Japan - June 2024

S P OT L I G H T
Savills Research

Tokyo Office SupplyTokyo Office Supply

Moderate supply in 2024 to enable further
improvements in rents and occupancy levels• A strong corporate performancein 2023 and the expedited returnto offices by workers has driven
demand for office space. Tenants
are in a favourable negotiating
position, and have been actively
consolidating offices andexpanding their footprints.
• 2023 saw a large amount of new
supply delivered to the market,
especially in the Toranomon& Roppongi, and Shibuya
submarkets. The strong appetite
for modern office space has aided
its absorption with limited issues.
• New supply in 2024 will be
relatively moderate. Overall,leasing demand has beenstrong and pre-leasing activity
has proceeded smoothly for amajority of incoming properties.
As such, there are few concerns
regarding the stability of themarket in 2024.
• In 2025, the Takanawa
submarket will emerge as acompetitive office market withthe completion of TAKANAWAGATEWAY CITY. Mixed-use
amenities and transport accesswill be major draws for tenants,
and some large tenants havealready been secured.
• New supply in 2026 and 2027 will
be moderate, with a handful oflarge mixed-use projects in the
Shibaura & Hamamatsucho, andNihonbashi & Yaesu submarkets,
which have already received firminterest from the market.
• The Marunouchi & Otemachi
submarket will welcome theiconic Torch Tower in 2028,
which will be developed as partof the large, mixed-use Tokyo
Torch project, transforming thenorthern edge of Tokyo Station.
• Mixed-use developments appear
to have become the standard
for larger scale projects, with
developers working to integratethese projects with thesurrounding environment andcommunities.

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

continue to struggle. Some areas in Minato andChuo will likely face some challenges in thisregard, which may be compounded by the large
incoming supply in these wards over the next
few years.
Although some observers anticipate aslowdown of the economy over the coming
year, the mood is still optimistic in the Tokyo
office market. Incoming office supply will
be moderate and should face few issues withabsorption. Overall, the limited supply coupledwith strong demand from tenants shouldherald further improvements in the officemarket over the coming year.
SUPPLY PIPELINE
New office supply in 2023 was extremely
large relative to previous years, and many
anticipated it having adverse effects on themarket which was still finding its feet since
the end of the pandemic. A bulk of this wascompleted in the Toranomon & Roppongi
submarket in Minato, which welcomed
Azabudai Hills JP Mori Tower and Toranomon
Hills Station Tower, and in Shibuya withthe completion of Shibuya Tower at Shibuya
Sakura Stage. However, leasing activity has
been firm in 2023, and a majority of new
additions have been absorbed with limited
disruptions due to the strong appetite formodern office space.
Azabudai Hills JP Mori Tower experienced
some initial hiccups, but has since received
firm interest, and the landlord is pushing ahead
with subdividing and leasing partial floorplates

GRAPH 1: Office Supply (GFA) Estimates* for the C5W and the 18W, 2024F to
2027F
C5W

18W

450
400
GFA (THOUSAND TSUBO)

Summary

INTRODUCTION
There were concerns that the large influx of
new supply in 2023 would hamper the progressof the Tokyo office market, which was still in arecovery phase since the end of the pandemic.
However, strong corporate performance andeconomic growth have enabled the market toabsorb the new office space with few issues.
Indeed, rents bottomed out in 2023 and havebegun to improve, albeit slowly. Similarly,
vacancy rates have been decreasing, reaching
3% at the start of 2024, and some submarkets
such as Shinjuku, Shibuya, and Chiyoda appear
to be approaching their respective ultra-tightpre-pandemic levels.
Companies in Tokyo have mandated greaterlevels of office attendance, and many are
expanding their headcounts due to positive
corporate sentiment. Elevated vacancies
induced by the pandemic have createdfavourable conditions for tenants, allowing
them to reassess their office needs, andconduct long overdue office relocations andexpansions while the office market continues
to recover. As such, demand from tenants has
kept improving since 2023.
Observers have noticed a shift in tenant
preferences in this new era. Desirable features
include central locations, proximity to metro
stations and public transport hubs, modern
office amenities that support communication,and strong ESG specifications, among others.
Indeed, many tenants appear willing to pay
for these features. On the other hand, older
and poorly located offices have and will likely

350
300
250
200
150
100
50
0
2024F

2025F

2026F

2027F

Source Savills Research & Consultancy* Adjusted GFA figures based on estimated office floor space.

