Xymax Real Estate Institute

Office Market Report
Tokyo | Q2 2020
August 5, 2020

Summary

In Q2 (April–June) 2020, the office market of the 23 wards of Tokyo (“Tokyo 23 Wards”) showed signs ofchange as demand for office space declined and vacancy rates rose.

The vacancy rate was 1.01%, up 0.30 percentage points from the previous quarter. The increase anddecrease in vacant space showed that vacant space increased by 117,000 tsubo (1 tsubo = approx. 3.3sqm) and decreased by 86,000 tsubo, the first time the increase exceeded the decrease in four quarters.
The vacancy turnover ratio, which is the rate of decrease of vacant office stock, dropped 24.0 percentage
points quarter on quarter to 46.4%.

The new contract rent index, the level of new lease rent, was 128, down 9 points from the previous quarter.
The contract rent diffusion index, which is the percentage of buildings with a rise in new rent minus thatof buildings with a drop in new rent, declined by 25 points from the previous quarter to +18.

The paying rent index, which includes both new and existing rents, was 103, up 2 points quarter on quarter.



The average free rent months of lease with free rent was 0.9 months, 0.3 months less from the previous
quarter, while the ratio of free rent offered was 34.3%, down 2.3 percentage points.



TOPIC: The monthly trend of vacant space between January and June 2020 indicates a consistent rise invacant space since March.

Office Market Report | Tokyo | Q2 2020
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.

Copyright © 2020 Xymax Corporation. All rights reserved.

1

Xymax Real Estate Institute

Vacancy

Figure 1: Vacancy Rate (by Area)

Figure 1 shows the vacancy rates in Tokyo 23

Tokyo 23 Wards
Tokyo 5 Central Wards
Tokyo 18 Peripheral Wards

10%

Wards, 5 Central Wards (Chuo, Chiyoda, Minato,

8%

Shibuya, and Shinjuku Wards), and 18 Peripheral

6%

Wards since 2011. The rate in Q2 2020 rose by 0.30

4%points from Q1 to 1.01% in the 23 Wards, by 0.35

2%

points to 0.89% in the 5 Central Wards, and by 0.10

0%points to 1.37% in the 18 Peripheral Wards. The
Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Tokyo 23 Wards

0.87%

0.79%

0.78%

0.71%

1.01%

Tokyo 5 Central Wards

0.59%

0.62%

0.63%

0.54%

0.89%

Tokyo 18 Peripheral Wards

1.77%

1.36%

1.28%

1.27%

1.37%

vacancy rate rose in all three areas, reflecting a fall incompanies’ office expansion needs.
Factors for the rise in vacancy rates include
companies refraining from expanding their office by
relocating amid uncertainties toward the future of the

Figure 2: Vacancy Rate (by Size)
All Buildings

Large Buildings

Small & Medium Buildings

economy and a rise in difficulties finding the next

12%

tenant for new vacant space after a tenant has

10%

relocated to another building.

8%
6%
4%

Figure 2 shows the vacancy rates of all sizes of2%

buildings, large buildings (gross floor area (GFA):

0%5,000 tsubo or more), and small & medium buildings(GFA: less than 5,000 tsubo) in Tokyo 23 Wards sinceQ2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020All Buildings

0.87%

0.79%

0.78%

0.71%

1.01%

Large Buildings

0.79%
0.96%

0.73%
0.86%

0.74%
0.83%

0.58%
0.85%

0.82%
1.21%

Small & Medium Buildings

2011. In Q2 2020, the vacancy rate rose by 0.24 points
to 0.82% among large buildings and by 0.36 points to
1.21% among small & medium buildings.

Figure 3: Increase and Decrease in Vacancies(23 Wards, All Sizes)(tsubo)Increase

Decrease

space. In Q2 2020, the increase in vacant space was

Vacancy Rate (right scale)

4000009%3500008%3000007%6%2500005%2000004%1500003%100000Figure 3 is the increase and decrease in vacant

2%

50000

1%

0

0%

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Increase

63,00077,00054,000150,000

117,000

Decrease

60,00086,00056,000162,000

86,000Vacancy (right scale)

0.87%

0.79%

0.78%

0.71%

1.01%

117,000 tsubo while the decrease was 86,000 tsubo.
The increase in vacant space exceeded the decrease
for the first time in four quarters as the speed of
vacancies being taken in existing buildings slowed
compared to the previous quarter, despite vacanciesof new buildings continuing to be promptly filled.

