2024, with roughly 90,000 tsubo of NRA
forecast for completion, of which a large
proportion will be concentrated in the
Umeda submarket. Many properties will
likely experience heightened competition fortenants, especially as leasing demand appears
yet to have fully recovered. Hence, several
instances of price corrections have alreadybeen observed, with building owners looking
to create a greater sense of aﬀordability.
Furthermore, a combination of factors may
delay and constrain new supply beyond 2025,
including heightened construction costs, andthe reassessment of development plans in
response to lukewarm oﬃce demand, whichshould come as a welcome sign for certain
markets that are struggling with vacancies.

The performance of regional officemarkets in Japan continues toimprove as overall business sentimentrecovers and office participation
increases. However, some concerns
persist regarding the strength ofleasing demand in certain markets,given the lukewarm absorption ofsome pricey new additions and theincoming large office supply in 2024,
which may cause some disruptions in
the market.

GRAPH 3: Expected Cap Rates for Grade A Offices, 2004 to 2H/2023
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
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 21

22 23

Source Japan Real Estate Institute, Savills Research & Consultancy

GRAPH 4: Expected Cap Rate Spreads (vs Marunouchi), 2004 to 2H/2023
Osaka

NagoyaFukuoka

SapporoSendai

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%
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
1H
2H
1H
2H
1H
2H

CAP RATE SPREAD VS MARUNOUCHI

3.0%

The investment-grade oﬃce market saw
some mild divergence in performance over the
past year. Average rents increased moderately
in Nagoya, but contracted in Osaka and inFukuoka. On the other hand, investmentgrade vacancy tightened over the same period
in Osaka, but loosened in Fukuoka, andalso in Nagoya, where average vacancy hasreached notably high levels at 7.9%. Although
the recent economic recovery has supported
demand for premium oﬃce space, sentiment
looks to remain lukewarm in the investmentgrade market. This is largely due to large
new oﬃce supply, lingering hybrid work
arrangements, and bullish rents of some newly
completed properties.
For the all-grade oﬃce market, averagerents displayed encouraging results over the
past year. Sapporo was the standout performer
with average rents having increased by 3.4%
YoY. Elsewhere, all-grade rents increased
moderately in all regional markets, while
contracting moderately in Tokyo YoY. Allgrade vacancy was similarly stable overall,
despite some slight changes at the regional
market level. Vacancy in Osaka and Nagoyatightened by around 0.6ppts and 0.1ppts
over the past year, respectively, while othermarkets either remained unchanged orloosened marginally.

04 05 06 07 08 09 10

11

12

13

14

15

16

17

18

19 20

21

22 23

Source Japan Real Estate Institute, Savills Research & Consultancy

3

REGIONAL INVESTMENT
According to the bi-annual investor survey
conducted by the Japan Real Estate Institutein October 2023, expected cap rates in
Osaka and Sendai tightened marginally by
10 basis points (bps), and were unchanged inRegional Japanese Oﬃce Markets

GRAPH 5: Investment Volumes by Area for All Asset Types, 2007 to Q3/2023 (YTD)
Osaka
Sendai
Other

100%

NagoyaSapporoTotal Investment (RHS)
8

90%

7

80%
6
70%
60%

5

50%

4

40%

3

30%

JPY TRILLIONSPROPORTION OF INVESTMENT (%)

Tokyo
Fukuoka
Yokohama

2
20%
10%

1

0%

0

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

the other surveyed regional oﬃce markets.
Prices remain elevated across most realestate sectors in Japan, and the compressed
expected cap rates demonstrate thatinvestors still consider oﬃce assets in Japan a
popular investment option.
According to initial transaction data from
MSCI, total investment nationwide wasaround 20% lower in the ﬁrst three quartersof 2023 compared to the same period in 2022.
Similarly, transactions in the oﬃce sector
have also experienced a decline of around38%. That said, it is important to note thatthe present ﬁ gures are preliminary and are
expected to increase as more transactions
are conﬁ rmed.
There have been a number of notable
big-ticket oﬃce transactions over the
past half-year in Japan’s regional markets.
For instance, the KDX Kawasaki-Ekimae
Hon-Cho Building, which was sold byKenedix Oﬃce Investment Corporation for
JPY42.0 billion, was the largest deal oversavills.co.jp/insight-and-opinion/

the past half-year. Another signiﬁcant dealin Kawasaki was Japan Excellent REIT’s
sale of a 65% quasi co-ownership interestin the Kowa Kawasaki Nishiguchi Building,valued at JPY16.1 billion. Elsewhere, NTT UD
REIT Investment Corporation acquired the
Urbannet Shijo Karasuma Building in Kyoto
and Urbannet Fushimi Building in Nagoya for
JPY9.7 billion and JPY8.8 billion, respectively.
Cross-border investment activity inthe ﬁrst three quarters of 2023 declined
sharply compared to the same period in
2022, according to MSCI. The sentiment in
the western oﬃce market appears to have
driven many overseas investors to sectors
with sounder prospects, such as industrial
and residential. Nevertheless, despite some
hiccups in the oﬃce market over the past
half-year, recovering economic sentimentacross Japan’s regional markets and thelikely improvement in leasing demand should
elevate the image of the oﬃce market among
investors going forward.