2

Tokyo Office Supply

in order to attract more tenants. Toranomon
Hills Station Tower continues to fill up, withseveral major tenants including Goldman
Sachs and Panasonic Industries taking up
sizeable leases in the property. Although
Minato experienced a temporal increment insubmarket-wide vacancy due to these large
additions, we expect this to stabilise overthe coming year. Elsewhere, Shibuya Tower
was welcomed with enthusiasm due to thestrong appetite for modern office space in the
Shibuya Station Market. As such, the property
was mostly leased as of the beginning of 2024,
despite having one of the highest rents in both
Shibuya and the wider C5W market.
In contrast, total new supply in 2024 will
be relatively moderate, which should usher
further stability in the market. A handful of
sizeable developments are in the pipeline
this year, including Akasaka Trust Tower in
the Toranomon & Roppongi submarket in
2024. Elsewhere, the TODA Building in the
Nihonbashi & Yaesu submarket is rumoured
to be mostly pre-leased, SHIBUYA AXSH in
Shibuya appears to be almost fully pre-leased,
while the Shin-Tora Yasuda Building in Shibaura& Hamamatsucho is reportedly fully leased.
Although the office market is still in arecovery phase, potential tenants havebeen actively consolidating offices andrelocating to more desirable premises inorder to support hiring efforts or new work
styles. Modern offices have been the main
beneficiaries of this trend, particularly thosein prime locations. As such, even sizeable
additions in 2024 should face few issues being
absorbed, and have minimal impact on thestability of the market.

Office leasing demand has
strengthened as Japan corporations
have started to expand business
operations. Strong corporate
performance and growing rates ofoffice attendance have improved
the office market outlook, with thenotable influx of office supply in
2023 having been absorbed with few
issues. Overall, new supply in 2024
will be moderate, which should allow
the market some breathing room toabsorb existing vacant space, as wellas providing a platform for growth.

That said, the strength of the market will
be tested by the large influx of supply in 2025,
which will be even larger than that of 2023.
The Takanawa submarket will receive a large
amount of attention, given the anticipated
TAKANAWA GATEWAY CITY projectslated for completion from 2025. The firststage of the project, THE LINKPILLAR I

GRAPH 2: Office Supply (GFA) Estimates* by Submarket, 2024F to 2027F

2024F

2025F

2026F

2027F

Toranomon & Roppongi
Takanawa
Shibaura & Hamamatsucho
Nihonbashi & Yaesu
Shibuya
Shinjuku
Marunouchi & Otemachi
0

50

100

150

200

250

300

GFA (THOUSAND TSUBO)
Source Savills Research & Consultancy* Adjusted GFA figures based on estimated office floor space.

3

will reportedly be completed in early 2025,
delivering a GFA of over 100,000 tsubo.
Overall, the development has attracted firm
attention from prospective tenants, with
KDDI taking a notably large lease of around
30,000 tsubo, and there are rumours that thedevelopment is well over half filled already.
The mixed-use scheme will feature officespace, retail and residential units, in addition
to an international school, which will likely
be appealing to corporations and high networth individuals. These mixed-use features
should make office portions more attractive.
Other large-scale completions in 2025
appear to be widely spread across theTokyo market. The Yaesu 1-Chome projectin the Nihonbashi & Yaesu submarket will
deliver among the largest volumes of new
office space in 2025, albeit having faced atemporary pause in construction due toan onsite accident, which is rumoured topotentially delay the project until 2026.
The scheme has received firm pre-leasing
interest already, and the developer Tokyo
Tatemono is rumoured to take up a large
amount of space in the property. Meanwhile,
Shibaura 1-Chome Project South will be
another sizeable addition in the Shibaura& Hamamatsucho submarket, and isreportedly already mostly pre-leased. Thismay be attributed to its close proximity to
the station, with a walkway being installed
to aid easy commuting and access. Overall,
the supply in 2025 should be well received,

