Xymax Real Estate Institute

Office Market Report
Tokyo | Q1 2019
May 8, 2019

Summary(1 tsubo = 3.3 sqm)

In the January–March 2019 quarter, the Tokyo 23 Wards’ office market continued to see strong demandfor office space and a drop in the vacancy rate, as several large office buildings were nearly filled by thetime they were completed, and new vacancies were taken soon after going on the market. The rising
trend of new contract rent has also continued.



The vacancy rate* was 0.81%, down 0.06 points from the previous quarter. In terms of the increase anddecrease in vacancies,* the decrease exceeded the increase, with 106,000 tsubo decreasing and 98,000
tsubo increasing. The vacancy turnover ratio,* the rate of decrease in vacant office stock, wasunchanged at 53.6%.
*The calculation methods have been changed. Details are described at the end of the report.



The new contract rent index, the level of new lease rent, was unchanged at 123. The contract rent
diffusion index, calculated by subtracting the percentage of buildings with a new rent decrease fromthat of buildings with a new rent increase, remained above zero for the sixteenth consecutive quarter at+19.



The paying rent index, which includes new and existing rents, was 94, up 3 quarter on quarter.



The average free rent months of lease with free rent was 1.5 months and ratio of free rent granted was
46.3%, indicating that, as in Q4 2018, free rent has become common in the market.

Office Market Report | Tokyo | Q1 2019
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 © 2019 Xymax Corporation. All rights reserved.

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Vacancy

Figure 1: Vacancy Rate (by Area)

Figure 1 shows the vacancy rate in the Tokyo 23

Tokyo 23 Wards
Tokyo 5 Central Wards
Tokyo 18 Peripheral Wards

10%

Wards, five Central Wards (Chuo, Chiyoda, Minato,

8%

Shibuya, and Shinjuku Wards), and 18 Peripheral

6%

Wards since 2011. The rate in Q1 2019 hit a record

4%2%

low in the 23 Wards (0.81%) and the five Central

0%

Wards (0.55%), while that in the 18 Peripheral Wards
rose 0.19 points to 1.65%. This reflects an increase in
Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Tokyo 23 Wards

1.45%

1.29%

1.10%

0.87%

0.81%

Tokyo 5 Central Wards

1.22%

1.04%

0.84%

0.69%

0.55%

Tokyo 18 Peripheral Wards

2.21%

2.07%

1.92%

1.46%

1.65%

vacancies due to relocations from the 18 Peripheral
Wards to the five Central Wards. A survey*1 by
Xymax Real Estate Institute also shows that 66.0% ofcompanies replied that their medium- to long-term

Figure 2: Vacancy Rate (by Size)
All Buildings

Large Buildings

office strategy for their head office was to

Small & Medium Buildings

12%

consolidate in the city center with good accessibility,
implying the possibility that more companies would

10%
8%

move to the five Central Wards.

6%*1 The Shape of the Office in the future, released February 6 20194%https://www.xymax.co.jp/english/news_research/?type=research

2%

Figure 2 is the vacancy rate of all buildings, large0%

buildings (gross floor area (GFA): 5,000 tsubo ormore), and small & medium buildings (GFA: lessQ1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

All Buildings

1.45%

1.29%

1.10%

0.87%

0.81%

Large Buildings

1.16%
1.77%

1.15%
1.43%

0.86%
1.36%

0.70%
1.06%

0.68%
0.95%

Small & Medium Buildings

Figure 3: Increase and Decrease in

Increase

Decreasea record low in both large and small & medium
building, at 0.68% and 0.95%, respectively.
Figure 3 is the increase and decrease in

Vacancies (23 Wards, All Sizes)(tsubo)than 5,000 tsubo) since 2011. In Q1 2019, the rate hit

decrease was 106,000 tsubo in Q1 2019. The

Vacancy Rate (right scale)

4000009%3500008%3000007%6%2500005%2000004%1500003%100000vacancies. The increase was 98,000 tsubo and the

2%

50000

1%

0

0%

decrease exceeded the increase for 17 consecutive
quarters since Q1 2015.
In Q1 2019, several large office buildings were
nearly filled by the time they were completed, due
to companies’ strong demand for expansion in viewof a rise in headcount. Formerly occupied spaces
were filled from within the building by tenants

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Increase

149,000

129,000

126,000

88,00098,000Decrease

197,000

149,000

147,000

113,000

106,000

Vacancy (right scale)

1.45%

1.29%

1.10%

0.87%

0.81%

increasing floor space and did not go on the market,
resulting in decreases continuing to exceed
increases.

Office Market Report | Tokyo | Q1 2019
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 © 2019 Xymax Corporation. All rights reserved.