4

OUTLOOK
Moderate progress has been made acrossJapan’s regional oﬃce markets over the
past half-year, with overall absorption of
new supply and rather limited secondary
vacancies, aside from a handful of outliers.
Japan’s economy remains on a steadyrecovery trajectory, and oﬃce participation
rates are expanding. That said, hybrid
work arrangements appear to remain as an
employee perk at large corporations, and somecompanies have looked to reduce their oﬃce
footprints and relocate to more convenient
but smaller oﬃce spaces as a result.
Looking ahead, large amounts of newoﬃce supply are forecast across thesurveyed markets, which is likely to bringabout some notable ﬂuctuations, with
upticks in both vacancies and rental rates
anticipated. Furthermore, many large oﬃces
with high rents and those that are struggling
with persistent vacancies may be required toadjust rents, especially in areas that are set
to receive large amounts of new supply, suchas Umeda in Osaka.
On the other hand, rising construction costs
and labour shortages will likely continue todelay or compel developers to think twice aboutdevelopment projects over the coming years.
Indeed, this may be viewed as a silver lining
for regional oﬃce markets, giving struggling
properties and submarkets some breathing
room to deal with existing vacant space.
Overall, further growth should be
anticipated in all regional markets over the
coming years. Although the large upcoming
new supply may cause some temporary
disruptions, these major developments
should improve the landscapes of each
respective market in the medium- tolong-term, which should help to attract
businesses and residents, and improve thesentiment of the oﬃce sector and wider
economic prospects across major cities.

Regional Japanese Oﬃce Markets

GRAPH 6: New NRA Office Supply in Osaka City, 2006 to 2025F
90,00080,00070,000TSUBO

60,00050,00040,00030,00020,00010,0000

Source Sanko Estate, Savills Research & Consultancy

GRAPH 7: Vacancy Rate in Osaka City by Area, 2011 to Q3/2023
Average
Yodoyabashi-Honmachi
Shin-Osaka

Umeda
Semba

Minami-Mori
Shinsaibashi-Namba

25%

VACANCY

20%

15%

10%

5%

0%
2011

2012

2013

2014

2015

2016

2017

2018

2019 2020 2021 2022 2023

Source Miki Shoji, Savills Research & Consultancy

GRAPH 8: Average Rent in Osaka City by Area, 2011 to Q3/2023
Average
Yodoyabashi-Honmachi
Shin-Osaka
17,000

Umeda
Semba

Minami-Mori
Shinsaibashi-Namba

JPY / TSUBO / MONTH

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

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source Miki Shoji, Savills Research & Consultancy

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

5

OSAKA CITY
Net Rentable Area (NRA)
The second half of 2023 has not seen any
notable new oﬃce building completions,which has created opportunities forabsorption in Osaka, as evidenced by
the decline in vacancy rates across mostsubmarkets.
However, this stable market setting is
expected to experience some hiccups moving
forward. A signiﬁcant new oﬃce supplyof roughly 90,000 tsubo is anticipatedfor 2024, with more than half of this new
supply concentrated in Umeda. In addition,a preliminary forecast of 35,000 tsubo of
NRA is also scheduled for completion in
2025, largely focused in the Yodoyabashi and
Honmachi submarkets. This projected largeoﬃce supply is expected to induce a certain
degree of disruption in the market.
Vacancy
Investment-grade vacancy rates tightenedby 1.2ppts half-year-on-half-year (HoH) to
3.8% in 2H/2023. The Shin-Osaka submarket
saw the largest decline in vacancies, although
it is still the largest contributor among thesubmarkets. Vacancy remains tight across themarket, although there are a few outliers withexceptionally high vacancy levels.
All-grade oﬃce vacancy rates fell by
0.6ppts over the past half-year to 4.5%, andvacancy tightened in most submarkets.
Shin-Osaka saw the most notable change,
decreasing by 1.2ppts HoH, although it
remains elevated at 7.2%. Despite the gradualabsorption of existing supply taking placeover the past half-year, the large uptick incompletions forecast for the coming half-year
may cause some temporary ﬂuctuations in
the market.
Rent
Rents in investment-grade oﬃces fell slightly
by 0.6% HoH to JPY21,800 per tsubo. The
overall investment-grade market seems to bestable, with only a handful of oﬃce buildings
reducing their rents. Many of the large
mixed-use developments in Umeda thatcomprise most of the supply in 2024 appear
to have high target rents, which will likely
drive up average investment-grade rents, but
may contribute to some temporal instability
in the market.
All-grade rents increased by 0.7% HoH
to JPY11,950 per tsubo. Rents increased
across all submarkets, with the largest rateof growth experienced by Minami-Mori andRegional Japanese Oﬃce Markets

