Xymax Real Estate Institute

OFFICE MARKET REPORTTOKYO | Q3 2015
November 4, 2015

SummaryOverall office market is having modest growth of both new rents and paying rents in the tight market ascompanies' forward-looking relocation demand, such as expanding business or hiring more workers,
increased.



Vacancy rates decreased by 0.29 points quarter-on-quarter to 5.21%, marking 13 straight quarters ofdecreases. Demand is spreading to periphery markets as annual new supply remains equivalent to that oftypical years and available space is becoming limited in some high-demand office areas.



New Contract Rent Index (level of new rents) was 96, a quarter-on-quarter increase of 3 points. Contract
Rent DI (the percentage of buildings with rent increase minus that of buildings with rent decrease) was+15; fewer buildings had a rent decrease.

Paying Rent Index (level of new rents and existing rents) was 82, a quarter-on-quarter increase of 1 point.

Average Free Rent Month was 2.2 months, a quarter-on-quarter decrease of 0.6 month. Six months of freerent were given in 16.5% of all the contracts, a decrease of 8.5 points.

OFFICE MARKET REPORT | TOKYO | Q3 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Corporation.
Copyright © 2015 Xymax Corporation. All rights reserved.

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Xymax Real Estate Institute

Vacancy
Figure 1: Vacancy Rate

Figure 1 shows changes in vacancy rates in Tokyo 23

10%Wards since 2011. The vacancy rates in the third

8%

quarter of 2015 decreased for the 13th consecutive

Q2 2012
9.27%

quarter by 0.29 points to 5.21% from 5.50% in the6%
Q3 2015
5.21%

4%
2%

previous quarter.
Company's office strategies became more positive as
they plan to expand their business; a shift fromcost-conscious strategies started in 2009, which0%lasted until around 2012. IT companies and staffing
Vacancy Rate

Q3 2014

Q4 2014

Q1 2015

Q2 2015

Q3 2015

5.95%

5.98%

5.87%

5.50%

5.21%

Source: Xymax Real Estate Institutecompanies are among the tenants who relocated or
expanded office for the purpose of expanding
business opportunities, hiring talented job
candidates or improving work environment.
The Shibuya Station area, a place appealing to job
candidates, is high in demand in particular andhaving limited availability of office stock. Demand is,therefore, spreading to periphery markets like
Shinjuku and Ebisu with relatively convenienttransportation.
In the areas around Yamanote line and subway
stations, where convenient transportations areavailable, leasing activities have been successful;vacant offices in small and medium buildings are also
being leased up.
By contrast, the situation of office buildings that are
not suitable for forward-looking relocations remains
tough. Landlords have to make concessions to attract
potential tenants. This is because tenants are nolonger likely to put priority on cost-cutting anddowngrade the building or the location.
As described, the expanding relocation demand
combined with the typical annual volume of new
supply in 2015 of 183,000 tsubo (193,000 tsubo on
average in the period between 2003-2014)*, are thefactors of the decrease in vacancy and the tightsupply-demand balance in the office space market.
* Xymax Real Estate Institute "Supply of New Office Space Survey
2015" released on February 2, 2015
1 tsubo = approx. 3.3 sqm

OFFICE MARKET REPORT | TOKYO | Q3 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Corporation.
Copyright © 2015 Xymax Corporation. All rights reserved.

2

Xymax Real Estate Institute

New Contract Rent

Figure 2: New Contract Rent Index
180

Figure 2 shows changes in New Contract Rent Index,

Q2 2008
161

160

an index of rent agreed for a new lease. The third
quarter of 2015 was 96, which is 3 points higher than

140
120

Q1 2010
100

100
80

Q3 2015
96

modest increase of contract rents.

Q2 201276

60

93 in the previous quarter. While available space isbecoming limited, the overall market is seeing a
Figure 3 shows changes in New Contract Rent Indexby size of building. Small and medium officeQ3 2014

Q4 2014

Q1 2015

Q2 2015

Q3 2015

94

94

92

93

96

New Contract Rent Index

buildings (up to GFA 5,000 tsubo) and large officebuildings (over GFA 5,000 tsubo) both had aSource: Xymax Real Estate Institute

quarter-on-quarter increase to 97 and 101,
respectively.