Office Market Report | Tokyo | Q2 2020
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Corporation. All rights reserved.

2

Xymax Real Estate Institute

Figure 4 shows the vacancy turnover ratio, theFigure 4: Vacancy Turnover Ratio

ratio of vacant spaces leased to tenants during the

Vacancy Turnover Ratio (4-quarter moving average)

70%

Vacancy Turnover Ratio

quarter to the total vacant office stock (vacant office

60%

50%

stock at start of quarter + vacant space added during

40%

Q2 2020
46.4%

30%
20%

the quarter). The ratio in Q2 2020 dropped by 24.0
percentage points from the previous quarter to 46.4%.

10%

Although the ratio remains high, we must carefully0%

monitor future developments of the market since
Vacancy TurnoverQ2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

39.5%

50.8%

41.4%

70.4%

46.4%

vacancy rates are rising and the market environment
is changing.
*From Q2 2020, the vacancy turnover ratio is indicated in quarterly figures.
The previous figures are indicated as “vacancy turnover ratio (four-quarter
moving average).”

Figure 5: New Contract Rent Index
180(Q1 2010=100)160

Q2 2008
161

New Contract Rent
Q2 2020
128

140

Figure 5 is the new contract rent index, which is
the rent level for new lease contracts. The index for120

Q2 2020 was 128, dropped by 9 points quarter on

100
80quarter and up 1 point year on year. New rent has

Q2 201276

60

continued to rise since Q2 2012. There have beenstrong expansion needs on the back of an increase in

New Contract Rent Index

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

127

135

128

137

128

personnel, but some companies have started to
become cautious about expanding. Furthermore, therising trend of rent may have peaked out ascompanies become sensitive toward rent levels.

Figure 6: New Contract Rent Index (by Size)200

Figure 6 is the new contract rent index by size of(Q1 2010=100)

building. The index for large companies with a GFA

180

160

of 5,000 tsubo or more dropped by 8 points quarter140

on quarter to 124, while that for small & medium

120
100

buildings with a GFA of less than 5,000 tsubo fell by

80
60

10 points to 129. Although the index has seen aquarter-on-quarter decline before, this time it
Small & Medium (GFA less than 5,000 tsubo)

Large (GFA 5,000 tsubo or more)

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Large Buildings

118

127

127

132

124

Small & Medium Buildings

125

135

129

139

129

accompanies a rise in vacancy rates, which suggests achange in the tide in rent.

Office Market Report | Tokyo | Q2 2020
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Corporation. All rights reserved.

3

Xymax Real Estate Institute

Figure 7 is the contract rent diffusion index (DI)Figure 7: Contract Rent DI(the percentage of buildings with a rent rise minus

Rent increased (percentage of buildings) (left scale)
Rent decreased (percentage of buildings) (left scale)that of buildings with a rent decline), which indicatesContract Rent DI (right scale)Contract Rent DI (four-quarter moving average) (right scale)

100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
-80%
-100%

Q2 2020
18

Q3 200751

Q2 2009
-75

100
80
60
40
20
0
-20
-40
-60
-80
-100

the direction of changes in new contract rents. The DI
in Q2 2020 was +18: there were more buildings withhigher new rent than six months ago than those withlower new rent. However, the index fell by 25 points
from Q1. Although the DI has remained above zerofor 21 consecutive quarters, the percentage ofbuildings with a rent rise dropped sharply in Q2.

Contract Rent DI

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

34

40

38

43

18

decline rose slightly, marking a shift in the market.

Figure 8: Paying Rent Index
120

Paying Rent
Figure 8 shows the paying rent index, which(Q1 2010=100)

Q1 2009
105

110

Meanwhile, the percentage of buildings with a rent

includes both new lease rents and existing lease rents.

Q2 2020
103

100

The index in Q2 2020 was 103, up 2 points quarter onquarter and up 7 points year on year. The upward90

trend since Q3 2013 has continued. As there has been

80
Q3 201377

70

a fall in office demand recently, future developments

60

must be monitored carefully since existing lease rents,
which account for a majority of paying rent, are

Paying Rent Index

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

96

98

100

101

103

to change more slowly than new lease rents.