TABLE 1: Osaka Investment-grade Offices

2H/2023

HOH

YOY

Rent

21,800

-0.6%

-0.8%

Vacancy

3.8%-1.2ppts-1.0ppts

Top Rent

38,00000Source Savills Research & Consultancy

Yodoyabashi-Honmachi at 1.7% HoH and 1.0%
HoH, respectively. The introduction of new highquality oﬃce space in 2024 will likely contribute tosome notable growth in average rents, especially in
the Umeda submarket.
Umeda
Rents for investment-grade oﬃces in the Umeda
submarket decreased slightly by 0.2% HoH to
JPY24,800 per tsubo. Meanwhile, investmentgrade vacancy tightened by 0.4%. Overall, 2023
has been a relatively quiet year, and the situation
appears to be characterised by increasing stability.
Although vacancy levels remain slightly elevated,particularly among larger buildings, due to ahandful of large-scale cancellations over the past
half-year, the strength of leasing demand for small
and medium sized oﬃce properties, in conjunction
with the limited new supply in 2023, suggests a
stable trajectory for the meantime.
The spotlight will be on the Umeda submarket
in 2024, with a huge volume of new oﬃce spacescheduled for completion over the coming year
– most notably the 35,000 tsubo Grand Green
Osaka, and the 20,000 tsubo JP Tower Osaka.
In particular, JP Tower is rumoured to be half
pre-leased already. Given its location and modern
speciﬁcations, it should perform well. However,other major developments may not fare so well,
given their locations and project features. Indeed,
there have been some hiccups in absorbing large
oﬃces over the past half-year, and observers will
likely view the submarket with slight concern,with noticeable ﬂuctuations expected over the
coming year.

Yodoyabashi-Honmachi
Rents for investment-grade oﬃces in the
Yodoyabashi-Honmachi submarket decreased
by 0.7% HoH to JPY23,500 per tsubo in 2H/2023.
Meanwhile, investment-grade vacancy tightenedby 1.4ppts HoH to 3.8%.
Two new oﬃce buildings are slated forcompletion around the start of 2024, the Urbannet
Midosuji Building and the Midosuji Daibiru,
introducing a combined 10,000 tsubo of new NRA
into the submarket. In addition, the submarket is
set to welcome an inﬂux of over 30,000 tsubo of
new oﬃce space with the scheduled completionof the twin Yodoyabashi Station redevelopment
projects in 2025. The anticipated large increasein supply may cause some disruptions in thesubmarket, given the relatively slow absorption ofrecent new oﬃce space, exempliﬁed by Honmachi
Garden Terrace, where roughly half of the oﬃce
space remains vacant.
Shin-Osaka
Investment-grade rents for oﬃces in the
Shin-Osaka submarket contracted 0.8% HoH
to JPY18,800 per tsubo. Meanwhile, average
investment-grade vacancy rates tightened sharply
by 5.8 ppts HoH to 5.9% in 2H/2023.
The Shin-Osaka submarket did not witness any
new completions over the past half-year, providing
well needed breathing room for absorption,
as evidenced by the signiﬁcant tightening of
vacancies. That said, Shin-Osaka still maintains
the highest vacancy rates among the submarkets,with a majority of oﬃces exhibiting some levelof vacancy. Furthermore, the submarket is6

anticipated to welcome a new oﬃce development inearly 2024, which will deliver an additional 3,000
tsubo of NRA, and could potentially interrupt thecurrent positive trajectory.
OutlookOverall, the Osaka oﬃce market has seen
healthy absorption of new supply in 2H/2023,
with vacancies experiencing a decline across all
submarkets, largely due to the limited new supply.
Looking ahead, the Osaka oﬃce market will
see a large inﬂux of new supply in 2024 and 2025,
notably with the upcoming completion of themassive Grand Green and JP Tower Osaka in
Umeda. While lukewarm demand has continued,
it is unlikely to keep up with the looming large
supply, potentially leading to a temporary increasein vacancies. Furthermore, new oﬃces may facechallenges in commanding high premium rents
due to increased competition resulting from theimpending supply surplus.
That said, the integration of Grand Green Osakawith Osaka Umeda Station and the creation oflarge public green space as part of the projectwill create a city-within-a-city environment andsigniﬁcantly improve livability and accessibility.
Meanwhile, with the upcoming expo in 2025
and the integrated resort development, as well
as a number of public transport improvements,
Osaka will fundamentally transform itself, likely
attracting more residents and businesses, andsubsequently leading to greater leasing demand.