Figure 3: New Contract Rent Index by Size of Building200

New rents moved up mainly in large buildings in and

190

180
160

around high-demand areas that meet the demand of

146

140

companies with forward-looking relocation plan.

120
100

101

79

80

97

76

60

Rapid growth is, however, observed only in somehigh-demand areas like Shibuya where demand isstrong and supply is short. Many office landlords inother areas continue to focus on improving

Small & Medium (GFA below 5000 tsubo)

Large (GFA over 5000 tsubo)

Q3 2014

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Small & Medium Buildings(GFA below 5000 tsubo)

97

97

94

94

97

Large Buildings(GFA over 5000 tsubo)

94

98

103

100

101

occupancy to recover the sluggish income they had
in 2011-2013 and remain cautious on drastic rent
increase.

Source: Xymax Real Estate Institute

Office buildings that are less likely to be chosen by

1 tsubo = approx. 3.3 sqm

tenants with forward-looking relocation plan, such as
those in less convenient areas, constructed under the

Figure 4: Contract Rent DI (Tokyo 23 Wards)

old seismic standards or with low-grade features are

Buildings with rent increase (%) (left axis)
Buildings with rent decrease (%) (left axis)
Contract Rent DI (right axis)
Contract Rent DI (four-quarter moving average) (right axis)

100%

100

Q3 200751

75%

still having difficulties in raising rents.

75

25%

Q3 2015 50
15
25

0%

0

-25%

-25

-50%

-50

50%

Q2 2009
-75

-75%
-100%

Growth of new rents is gradual because there are no
particular outstanding business sectors which canafford high rents and push the rental growth, such as
foreign financial institutions in the fund bubble
period in 2006-2008.

-75

Figures 4 and 5 are changes in Contract Rent

-100

Diffusion Index (DI). The third quarter of 2015 was+15 for Tokyo 23 Wards and +13 for Central Three
Wards, both indicated that there were more

Contract Rent DI

Q3 2014

Q4 2014

Q1 2015

Q2 2015

Q3 2015

11

-2

0

11

15

Source: Xymax Real Estate Institutebuildings with rent increase than buildings with rent
decrease. They were both higher than the previous
quarter of +11 for Tokyo 23 Wards and +8 forCentral Three Wards.

OFFICE MARKET REPORT | TOKYO | Q3 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Corporation.
Copyright © 2015 Xymax Corporation. All rights reserved.

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Xymax Real Estate Institute

Figure 5: Contract Rent DI (Tokyo Central Three Wards)
Buildings with rent increase (%) (left axis)
Buildings with rent decrease (%) (left axis)
Contract Rent DI (right axis)
Contract Rent DI (four-quarter moving average) (right axis)

100%

buildings had a rent decrease (q-o-q change −4%).
75

25%

Q3 2015 50
13
25

0%

0

-25%

-25

50%

-50

-50%
Q2 2009
-78

-75%
-100%

buildings in Tokyo 23 Wards achieved a rent increase(q-o-q change 0%) while approx. 23% of the100
Q3 2007
56

75%

A breakdown of DI indicates that approx. 38% of the

As a background of this, more offices are being
leased up without further rent reduction than before
as demand is gradually spreading to periphery areas
with relatively good transportation access following
the shortage of availability in high-demand areas.

-75
-100

Paying Rent
Contract Rent DI

Q3 2014

Q4 2014

Q1 2015

Q2 2015

Q3 2015

8

-4

0

8

13

Source: Xymax Real Estate Institute

Paying Rent Index, of which new contract rents andexisting rents are both surveyed, show changes inrents paid for office space by companies, the income
generated from office buildings. Figure 6 showschanges since 2005.

Figure 6: Paying Rent Index

Paying Rent Index was 82 in the third quarter of 2015,

120
Q1 2009
105

110
100

a quarter-on-quarter increase of 1 point andyear-on-year increase of 2 points (based on Q1

Q1 2010100

90

Q3 201582

80
Q3 201377

70

2010=100). Paying Rent Index is on a rise, albeit very
modest, after bottoming in the third quarter of 2013.
This is because, thanks to the growth of the newcontract rents started in 2012, the rent level now

60

rarely decreases on tenant change.
Paying Rent Index

Q3 2014

Q4 2014

Q1 2015

Q2 2015

Q3 2015

80

80

80

81

82

Source: Xymax Real Estate Institute

Another factor is the limited availability. The vacancy
rates continued to mark a record low since 2011. It is
becoming more difficult for companies to find officewith convenience and grade equivalent to theircurrent place without increasing the rent. Recent
lease renewals do not always result in rent reduction
but sometimes achieve rent increase if the locationand grade of the building are good.