Tokyo Office Supply

and is not expected to be overtly disruptive
to the market.
Looking further ahead, the market
will welcome a handful of significant
developments in 2026, although will be
moderate compared to that of 2025. The
largest completion will be Nihonbashi
1-Chome Naka C project in the Nihonbashi& Yaesu submarket, which is reportedly
already mostly pre-leased despite theamount of time left until completion.
Meanwhile, the second office phase of
TAKANAWA GATEWAY CITY, THE
LINKPILLAR II is slated for completionin 2026, while nearby, the redevelopmentof the Oimachi Station front area aims forcompletion in the same year, delivering
two mixed-use office, retail and residential
towers, in addition to significant amounts ofpublic green space. Indeed, the Shinagawa& Osaki and Takanawa submarkets will
undergo significant transformations overthe coming years, particularly benefittingfrom their proximity to the major transport
hub Shinagawa Station, and may emerge ascompetitors for nearby business districts in
Minato and Chiyoda.
Completions in 2027 will be similarly
moderate compared to 2025, although both2026 and 2027 will deliver larger amountsof supply than in 2024, which should be asign of confidence in the continued strengthof the market. The Toranomon & Roppongi
submarket will again be under the spotlight,
with the development of Uchisaiwaicho
South Tower by Mitsui Fudosan in thevicinity of the Imperial Hotel. Indeed, theentire area immediately to the east of Hibiya

Park will be a hotspot of redevelopment
activity over the coming decade, which will
eventually transform the area and improve
its appeal among potential tenants.
Marunouchi & Otemachi, the premier
office district in Tokyo, will be relatively
quiet in terms of new supply between 2024
and 2027. On the other hand, 2028 will bea defining year for the submarket, with thecompletion of Torch Tower, which, at 390
metres, will be the tallest office buildingin Japan, and the centrepiece of the large
mixed-use Tokyo Torch project, which willtransform the northern edge of the Tokyo
Station area. In addition, redevelopment work
to the Tokio Marine Nichido Building andthe head office of MUFG in 2028 and 2029,
respectively, will reportedly yield a large
amount of premium modern office space.
The office market in Minato has shown
some cracks in recent years, and willreportedly receive around 50% of the new
office supply in Tokyo between 2023 and2027. This may be a slight concern forobservers, given the persistent bifurcation
between older properties in non-ideal
locations and well-located newer ones. Thatsaid, Itochu Corporation should be currently
deliberating on a potential relocation fromits current headquarters building in Minato,
which will be demolished as part of the
Jingu Gaien redevelopment project, and isrumoured to be eyeing either Azabudai Hills
JP Mori Tower or Akasaka Trust Tower as a
new headquarters, aiming to occupy around
20,000 tsubo. If this move plays out as such,
this could have a significant stabilising effecton the local market.

GRAPH 3: Office Stock Comparison by Ward, 2023 to 2027F

2023

2027F

% Change, 2023 vs 2027F (RHS)
25%

3,500,000
3,000,000

20%

TSUBO

15%

2,000,000
1,500,000

10%

1,000,000
5%GROWTH (2023 VS 2027F)

2,500,000

500,000
00%
ChiyodaChuo

MinatoShinjuku

Shibuya

Source Savills Research & Consultancy* Adjusted GFA figures based on estimate office floor space.