Regional Japanese Oﬃce Markets

GRAPH 9: New NRA Office Supply in Nagoya City, 2006 to 2025F
50,00045,00040,000TSUBO

35,00030,00025,00020,00015,00010,0005,000
0Source Sanko Estate, Savills Research & Consultancy

GRAPH 10: Vacancy Rate in Nagoya City by Area, 2011 to Q3/2023
Average

Meieki

FushimiSakae

Marunouchi

20%

VACANCY

15%

NRA
Completions have picked up in the Nagoya
market over the past half-year. The mostnotable addition was the 10,000 tsubo
Chunichi Building in Sakae, which appears
to have been fairly well received. Elsewhere,
the 3,800 tsubo Enishio Meieki and the
3,000 tsubo Frontier Meieki arrived to
the Meieki market with some vacancies,
potentially due to bullish asking rents.
Indeed, there are some concerns regarding
the level of demand for such oﬃce space,especially at high price points.
While oﬃce developments scheduled forcompletion in central Nagoya between 2024
and 2025 are moderate in number, tentative
forecasts for new supply in 2026 show a large
uptick in development. In 2024, the Nagoya
Shimizu Fukoku Life Building will deliveraround 9,300 tsubo to the Marunouchi
submarket, while the 3,900 tsubo Daini Nagoya Sanko Building is scheduled
for completion in the Meieki submarket.
Overall, new oﬃce supply appears to
be moderate over the next few years in
Nagoya, which should prove favourable
for the market, especially with the current
lukewarm oﬃce leasing demand.

10%

5%

0%
2011

2012

2013

2014

2015

2016

2017

2018

2019 2020 2021 2022 2023

Source Miki Shoji, Savills Research & Consultancy

GRAPH 11: Average Rent in Nagoya City by Area, 2011 to Q3/2023
Average

Meieki

FushimiSakae

Marunouchi

16,00015,000JPY / TSUBO / MONTHNAGOYA CITY

Vacancy
Investment-grade oﬃce vacancy in Nagoya
increased notably by 1.4ppts HoH to 7.9% in
2H/2023. This loosening was largely due toa handful of properties that recently arrived
to the market with large amounts of vacancy.
That said, the Chunichi Building appears to be
performing well so far.
All-grade market vacancy also increasedslightly by 0.3ppts HoH to 5.7% in 2H/2023.
Meieki and Sakae submarkets experienced
some loosening, with vacancy increments of
0.8ppts HoH and 0.7ppts HoH to 6.2% and4.5%, respectively. That said, the recoveryof the Nagoya economy should bode well forvacancy performance in the post-pandemic era.

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

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source Miki Shoji, Savills Research & Consultancy

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

7

Rent
In 2H/2023, investment-grade oﬃce rents
increased by 1.0% HoH to JPY20,400 per
tsubo, amounting to a yearly increment of
0.6%. This rental growth stems from theaddition of new oﬃce developments withabove-average rents, namely the Chunichi
Building and Enishio Meieki. That said, somefurther rental adjustments appear to berequired in response to lukewarm demand
among prospective tenants, especiallyRegional Japanese Oﬃce Markets

TABLE 2: Nagoya Investment-grade Offices

2H/2023

HOH

YOY

Rent

20,4001.0%

0.6%

Vacancy

7.9%+1.4ppts+0.2ppts

Top Rent

35,000+00Source Savills Research & Consultancy

given that a signiﬁcant proportion of large oﬃce
properties in Nagoya are now owned by large
institutional funds that have been reluctant toadjust rents, consequently leading to high levelsof vacancy.
Meanwhile, all-grade rents witnessed a moderate
uptick across most submarkets in Nagoya in
2H/2023. All-grade average rents increased by 1.4%
HoH to JPY12,300 per tsubo, and all grade rents
are sitting comfortably above pre-pandemic levels.
The Meieki submarket retains the highest all-grade
rents at JPY15,350 per tsubo, while the Sakae andFushimi submarkets experienced the largest halfyearly rental growth at 1.8%.
Meieki
Meieki’s investment-grade oﬃce rents contracted
slightly by 1.8% HoH to JPY26,650 per tsubo.
That said, a vast majority of investment-gradebuildings saw r ents stay ﬂat over the same period.
Meanwhile, investment-grade vacancy loosened
moderately by 3.3ppts HoH to 6.5%.
Despite some oﬃce buildings struggling withpersistent vacancies, oﬃces in Meieki appear tohave garnered some interest among tenants fromother submarkets, and some buildings have beenable to keep ﬁ lling ﬂoors. That said, a number ofrecently completed developments appear to bemoving more slowly in comparison, and display
notably elevated vacancies.