OFFICE MARKET REPORT | TOKYO | Q3 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Corporation.
Copyright © 2015 Xymax Corporation. All rights reserved.

4

Xymax Real Estate InstituteFree Rent

Figure 7: Free Rent

Figure 7 shows changes in the free rents given to all

1 day or more Free Rent Granted (%) (left axis)
2 months or more Free Rent Granted (%) (left axis)

the new contracts (Ratio of Free Rent Granted) and6 months or more Free Rent Granted (%) (left axis)changes in the average free rent period (Average

Average Free Rent Month of all the contracts (right axis)
Average Free Rent Month of contracts with Free Rent (right axis)

100%
80%

7

Free Rent Month). The ratio for all the groups had a6

drastic fall in the third quarter of 2015. Similarly, the5average period for both groups (all the contracts and

60%

4

40%

3

20%
0%

Q3
2002

FR
GrantedAverage
FR Month

Q3
2003

Q3
2004

Q3
2005

Q3
2006

Q3
2007

Q3
2008

Q3
2009

Q3
2010

Q3
2011

Q3
2012

Q3
2013

Q3
2014

Q3
2015

contracts with free rent) also decreased.

2

The ratio of contracts with one day or more free rent

1

was the lowest since 2011 but still remained around050%, indicating that free rent is becoming a typicalpractice in Tokyo's office space market.

Q3 2014

Q4 2014

Q1 2015

Q2 2015

Q3 2015

1 day +

70.0%

64.5%

56.0%

58.5%

53.4%

2 months +

63.8%

59.7%

53.2%

54.0%

46.6%

The ratio of contracts with six months or more free

6 months +

31.0%

25.1%

20.4%

25.0%

16.5%

3.5

3.1

2.7

2.8

2.2

rent was 16.2%, a decrease by roughly 40 points fromAll contracts
With FR only

5.0

4.8

4.7

4.7

4.2

Source: Xymax Real Estate Institutethe record high of 56.3% posted in the second
quarter of 2012. As the office space market
recovered, the major purpose of free rent haschanged from the long-period free rent as anincentive to attract tenants to the short-period freerent so that tenants do not have to pay double rents
when relocating.

Market Cycle
Figure 8: Market Cycle

Figure 8 is a graph plotted by quarter based on

180vacancy rates on the horizontal axis and New

Q2 2008

160

Contract Rent Index on the vertical axis.

140

The graph shows that the market is cyclical: the plot

120

started to move to lower right in 2001 (vacancy up,

Q1 2001100

Q2 2003rent down) and remained static in 2003-2004, then it

Q3 2015

started to move to upper left in 2005 (vacancy down,80
Q2 2012rent up) and to lower right again in 2008 (vacancy up,

9%rent down).

60
0%

1%

2%

3%

4%

5%

6%

7%

8%

10%

Q3 2014

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Vacancy Rate

5.95%

5.98%

5.87%

5.50%

5.21%

Trends in 2015 show that the Tokyo's office space

Contract Rent Index

94

94

92

93

96

market is finally out of the slowdown started in 2010

Source: Xymax Real Estate Institute(Vacancy rates before March 2011 are based on data by major leasing agent.)

and moving toward recovery with a modest decreasein vacancy and modest increase in new rents.

OFFICE MARKET REPORT | TOKYO | Q3 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Corporation.
Copyright © 2015 Xymax Corporation. All rights reserved.