Figure 9: Free Rent
Free Rent Granted(left scale)
Average Free Rent
(right scale)100%

usually revised when contracts are renewed and tend

Free Rent
Figure 9 is the percentage of new lease contracts

1 day or more (%)
2 months or more (%)

with free rent to all new lease contracts (ratio of free

6 months or more (%)
New lease contracts with free rent (month)
All new lease contracts (month)

7
6
5
4
3
2
1
0

80%
60%
40%
20%
0%

rent offered) and the average free rent period(average free rent months). In Q2 2020, the average
free rent months was 2.8 months among lease
contracts with free rent, 0.5 months less than in Q1,
and 0.9 months among all new contracts, 0.3 months
less than Q1.
The ratio of free rent offered, which had been

Ratio ofFree Rent
GrantedAverage
Free Rent
Months

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

47.3%

45.9%

40.8%

36.6%

34.3%

2 mon. +

33.0%

31.0%

28.3%

26.8%

22.3%

6 mon. +

11.8%

12.8%

8.7%

7.3%

3.9%

All

1.7

1.6

1.3

1.2

0.9

w/ FR

3.5

3.6

3.2

3.3

2.8

1 day +

dropping since 2011, has remained flat since around2016, indicating that offering free rent has becomecommon across the market. We will pay close
attention to future developments of free rent amidchanges in the market going forward.

Office Market Report | Tokyo | Q2 2020
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Corporation. All rights reserved.

4

Xymax Real Estate InstituteMarket Cycle

Figure 10: Market Cycle

Figure 10 plots the vacancy rate on the horizontal

180

scale and the new contract rent index on the vertical

Q2 2008160
Q2 2020

scale on a quarterly basis. It shows the cyclicality of140

the market, with the chart trending to the lower rightQ1 2001120

in 2001 (vacancy up, rent down), remaining flat in

Q2 2003100

2003–2004, then trending to the upper left in 2005

80

Q2 2012

60
0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Vacancy Rate

0.87%

0.79%

0.78%

0.71%

1.01%

New Contract Rent Index

127

135

128

137

128

Note: The vacancy rate before March 2011 is based on data by a major leasing agent.

(vacancy down, rent up) and to the lower right again
in 2008 (vacancy up, rent down).
Although the office lease market had been in arecovery phase since 2013, the chart trended to thelower right as vacancy rates rose while the newcontract rent index dropped in Q2 2020.

TOPIC

Monthly Trend of Vacant SpaceIn this report, we created a chart of the monthly

Figure 11: Trend of Vacant Space(Jan-Jun 2020)(tsubo)5 Central Wards

140,000

more detail. Vacant space in the 23 Wards as a

100,000

38,00040,00038,00039,00060,00040,00040,00020,0002020 (for Tokyo’s 5 Central Wards and 18 Peripheral
Wards) in order to examine the shift in the market in

18 Peripheral Wards

120,000

80,000change in vacant space between January and June

52,00047,00050,000Jan 2020

Feb 2020

Mar 2020

57,00040,000whole has consistently increased since March, when
the impact of the new coronavirus started to emerge

65,00081,000in full swing. In the 5 Central Wards, vacant space
has increased every month from 47,000 tsubo in0
Apr 2020

May 2020

Jun 2020

Vacant space

Jan 2020

Feb 2020

Mar 2020

Apr 2020

May 2020

Jun 2020

5 Central Wards

52,00047,00050,00057,00065,00081,00018 Peripheral Wards

40,00039,00038,00040,00040,00038,000February and reached 81,000 tsubo in June. On theother hand, vacant space in the 18 Peripheral Wards
has remained largely unchanged at around 38,000
tsubo.

Office Market Report | Tokyo | Q2 2020
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Corporation. All rights reserved.

5

Xymax Real Estate Institute

Reference
Figure 12: Major Building Completions (Q2 2020)
FloorsName

Above ground/

Total floor
Ward

Address

Completion

area

Below ground
WATERS takeshiba

26/2

Minato1-10-30 Kaigan

Apr 2020(tsubo)18,846

Office Tower, Tokyo Portcity Takeshiba

40/2

Minato1-7-1 Kaigan

May 2020

55,071Hareza Tower

33/2

Toshima 1-18-1 Higashi-Ikebukuro

May 2020

20,753

Tokyo Toranomon Global Square

24/3

MinatoJun 2020

14,296

1-3 Toranomon

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

Figure 13: Major Office Relocations (Q2 2020)
Company
bitA
NojimaFrom

To

BR Gotanda

NMF Gotanda Ekimae Bldg.