Fushimi and Marunouchi
Investment-grade oﬃce rents in both theFushimi and Marunouchi submarkets remained
unchanged for a second consecutive half-year, at
JPY18,500 per tsubo and JPY16,200 per tsubo,
respectively in 2H/2023. Meanwhile, investmentgrade vacancy tightened in both submarkets, by
4.5ppts HoH in Fushimi to 11.7%, and by 0.6ppts
HoH in Marunouchi to 6.4%.
Overall, both submarkets have been relatively
stable and show signs of gradual improvement.
That said, some work can still be done, withvacancies still visible in both submarkets,
although the lack of new additions should give
both submarkets some breathing room for further
stabilisation. The upcoming Nagoya Shimizu
Fukoku Life Building appears to be half preleased, which also bodes well for the market.
Outlook
Nagoya’s investment-grade rents increased
moderately, while investment-grade vacancy
also rose over that past half-year. Although themarket appears to have received the Chunichi
Building well, some other newly completed oﬃces
are struggling to attract tenants, which has
impacted market-wide vacancy, and does not bodeparticularly well for other incoming developmentswith bullish rents looking ahead.
Demand for oﬃce space does not appear to have8

enjoyed the same level of recovery as the wider
economy in Nagoya. Indeed, while corporate
proﬁts have been strong in 2023, many large
companies in Nagoya, which are often considered
conservative, appear reluctant to relocate to more
spacious oﬃces, even if their current oﬃces havebecome tight due to larger headcounts and greateroﬃce attendance. In addition, some hybrid work
arrangements look to persist in many regional
markets, and both factors have likely contributed
to the current lukewarm sentiment in the Nagoyaoﬃce market.
Nevertheless, while there are concerns
surrounding the outlook of the Nagoya oﬃce
market, there is still cause for optimism. Oﬃce
attendance has been steadily recovering in
Nagoya, which should gradually support further
oﬃce demand, backed by broader economic
recovery. Moreover, some future development
plans are being reconsidered given theuncertainty in the market, constricting supply
in coming years, and consequently giving moreleeway to oﬃces that have notable vacancy levels.
Meanwhile, a major redevelopment project slated
for completion in 2026 appears to have secured
several tenants at a renewed top rental levelof JPY30,000 in Sakae, which could symbolise
newfound conﬁdence in the submarket.

Regional Japanese Oﬃce Markets

GRAPH 12: New NRA Office Supply in Fukuoka City, 2006 to 2025F
35,00030,000TSUBO

25,00020,00015,00010,0005,000

0Source Sanko Estate,Savills Research & Consultancy

GRAPH 13 Vacancy Rate in Fukuoka City by Area, 2011 to Q3/2023
Average
YakuinHakata Sta. Southeast

Akasaka
Gion

TenjinHakata Sta. West

20%

VACANCY

15%

10%

5%

0%
2011

2012

2013

2014

2015

2016

2017

2018

2019 2020 2021 2022 2023

Source Miki Shoji, Savills Research & Consultancy

GRAPH 14: Average Rent in Fukuoka City by Area, 2011 to Q3/2023
Average
YakuinHakata Sta. Southeast
14,000Akasaka
Gion

TenjinHakata Sta. West

JPY / TSUBO / MONTH

13,00012,00011,00010,000

9,000

8,000
2011

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source Miki Shoji, Savills Research & Consultancy