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Xymax Real Estate Institute

Reference
Figure 9: Major Building Completions (Q3 2015)
FloorsWard

Address

Completion

S-GATE Akasaka

8

Minato6－2－4 Akasaka

Jul 2015

1,002 tsubo

77Bank Ginza Building

11 + B1

Chuo

4－14－11 Ginza

Aug 2015

943 tsubo

Shibuya 363 Shimizu Building

11

Shibuya

3－6－3 Shibuya

Aug 2015

904 tsubo

Name

GFA

Source: Compiled by Xymax Real Estate Institute based on information released by companies

Figure 10: Major Office Relocations (Q3 2015)
Company
Hitachi Metals

BOT Lease

NJS
LINE and affiliates

Epson

From

To

Seavans N Building, etc.

Shinagawa Season Terrace

Minato and Taito Wards

Minato Ward

Nihonbashi Honcho 1-Chome
Building Chuo Ward

Tokyo Nihonbashi Tower
Chuo Ward

Company Building

Hamamatsucho Building

Shinjuku Ward

Minato Ward

Shibuya Hikarie

Shinjuku Miraina Tower

Shibuya Ward

Shinjuku Ward

Shinjuku NS Building, etc.

(JR Shinjuku Station Shinminamiguchi Building)

Shinjuku and Chiyoda Wards

Month Year

PurposeSize

Dec 2015

Consolidation

3,000 tsubo

Nov 2015

Consolidation

1,300 tsubo

Sep 2015

Consolidation

1,000 tsubo

Jan 2017

Expansion &Consolidation

5,670 tsubo

Mar 2016

Consolidation

2,520 tsubo

Shinjuku Ward

Source: Compiled by Xymax Real Estate Institute based on information released by companies.
The size of the office space is an estimate.
1 tsubo = approx. 3.3 sqm

OFFICE MARKET REPORT | TOKYO | Q3 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Corporation.
Copyright © 2015 Xymax Corporation. All rights reserved.

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Xymax Real Estate Institute

Overview of Our Researches
Vacancy Rate
Vacant space versus total
office stock in the market.

Description

Main Point

Building Size

Data Used in
Recent Quarter

Index of changes in newcontract rents.
Calculated by counting andcomparing the buildings
where rent has increased
and those where rent has
decreased.

Index of changes in paying
rents (new and existing
contract rents).

Free rent distribution andaverage period.
Free rent is the time lag
between the start of thecontract and the start of therent payment.

Direction of contract rent
trendsLevel of rents paid bytenants

Market trends that are notreflected in contract rents

Office rent index based on
new contract rents.
This index uses a statisticalmethod to remove
property-specific influencessuch as size and age ofbuildings.

Supply and demand balance Level of contract rents
in the market

Office Building
Tokyo 23 Wards

Tokyo 23 Wards

All

All / Large / Small-Medium

ReleaseData Source

Free Rent Granted (%)& Average MonthContract Rent DI

SectorMarketPaying Rent
Index

New Contract Rent
Index

Tokyo 23 Wards
Tokyo Central 3 Wards

Tokyo 23 Wards

Tokyo 23 Wards

All

All

All

Every Quarter
Independently collected by
Xymax.
Data of available vacant
space and building

Independently collected by
Xymax.
Data of new contract rents
including CAM charge.

Independently collected by
Xymax.
Data of new contract rents
including CAM charge.

27,699 buildings

962 contracts

1,047 contracts

Data of new and existing
contracts signed forbuildings undermanagement by Xymax.

4,233 contracts

Data of new contracts
signed for buildings undermanagement by Xymax.