Shinagawa Ward

Shinagawa Ward

Queen's Tower B

JR Yokohama Tower

Yokohama city

Yokohama city

Roppongi T-Cube

Toyosu Bayside Cross Tower

Minato Ward

Koto Ward

Fujimori Kogyo

Shinjuku First West

BUNKYO GARDEN GATETOWER

Co., Ltd.

Shinjuku Ward

Bunkyo Ward

Fuji Xerox

TimingPurposeJun 2020

Expansion

Jul 2020

Greater
efficiency

AutumnGreater2020

efficiency

Nov 2020

ExpansionSize(tsubo)
213
930
6,000
777

Source: Compiled by Xymax Real Estate Institute based on information released by companies.
The sizes of offices are estimates.

Office Market Report | Tokyo | Q2 2020
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Corporation. All rights reserved.

6

Xymax Real Estate Institute

Survey Overview
Increase and Decreasein Vacant Space

Vacancy Rate

Description

Main Point

A quarterly increase and a quarterly decrease The ratio of the vacant space leased during
Office rent index based on new contract rents.
in volume of vacant space in the market.
the quarter to all the vacant office stock in the This index uses a statistical method to remove
market.
property-specific influences such as size andage of buildings.

Supply and demand balance in the market

Supply and demand balance in the market

GFA 300 tsubo or more

GFA 300 tsubo or more

GFA 300 tsubo or more

Every Quarter
Data of available vacant spaces andData of available vacant spaces andData of available vacant spaces andData of new contract rents including CAM
buildings. Independently collected by Xymax. buildings. Independently collected by Xymax. buildings. Independently collected by Xymax. charge. Independently collected by Xymax.
8,606 buildings

4,899 contracts• Vacancy rate
= vacant space ÷ rentable space• Vacant Space
Total available vacant space in completedbuildings as of the time of the research.

How toCalculate

Level of contract rents

Tokyo 23 Wards
GFA 300 tsubo or more

ReleaseData Used in
Recent Quarter

Supply and demand balance in the market

Office Building

MarketData Source

New Contract Rent Index

Vacant space versus total office stock in themarket.

SectorBuilding Size

Vacancy Turnover Ratio

4,899 contracts• Increase in volume of vacant spacea. Space in existing buildings formerly
occupied by tenantsb. Total rentable area of new completions• Decrease in volume of vacant spacea. Space in existing buildings leased under a• Rentable Space
new agreement
Rentable space of completed buildings as of b. Space in new completions but lease is
the time of the research.
signed prior to the completionc. Space that had been vacant but the owner
Where rentable space is not available, thedecided not to leaserentable space is estimated from the grossfloor area of the building using the formula
Where rentable space is not available, thedeveloped in the joint study with therentable space is estimated from the grosslaboratory of Professor Naoki Kato at Kyoto floor area of the building using the formula
University Graduate School of Engineering.
developed in the joint study with thelaboratory of Professor Naoki Kato at Kyoto
University Graduate School of Engineering.

Contract Rent DI

363 contracts

・Vacancy Turnover Ratio1) Develop a rolling hedonic model= Volume of vacant space leased during the (overlapping period: five quarters) based onquarter ÷ (Initial vacant space + Vacant space the collected new contract data withadded during the quarter)
property-specific factors as variables(location, building size, building age,・Volume of vacant space leased during thefacilities, date of signing of lease, etc.).
quarter: Same as "Increase and Decrease in
Vacant Space"
2) Estimate the quarterly contract rent by
assigning the values of a typical building to・Initial vacant space: Total volume of areas
the model developed in the preceding step.
available for lease in completed buildings asof the start of the quarter.
3) The New Contract Rent Index is the rent
estimated in the preceding step based on Q1・Vacant space added during the quarter:2010 as the base point (=100).
Same as "Increase and Decrease in VacantSpace"
This model shows changes in new contract
rents after removing property-specificvariables.

Paying Rent Index

Free Rent Granted (%) &Average Free Rent (Month)

Description

Index of changes in new contract rents. Calculated bycounting and comparing the buildings where rent has
increased and those where rent has decreased.

Index of changes in paying rents (new and existing contract Distribution of free rent and average length of free rent
rents).
period. Free rent is the time lag between the start of thecontract and the start of the rent payment.