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

9

FUKUOKA CITY
NRA
Over 25,000 tsubo of new NRA is forecast
for completion in the Fukuoka oﬃce market
in 2023. Although the situation in Fukuoka
remains stable overall, some noticeable levelsof vacancy have been observed in newly built
oﬃces, in addition to secondary vacancies
that have materialised elsewhere. This may
hint at some weakness in terms of overalltenant demand. For instance, Fukuoka
Daimyo Garden City has struggled withsecuring tenants since its completion, whilea handful of newly completed properties
arrived to the market with elevated levels of
vacancy. However, the large-scale rebound of
inbound tourist numbers and the continued
recovery of the Fukuoka economy should
provide some comfort for observers.
Looking ahead, oﬃce supply is forecast
to be similarly large in 2024 and 2025 – over
20,000 tsubo of NRA in both years. The
symbolic One Fukuoka Building, set forcompletion in December 2024, will featurearound 14,000 tsubo of oﬃce space, andwill be a major addition in the Tenjin area.
Overall, a majority of upcoming oﬃce
developments will be concentrated in the
Tenjin and Hakata submarkets, and thelarge inﬂux of new supply may cause some
temporary ﬂuctuations upon completion,
especially given that many of these newdevelopments will aim for high price points ofaround JPY30,000 per tsubo.
Vacancy
Investment-grade vacancy tightened overthe past half-year by 1.0ppts, but remains
relatively elevated at 5.1%. This trend stems
from a combination of small-scale reductions
in vacancy among a many older properties,
a number of which have carried out slightrental revisions, likely in order to remain
attractive to tenants, and the encouraging
absorption of newly completed properties
over the last half-year that arrived to themarket with high levels of vacancy. Overall,a majority of oﬃces in the Fukuoka market
appear to be performing well.
The all-grade market saw average vacancy
rates fall by 0.1ppt HoH to 5.8%. Some minor
ﬂuctuations were observed across Fukuoka
city, but changes were nominal overall. The
Hakata and Tenjin submarkets performed
relatively well over the past half-year, withvacancy tightening by 1.3ppts and 0.3 ppts
in the Hakata Station West and Southeast
submarkets, respectively, and decreasing by
0.6ppts in Tenjin. However, average all-grade
vacancy remains elevated in the Akasaka

Regional Japanese Oﬃce Markets

TABLE 3: Fukuoka Investment-grade Offices

2H/2023

HOH

YOY

Rent

19,000

-1.2%

-0.5%

Vacancy

5.1%-1.0ppts+2.9ppts

Top Rent

30,00000Source Savills Research & Consultancy

submarket at 10.5%, which stems mainly from
Fukuoka Daimyo Garden City.
Rent
In 2H/2023, investment-grade rents in Fukuoka
decreased moderately by 1.2% over the past half-year,
and currently hover around the JPY19,000 per tsubo
level. Several older properties located in slightly
remote areas carried out rental revisions, evendespite having low levels of vacancy, likely in order toprevent existing tenants from looking to relocate.
Meanwhile, all-grade rents remained ﬂat HoH
at JPY11,500 per tsubo, which are record levels.
Although the completion of large-scale modern
oﬃce space in central submarkets as part of the
Hakata Connected and Tenjin Big Bang projects
should contribute to noticeable rental growth overthe coming years, lukewarm demand at high rental
levels may convince building owners to consider
further rental revisions in order to secure requisite
tenants sooner.
HakataRents of investment-grade buildings in Hakata
contracted by 0.8% HoH to JPY20,400 per tsubo.
Meanwhile, investment-grade vacancy tightened
moderately to 1.7% over the past half-year,
which demonstrates the level of improvementtaking place within the submarket. In addition,
few projects of major scale are scheduled forcompletion in 2024, meaning that this stability will
likely continue in the submarket for the time being.

In the longer term, the Hakata Connected
project will feature a handful of major
redevelopment projects until 2028 that lookto fundamentally reshape the landscape of the
Hakata Station area. This project will include
the redevelopment of Hakata Ekimae-dori, andnotably the Hakata Station Aerial City Project, a
12F mixed-use oﬃce and hotel development above
Hakata Station. This initiative aims to improve
the image of the Hakata area as a business andentertainment hub and encourage businesses toestablish themselves in the submarket.
TenjinSimilar to the Hakata submarket, investmentgrade vacancy tightened notably by 4.2ppts HoH
to 11.7%. However, investment-grade rents fell by
a greater margin at 2.5% HoH to JPY21,100 per
tsubo. Indeed, a number older properties in thesubmarket revised their rents, likely in order tocompete with the upcoming supply of modern
properties in the submarket.
Although Fukuoka Daimyo Garden City still
exhibits elevated levels of vacancy, deﬁnite
progress has been made over the past half-year,
which should be a point of optimism moving
forward. Additionally, there were no new additionsin Tenjin in the latter half of 2023, which should
provide properties in the submarket some morebreathing room to absorb existing vacancies.
Like Hakata, the Tenjin submarket is set to see
an uptick in development activity beyond 2024.