176 contracts• Vacancy rate
= vacant space ÷ rentablespace

How toCalculate1) Develop a rolling hedonic 1) Compare the data of new 1) Calculate the rent per• Free Rent Period
model (overlapping period: contract rent per tsubo with tsubo of each tenant from
The period between thefive quarters) based on the that in the 6-month prior
the data of new and existing start of the contract and thecollected new contract data period in the same building. lease contracts andstart of the rent, shown in• Vacant Spacewith property-specificEach data was counted
memorandums.
days.
Total available vacant space factors as variables
separately into three
in completed buildings as of (location, building size,2) Develop a rolling hedonic • Ratio of Free Rent Granted
categories:
the time of the research.
model (overlapping period: The percentage of contracts
building age, facilities, date buildings withfive quarters) based on the with free rent in all the newof signing of lease, etc.).
"rent increase”,"no change” or• Rentable Space
rents calculated in thecontracts (excl. contracts forpreceding step (the "paying expansion within the2) Estimate a quarterly“rent decrease”
Rentable space ofcompleted buildings as ofrent") with property-specific building and recontracts)
contract rent by assigning2) Calculate the share of
the time of the research.
factors as variables
the values of a typical• Average Free Rent (Month)buildings with “rent(location, building size,building to the model
Where rentable space is not developed in the preceding decrease” and buildings with building age, facilities, date of All the Contracts
available, the rentable space step.
The simple average of the“rent increase”.
of signing of lease, etc.).
is estimated from the grossfree rent period including3) Subtract the share offloor area of the building3) Estimate a quarterly3) The outcome from thelease contracts with no freeusing the formula developed preceding step based on Q1 buildings with “rentcontract rent by assigning
rent.
decrease” from the share of the values of a typicalin the joint study with the2010 as the base point• Average Free Rent (Month)laboratory of Professor
building to the model(=100), is the New Contract buildings with “rentincrease”. This outcome is
Naoki Kato at Kyoto
developed in the preceding of Contracts with Free Rent
Rent Index.
The simple average of thethe Contract Rent Diffusion step.
University Graduate School
This model show changes in Index (DI).
free rent period of leaseof Engineering.
4) The outcome from the
new contract rents after
contracts with free rent.
preceding step based on Q1
removing property-specific
In some cases, the rent
2010 as the base point
variables.
agreed in a lease contract(=100), is the Paying Rent
includes CAM charge, andIndex.
then, for a certain period ofWith this method, influences time, the rent is reduced tofrom replacement of sample the CAM charge equivalentdata and deterioration oflevel or closer, but suchbuildings over age arecontracts are excluded fromremoved from the result.
this research.

OFFICE MARKET REPORT | TOKYO | Q3 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Corporation.
Copyright © 2015 Xymax Corporation. All rights reserved.

7

Xymax Real Estate Institute

Appendix
Xymax Research Updates
Office Space per Person 2015

July-October

October 20, 2015

• Office space per person in Tokyo 23 Wards in 2015 was 3.87 tsubo, the smallest size since the survey began. This result
may be largely influenced by increase in number of workers following the job market recovery.
• Monthly office rent per person in Tokyo 23 Wards finally started to increase in 2015 and marked 65,192 yen.

Paying Rent Index is released

October 15, 2015

• Xymax Real Estate Institute developed a new index Paying Rent Index based on the data of lease contracts signed for
office buildings in Tokyo 23 Wards.
• Paying rents include not only new rents but also existing rents. It shows how office rents paid by tenants and income
from office properties changed over time.

Energy Consumption and Cost in Office Building (June 2015) September 2, 2015
• Energy Consumption:

The level in 2011 continued and remained nearly flat.

• Energy Price per Unit:

The increase started in 2011 has slowed and the level remained nearly flat.

• Energy Cost:

The level remained nearly flat after the second half of 2014.

Electric Power Consumption by Office Tenants (June 2015)

September 2, 2015

• Electric power consumption was 34.1 kWh/tsubo in the spring (Apr-Jun) of 2015, only a slight change from 33.8
kWh/tsubo in the same period previous year.

Osaka City New Supply of Office Buildings & Office Stock Pyramid 2015

July 10, 2015

• New supply of office space in Osaka city in 2015-2018 is expected to be an average of approx. 15,000 tsubo per year
based on rentable area, which is roughly a half of 31,000 tsubo per year in the last ten-year average.
• Average age of large buildings is 23.3 years influenced by continuous supply after the bubble period. Average age ofsmall/medium buildings is 27.0 years influenced by reduced supply after the bubble period. Future concern is theaging of small/medium building stock which are older than that of large buildings.

Contact
Xymax Real Estate Institute
Phone: +81 3 3596 1477
Fax:
+81 3 3596 1478
info-rei@xymax.co.jp

OFFICE MARKET REPORT | TOKYO | Q3 2015
All the contents are as of the date of this report. Xymax Corporation does not guarantee the accuracy or completeness of the information herein.
Copying, quoting, forwarding, distributing, reprinting or any other use of this report is not allowed without prior permission from Xymax Corporation.
Copyright © 2015 Xymax Corporation. All rights reserved.

8