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

4

New supply in Shibuya will be moderatewith the completion of Shibuya Tower.
Ongoing redevelopment work to the
Shibuya station area will lead to a pick-up
in completions around 2028 with Shibuya
SCRAMBLE SQUARE West, which will
improve accessibility around the station andoverall improve the image of the submarket.
Other upcoming projects in the Shibuya
area include the mixed-use Miyamasuzaka
District Project, around half of which willcomprise office space. Nearby, Shinjuku is set
to be relatively stable over the next coupleof years, with the new Meiji Yasuda Seimei
building the only moderately large projectin the submarket, slated for completion inlate 2025. That said, Shinjuku will be in the
spotlight towards the end of the decade, given
the extensive planned redevelopment of theSouth and West portions of Shinjuku Stationfrom 2029, with an overall comprehensive
target completion date of 2041.
Development activity looks to accelerate
through the middle and latter parts of thedecade, which is undoubtedly an indicator of
confidence in the office market. Many older,struggling offices may utilise this period of
dampened leasing demand to implement
value-add initiatives and renovations, suchas conversions to other commercial usages,
in order to adapt to the post-pandemic
market and improve competitiveness. Suchrenovation work may reduce vacancies andusher in further stability across the market.
However, a handful of risk factors
threaten to destabilise this situation.
Labour shortages, new regulations on
overtime construction work, and inflation
may trigger some delays in delivering new
supply and may push up construction costs,
which will likely cause some difficulties
for owners. This trend also extends totenant relocations, with some companies
postponing prospective office moves due
to elevated construction costs. That said,
these delays may help to balance supply anddemand more subtly.
All major office projects in the pipeline
will be mixed-use. Given the relatively
lukewarm demand among office tenants
compared to pre-pandemic times, offices
may not be the clear dominant use of spaceamong mixed-use developments, and nonoffice portions, including residential, retail,and entertainment spaces, are likely to be
increasingly prioritised. This trend should
transform the overall ambiance of suchdevelopments and their surrounding areas,
creating a city-within-a-city environment,
and should enhance the value of officespaces themselves, and increase the demand
for floorspace within these environments
among businesses.

Tokyo Office Supply

GRAPH 4: Tokyo Grade A Office Rent and Vacancy Forecast, 2001 to 2027F
Rent (LHS)

Vacancy (RHS)

60,0008%55,0007%50,0006%45,0005%

40,0004%35,0003%

30,0002%

25,0001%

20,0000%VACANCY

JPY/TSUBO/MONTH

Forecast

Source Savills Research & Consultancy

ECONOMIC CONDITIONS AND
RENTAL FORECASTS
Corporate profits rebounded impressively
in 2023 with Japan’s transition to a state of
growth, and have continued to improve in
2024. Many companies in Tokyo have sinceramped up business expansion and hiring
activity, given their optimism surrounding
the trajectory of the economy. As such,office footprint expansions have becomecommonplace, which has contributed tosteady improvements in vacancy levels.
Indeed, there is a meaningful correlation
between corporate performance and officerents, and positive corporate performanceand greater absorption of office space havehelped office rents to bottom out and achieve
moderate rental growth in the latter part of2023, which looks to continue going into 2024.
Both the Japanese and international
economies have experienced encouraging

TABLE 1: Major Development Projects* in Tokyo, 2024 to 2028

BUILDING NAMESUBMARKETFLOORSGFA (TSUBO)

YEAR

Akasaka Trust Tower

Toranomon & Roppongi

4363,0002024

THE LINKPILLAR I

Takanawa

30

139,000

Shibaura & Hamamatsucho

43

83,000

Shibaura 1-Chome Project S

2025
Yaesu 1-Chome East B

Nihonbashi & Yaesu

51

68,000Toranomon Alcea Tower

Toranomon & Roppongi

38

55,000Nihonbashi 1-Chome Naka C

Nihonbashi & Yaesu

52

112,000

Oimachi Station Hiromachi Development

Shinagawa & Osaki

26

76,000Takanawa

31

64,000

Uchisaiwaicho South Tower

Toranomon & Roppongi

45

87,000World Trade Center Building

Shibaura & Hamamatsucho

46

44,000Toranomon 1-Chome East Redevelopment Project

Toranomon & Roppongi

29

36,000Torch Tower

Marunouchi & Otemachi

61

165,000

Yaesu 1-Chome Kita Redevelopment Project

Yaesu & Nihonbashi

44

56,000Akasaka 2-Chome Redevelopment Project

Toranomon & Roppongi

40

51,000Takanawa

30

33,000

THE LINKPILLAR II

2026

2027

2028

Sengakuji Station Project

Source Savills Research & Consultancy* Projects with total GFA of over 30,000 tsubo. GFA figures include non-office components.