Main Point

Direction of contract rent trends

Level of rents paid by tenantsTokyo 23 Wards

MarketBuilding SizeAll

Data Used in
Recent Quarter

How toCalculate

GFA 300 tsubo or moreAll

Every Quarter

ReleaseData Source

Market trends that are not reflected in contract rents

Office Building

SectorData of new contract rents including CAM charge.
Independently collected by Xymax.
425 contracts

Data of new and existing contracts signed for buildings
under management by Xymax.
4,164 contracts

Data of new contracts signed for buildings undermanagement by Xymax.
233 contracts

1) Compare the data of new contract rent per tsubo with
1) Calculate the rent per tsubo of each tenant from the data • Free Rent Periodthat in the 6-month prior period in the same building.
of new and existing lease contracts and memorandums.
The period between the start of the contract and the start
Each contract was counted separately into three categories: 2) Develop a rolling hedonic model (overlapping period:of the rent, shown in number of days.
buildings withfive quarters) based on the rents calculated in the• Ratio of Free Rent Granted"rent increase”,
preceding step (the "paying rent") with property-specific
The ratio of contracts with free rent in all the new"no change” orfactors as variables (location, building size, building age,contracts (excl. contracts for expansion within the building“rent decrease”
facilities, date of signing of lease, etc.).
and recontracts)
3) Estimate a quarterly contract rent by assigning the values • Average Free Rent (Month) of All the Contracts2) Calculate the percentage of buildings with “rentof a typical building to the model developed in the
The simple average of the free rent period including leasedecrease” and buildings with “rent increase”.
preceding step.
contracts with no free rent.
4) The Paying Rent Index is the rent estimated in the• Average Free Rent (Month) of Contracts with Free Rent
3) Subtract the percentage of buildings with “rent decrease” preceding step based on Q1 2010 as the base point (=100). The simple average of the free rent period of leasefrom the percentage of buildings with “rent increase”. This
contracts with free rent.
outcome is the Contract Rent Diffusion Index (DI).
With this method, influences from replacement of sample
data and deterioration of buildings over age are removed In some cases, the rent agreed in a lease contract includes
from the result.
CAM charge, and then, for a certain period of time, the rent
is reduced to the CAM charge equivalent or closer level, butsuch contracts are excluded from this research.

Office Market Report | Tokyo | Q2 2020
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Corporation. All rights reserved.

7

Xymax Real Estate Institute

Appendix: Xymax REI Research Updates (May 2020 – July 2020)
Energy Consumption and Energy Cost in Office Buildings (December 2019)

May 15, 2020

・ This report is a summary of the results of a survey on the energy consumption and energy cost in office buildings in
the Greater Tokyo area.

Considering the Future Workplace・June 10, 2020

This report outlines the situation prior to the corona crisis (until the end of 2019 to be specific) in order to consider
work styles and the workplace during the corona crisis (today’s society, with the priority on preventing the spreadof the virus) and after the crisis (the society after movement restrictions have been lifted), based on various surveys
in Japan and abroad as well as interviews with experts.

Companies’ Work Styles and the Workplace under the Corona Crisis

July 15, 2020

・ This report is a summary of companies’ responses to the corona crisis and the issues they have revealed, as well ascompanies’ current ideas toward future office strategies, based on a questionnaire survey on work styles and theworkplace under the corona crisis.

“Top Ten Issues Affecting Real Estate 2020-21” by U.S. Counselors of Real Estate・July 20, 2020

This report is a Japanese version of Top Ten Issues Affecting Real Estate®, an annual report by the Counselors of Real
Estate® (CRE) of the U.S. published in June 2020, translated at Xymax Real Estate Institute that is headed by Yoshio
Nakayama, who is also a member of CRE and a member of its International Committee.

Metropolitan Areas Office Demand Survey Spring 2020

July 29, 2020

・ This report is a summary of the results of a semiannual questionnaire survey on the situation of companies’ officeuse and work styles and a continuous analysis of the relationship between office demand.

For further inquiries please contact:
Xymax Real Estate Institutehttps://soken.xymax.co.jp
E-MAIL: info-rei@xymax.co.jp

Office Market Report | Tokyo | Q2 2020
The contents of this report are as of the time of writing. Xymax Real Estate Institute does not guarantee their accuracy or completeness.
This report may not be reproduced, cited, transmitted, distributed, or reprinted without prior permission of Xymax Real Estate Institute.
Copyright © 2020 Xymax Corporation. All rights reserved.

8