10This will involve the reconstruction of several
large mixed-use oﬃce buildings and the overall
improvement of the area surrounding Tenjin
Station, and should become a major pull for
potential tenants to the area going forward.
OutlookThe situation in Fukuoka’s oﬃce market was
mixed in 2H/2023, and appears to be searchingfor a stable equilibrium. Looking at respective
submarkets, new developments in Tenjin appear toproceed, and growing landlord ﬂexibility in termsof rents should ensure that ﬂoor space gets ﬁlled.
Meanwhile, attention will gravitate toward Hakata
with more development plans in the pipeline.
Indeed, the Hakata area is well positioned towelcome new oﬃce tenants and residents, given its
convenient public transport connections and its
growing entertainment and dining options.
Overall, the Fukuoka oﬃce market looks toremain largely stable for the meantime. That said,
the relatively large amount of new supply will
likely contribute to increments in both averagerents and vacancy moving forward. In addition, theUS$8 billion development of chip-making facilities
in other regions in Kyushu led by TSMC willundoubtedly have a knock-on eﬀect, generating
further business opportunities and investment inFukuoka city.

Regional Japanese Oﬃce Markets

SENDAI CITY
Supply and Demand
Roughly 15,000 tsubo of new oﬃce supply isslated for completion in Sendai in 2023, whichis by far the largest amount since 2011. The
most notable completion was the Yodobashi
Sendai Daiichi Building in the Station East
submarket, which appears to have arrived tothe market with a large amount of vacancy.
Nonetheless, vacancy and rental rates
remain relatively stable in Sendai overall.
Furthermore, forecasts indicate that only
4,000 tsubo of new NRA will be completed in
2024, which should provide more breathing
room to absorb the recent large supply.

Looking forward, the Urbannet SendaiChuo Building in the prime Station Front
submarket is scheduled for completion in
November 2023, delivering over 7,000 tsubo
of NRA to the market. Nevertheless, thesituation appears stable for the meantime,with limited available stocks in the market.
Vacancy
The all-grade vacancy rate in Sendai held
steady HoH, remaining at 5.4% in Q3/2023.
While vacancy rates remain over 1ppt higher
than the pre-pandemic lows of 2019, theoverall outlook for vacancy in Sendai appears
optimistic, considering the substantial new
supply in 2023.

GRAPH 15: Vacancy Rate in Sendai City by Area, 2011 to Q3/2023

Average
30%

Station Front

1-banchoCity Hall

Station East

Outer Area

25%

VACANCY

20%

15%

10%

5%

0%
2011

2012

2013

2014

2015

2016

2017

2018

2019 2020 2021 2022 2023

Source Miki Shoji, Savills Research & Consultancy

GRAPH 16: Average Rent in Sendai City by Area, 2011 to Q3/2023

Average

Station Front

1-banchoCity Hall

Station East

Outer Area

12,000JPY / TSUBO / MONTH

11,00010,000

9,000

8,000

7,000

6,000
2011

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source Miki Shoji, Savills Research & Consultancy

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

11

Sendai’s constituent submarkets
witnessed diverging trends over the past
half-year. The Station Front submarket saw
a slight dip of 0.3ppts HoH, with new supply
being absorbed with limited issues.
The Outer Area and Station East
submarkets tightened by 0.5ppts HoH eachto 8.4% and 6.7%, respectively, but retain
the highest vacancy levels across the Sendai
market. Leasing demand appears to be ﬁ rm
in the Outer Area submarket, where many
existing tenants have decided to expand
their oﬃce footprints. On the other hand,
while improving slightly over the past halfyear, vacancy in the Station East submarket
remains notably higher than a year ago due tothe new addition.
Meanwhile, the 1-bancho and City Hall
submarkets each saw increments of 0.5ppts
HoH, reportedly due to new supply as wellas tenant relocations. Going forward, somesecondary vacancy might be observed withthe large new addition in 2023.
Rent
Average all-grade oﬃce rents saw a slightincrease of 0.3% HoH to JPY9,300 per tsubo
in Sendai.
The most expensive submarkets
experienced diverging rental performances,with rents in the Station Front submarket
increasing by 0.7% to JPY10,800, while theStation East submarket contracted by 0.1% to
JPY10,400. The Station Front submarket islikely to see an uptick in average rents upon
the completion of new supply.
Meanwhile, the Outer Area submarket,
known for its aﬀordability, experienced amarginal decline of 0.2% HoH to JPY6,900
per tsubo. New supply is forecast to belimited for the meantime and hence, rental
rates are expected to remain relatively stable
for the time being.
Outlook
The oﬃce market in Sendai has demonstrated
resilience, with rents and vacancies
experiencing minimal changes over the past
half-year. Overall, the absorption of current
stock appears to be going well, despite thelarge new addition, although the completionof the Urbannet Sendai-Chuo Building may
cause some ﬂuctuations in the market.
The Sendai oﬃce market faces a few
hurdles going forward. Firstly, morecompanies in Sendai appear to be adopting
ﬂexible work policies, and some havedownsized oﬃce space as a result. Moreover,oﬃce expansions may slow as the economy
of Sendai has not fully recovered from theeﬀects of the pandemic. That said, limited
new supply after 2024 should keep the market
tight and aid further stabilisation.