5Tokyo Office Supply

GRAPH 5: Grade A Office Rent vs Corporate Profits (4–quarter moving average),
Q1/2011 to Q4/2023
Corporate Profits (4-quarter moving average)

C5W Grade A Rent (RHS)
40,00030

35,00025

JPY (TRILLION)

25,00020,00015

15,00010

10,0005

JPY/TSUBO/MONTH

30,000
20

5,000

0

0

Source Ministry of Finance, Savills Research & Consultancy

TABLE 2: Grade A Rents and Vacancy Forecast, 2024F to 2027F

2024F

2025F

2026F

2027F

Rent
(JPY/tsubo/month)

34,00034,50035,00035,500Vacancy

2.0%

3.0%

2.5%

2.0%

Source Savills Research & Consultancy

growth since the close of the pandemic. Japan
has achieved the greatest level of nominal wage
growth in decades, and further meaningfulprogress has been made so far during the 2024
round of spring shunto wage negotiations.
Moreover, with greater confidence inachieving a stable 2% inflation target, theBank of Japan decided to take further steps
towards monetary normalisation, whichshould boost confidence in the state of theJapanese economy.
As such, Japan’s economic outlook
remains favourable overall. With its
highly skilled workforce and supportive
government policies, Japan has madeefforts to reestablish itself as a major
semiconductor hub. Indeed, TSMC has madea US$20 billion investment in establishingtwo chip-making facilities in Kyushu, withthe expedited development of the first
factory enabling the commencement ofoperations in February 2024.
Given the improving economic prospects,
prime rental growth should continue forthe meantime, with prospective tenants
willing to pay premium rents for modern
offices in convenient locations, especiallythose with leading ESG features and otheramenities, such as IT infrastructure andsavills.co.jp/insight-and-opinion/

communication space, as well as disasterproofing and security features. In particular,
the shortage of skilled workers will force
companies to prioritise premium features
when choosing offices in order to attract
and retain employees. As such, we forecast
rental trends as follows - JPY34,000 per
tsubo in 2024, JPY34,500 per tsubo in 2025,
JPY35,000 per tsubo in 2026, and JPY35,500
per tsubo in 2027.
Vacancy should also continue to fall ascompanies continue to confirm their officeneeds and carry out consolidations andrelocations. Indeed, many five-year, fixedterm lease contracts signed prior to thepandemic will be approaching expirationin 2024 and 2025, so observers will likely
continue to see heightened relocation
activity over the coming years towards
office buildings that better suit company
needs in the post-pandemic period. Also,
struggling offices should carry out valueadd initiatives such as conversion to othercommercial usages. As such, Savills Japan
forecasts relatively stable Grade A vacancy
performance over the coming years - 2.0% in
2024, 3.0% in 2025, 2.5% in 2026, and 2.0%
in 2027.