Regional Japanese Oﬃce Markets

GRAPH 17: Vacancy Rate in Sapporo City by Area, 2011
to Q3/2023
Average
Station East-West
Outer South

Station Front
Park South
Station North

20%

Vacancy

15%

10%

5%

0%

Source Miki Shoji, Savills Research & Consultancy

GRAPH 18: Average Rent in Sapporo City by Area, 2011
to Q3/2023
Average
Station East-West
Outer South

Station Front
Park South
Station North

14,000JPY / TSUBO / MONTH

13,00012,00011,00010,000
9,000
8,000
7,000
6,000

Source Miki Shoji, Savills Research & Consultancy

SAPPORO CITY
Supply and Demand
10,000 tsubo of new supply arrived to themarket in Sapporo in 2023 - the largest
inﬂux since 2007. The market has beenvery tight given the recent limited supply.
The much-anticipated newly addedbuildings to the market appear to have been
met with mixed reception over the past
half-year. D-LIFE PLACE Sapporo, added to
the Station Front submarket in May 2023, isalmost fully occupied. On the other hand,
The Link Sapporo in the Station Northsubmarket which was completed in August2023 appears to have high levels of vacancy.
2024 and 2025 will also be signiﬁcant
years for Sapporo, with approximately
10,000 tsubo of NRA forecast. Sosei Cross
is scheduled to deliver approximately
2,500 tsubo of new oﬃce space in May
2024. Overall, despite the lukewarm
performance of The Link Sapporo, demandfor oﬃce spaces remains strong, which is agood sign for the market.
Vacancy
All-grade vacancy in Sapporo loosened
slightly by 0.5ppts HoH to 2.9%. Vacancy
levels in Sapporo remain tight overall, andare lower than the other surveyed cities by
a considerable margin.
At the submarket level, there weremoderate disparities in terms of vacancy.
The Station North submarket witnessed
the largest increase of 4.2ppts, reaching
6.8%, primarily driven by the completionof The Link Sapporo, which came to themarket largely vacant.
Meanwhile, the Station Front submarket,
which has seen an increase of 0.5ppts to
2.9%, also welcomed a new oﬃce building,
D-LIFE PLACE Sapporo, which appears
to have come to the market close to
fully leased. That said, reports of somecompanies downsizing, on top of secondary
vacancies in the area, contributed to thesubmarket’s uptick in vacancy. On the other
hand, vacancy levels in the Outer South

submarket tightened by 0.9ppts to 2.6%,
likely bolstered by the limited amount of
new supply in the submarket.
Rent
The rental growth observed in recent years
has continued in Sapporo, with averagerents exceeding the JPY10,000 per tsubo
level for the ﬁrst time. All submarkets
experienced rental increments, withaverage rents climbing by 2.5% HoH to
JPY10,050 per tsubo.
The Station North submarket
experienced the largest rental increment
at 3.6% HoH to JPY13,200 per tsubo,
slightly overtaking the Station Front
as the most expensive submarket in
Sapporo. The arrival of The Link Sapporo
pushed average rents in the submarket
upwards, and the completion of T-PLUS
Sapporo in December 2023 should also
contribute to some further rental growth.
However, with many tenants downsizing
their oﬃce footprints, in addition to theupcoming inﬂux of new oﬃce supply overthe next few years, landlords will likely
be discouraged from being too bullish inincreasing oﬃce rents.
OutlookA majority of Sapporo’s constituent
submarkets have exhibited stable growth.
However, the Station North submarket
appears to have hit a road bump, and theabsorption of the relatively expensive
new supply may require more time, which
will likely contribute to elevated levels of
vacancy at least in the short term.
Overall, the Sapporo oﬃce market has
demonstrated strong performance andshould continue to do so moving forward.
That said, the combination of signiﬁcant
new oﬃce supply in 2024 and 2025, andlukewarm demand among previously
prominent call centres and IT ﬁ rms may
disrupt the market. From a medium-term
perspective, new demand is also likely
to be generated by the emerging chipmaking industry.

For more information about this report, please contact us

Savills Japan

Savills Research

Christian Mancini
CEO, Asia Paciﬁc(Ex. Greater China)+81 3 4330 3611
cmancini@savills.co.jp

Tetsuya Kaneko
Managing Director, Head of
Research & Consultancy, Japan+81 3 4330 3103
tkaneko@savills.co.jp

Simon Smith
Regional Head of Research& Consultancy, Asia Paciﬁc+852 2842 4573
ssmith@savills.asia

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
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