6

MIXED-USE OFFICE DEVELOPMENTS
The office market struggled during the
pandemic, with a dramatic drop in footfall andan uptick in vacancies among many properties.
In order to better serve ever changing tenant
demands and to diversify revenue streams,
many upcoming large-scale developments will
be mixed-use. Although offices may not be
the dominant use of space, office portions will
likely benefit from the creation of integrated“city-within-a-city” environments, which
has garnered interest from tenants. ESG will
also be an important component of many new
developments, and more developers are taking
proactive steps to incorporate sustainable
technologies and systems within new projects.
The recently completed Azabudai Hills
development is a notable example of thistrend. The office building Azabudai Hills
JP Mori Tower is situated within a large
multi-use site, which also features luxury
department stores, branded residences, andan international school. The office portion
has achieved a slew of environmental
certifications, and utilises the developer's
proprietary Energy WEB System, whichanalyses and visualises energy consumption
by tenants on a real-time basis, allowing themto understand their consumption patterns
and work to scale back usage. The overall site
was designed as an urban park, deliveringlarge amounts of green space which is open
to the public, and integrating commercial
and office units seamlessly within thesurrounding environment, improving theappeal for workers and other clientele alike.
Elsewhere, the centrepiece of the Tokyo
Torch redevelopment project in Chiyoda
will be the iconic Torch Tower. The building
will predominantly be used for officespace, but will also feature a luxury hotel,
branded residential units, and retail andentertainment space. In addition, developer
Mitsubishi Estate has outlined that Torch
Tower has been accredited with the gold
rank in the LEED BD+C CS Core & Shellcertification, as well as having obtained
preliminary certification as part of the WELL
Building Standard certification.
Delivering environmental sustainability
and integrating office and sports complexes
within the surrounding community is a corefocus of the Jingu Gaien redevelopment
project. Indeed, the office building housing
Itochu Corporation’s headquarters, Prince
Chichibu Memorial Rugby Stadium, and the
Jingu Baseball Stadium will be rebuilt, andsituated within a site with increasing green
coverage - from 25% to 30%. Careful attention
was also paid towards improving accessibility
and the environmental quality of the area.
Mixed-use amenities and ESG-supportive
work environments have become more
important to companies, and therefore also todevelopers. Given the severe labour shortages

Tokyo Office Supply

GRAPH 6: Office Supply (NRA) for the Tokyo 23W, 2010 to 2027F*
300

NRA (THOUSAND TSUBO)

250

200

150

100

50

0

Source Savills Research & Consultancy* Adjusted NRA figures for 2024F to 2027F based on estimated floor space.

in Japan, employers must demonstrate
their commitment to employee welfare andcommunication in order to attract and retain
talented workers. Overall, large mixed-use
developments will likely be a more common
form of development project moving forward,
with developers also striving to achieve
greater environmental performance.
OUTLOOK
Japan has transitioned to a growth trajectory,
and the current situation looks positive. The
strength of Japanese corporate performancein 2023 has supported a return to growth

for the office market, despite some concerns
regarding the recent large influx of officesupply. The coming year will provide abrief pause, which should set the stage forfurther improvements in terms of rental
growth, as well as a further tighteningof vacancy. Meanwhile, although flexible
working arrangements look likely to linger
and slightly dampen office demand in somecases, this should also spawn new demand
for flexible workspaces, especially inconvenient, central locations.
Looking ahead, a period of heightened
supply from 2025 onwards, particularly in

2025 and 2028, may present some challenges.
Around half of new office supply will be in
Minato, which is still dealing with the large
influx from 2023. Some areas with poor
proximity to public transport hubs as well as
older properties are also likely to struggle
moving forward. Indeed, vacancy andsecondary vacancy may temporarily increase
as a result, although we anticipate rental
growth regardless.
Nonetheless, modern offices locatednear public transport hubs should thriveand face fewer difficulties with absorption,
particularly those with premium amenities
that facilitate employee communication
and wellbeing. In addition, renovations andconversions of struggling properties may
improve their competitiveness, which would
also reduce vacancies in the market overall
and usher in further stability.
Mixed-use projects have been establishedas the preferred choice for large-scale
projects, given their ability to attract a wide
range of tenants and clientele and offer
diversified revenue streams and greater
amenities. Tokyo will welcome a series ofsuch mixed-use projects, including Tokyo
Torch and Jingu Gaien, among others, manyof which will combine premium offices
with retail and luxury residential space,
while providing many public amenities,
including schools, parks and public
transport infrastructure, and should help
to polish the image of the surrounding area.
These integrated features will likely makecommuting and working more comfortable,
and will improve the value of office space totenants, which should be well received.

For more information about this report, please contact us
Savills JapanJon Salyards
Managing Director,
Institutional Investment Advisory+81 3 4330 3266
jsalyards@savills.co.jp

Savills Research
Andy Hurfurt
Managing Director,
Institutional Investment Advisory+81 3 4330 3328
ahurfurt@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 offices 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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is prohibited without written permission from Savills Research.

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