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Figure 4: Vacancy Turnover Ratio

Figure 4 shows the vacancy turnover ratio (four-(4-quarter moving average)

quarter moving average), the rate of vacancies
leased to tenants during the quarter to all the vacant

50%
40%

Q1 201953.6%

30%

office stock (vacancies at the start of the quarter +vacancies added during the quarter). The ratio in Q1

20%2019 was 53.6%, unchanged from the previous

10%

quarter but up 10.3 points from Q1 2018. The ratio

0%

remains high, indicating active vacancy turnover inthe office market.

Vacancy TurnoverQ1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

43.3%

46.9%

49.6%

53.6%

53.6%

New Contract Rent
Figure 5 is the new contract rent index, the index
Figure 5: New Contract Rent Indexof new lease rent levels. The index for Q1 2019 was

Q2 2008
161

123, unchanged from the previous quarter and up

180
160

Q1 2019
123

140
120

Q1 2010
100

100
80

since Q2 2012 has continued. Companies’ needs forhigh-spec buildings in the center of Tokyo areespecially strong as they look for better locations,

Q2 201276

60

14 points year on year. The rising trend of new rent

which benefits recruitment, consolidation of offices
for greater work efficiency, and business continuity

New Contract Rent Index

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

109

113

122

123

123

plan (BCP) measures. While there are limited options
for relocation due to the shortage of vacancies in
the market, not many companies can afford highFigure 6: New Contract Rent Index (by Size)unit prices, which may have led to the lack of asignificant rise in new rent.

200
180

160

Figure 6 shows the new contract rent index by140

size of building. The index for large buildings with a

120
100

GFA of 5,000 tsubo or more rose 1 point to 119.

80

Although the index for small & medium buildings

60

with a GFA of less than 5,000 tsubo dropped 1 point
Small & Medium (GFA less than 5,000 tsubo)

Large (GFA 5,000 tsubo or more)

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Large Buildings

117

116

124

118

119

Small & Medium Buildings

112

115

124

123

122

from the previous quarter to 122, there was nochange to the rising trend that has continued since
2012.

Office Market Report | Tokyo | Q1 2019
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 © 2019 Xymax Corporation. All rights reserved.

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Figure 7: Contract Rent DI

Figure 7 is the contract rent diffusion index (DI)(the percentage of buildings with rent rises minus

Rent increased (percentage of buildings) (left scale)
Rent decreased (percentage of buildings) (left scale)the percentage of buildings with rent declines),

Contract Rent DI (right scale)Contract Rent DI (four-quarter moving average) (right scale)

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

Q3 200751

Q1 2019
19

Q2 2009-75

Contract Rent DI

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

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

15

22

23

23

19

which indicates the direction of changes in newlease rents. The DI in Q1 2019 was +19, indicating
there were more buildings with a higher rent thansix months ago than those with a lower rent. The DI
remained above zero for 16 consecutive quarters.

Paying Rent
Figure 8 shows the paying rent index, which
covers both new lease rents and existing lease rents.

Figure 8: Paying Rent Index

The index in Q1 2019 was 94, up 3 points from the120

previous quarter. Amid a record low vacancy rate

Q1 2009
105

110

and a strong sense of scarcity of vacancies, owners

100

take a tough stance in negotiating a rent rise with

Q1 2010100

90

Q1 2019
94

80
Q3 201377

70
60

tenants. We therefore believe that the mild rising
trend since 2013 slightly accelerated in Q1 2019.

Free Rent

Paying Rent Index

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

90

91

91

91

94

Figure 9 indicates the percentage of new lease
contracts with free rent to all new lease contracts(ratio of free rent granted) and the average freerent period (average free rent months). In Q1 2019,

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

the average free rent months were 3.2 months for

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

leases with free rent, a slight increase of 0.2 months

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%

from Q4 2018, and 1.5 months for all new leases,
unchanged from the previous quarter.
As in Q4 2018, there is a certain amount of freerents, both long-term and short-term. Short-term
free rent has become common in the market as
owners grant tenants free rent in consideration of

Ratio ofFree Rent
GrantedAverage
Free Rent
Months

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

1 day +

53.8%

55.2%

50.8%

51.0%

46.3%

2 mon. +

40.7%

42.1%

37.5%

35.3%

31.4%

6 mon. +

8.4%

6.7%

4.2%

7.9%

8.2%

All

1.7

1.7

1.5

1.5

1.5

w/ FR

3.2

3.1

2.9

3.0

3.2

the tenants’ relocation costs and construction work
period. On the other hand, some owners set a highrent to maintain the value of the office building andgrant long-term free rent.

Office Market Report | Tokyo | Q1 2019
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 © 2019 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

axis and the new contract rent index on the vertical

Q2 2008160

axis on a quarterly basis. It shows the cyclicality of

140

100

the market, with the chart trending to the lower

Q1 2001

120

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

Q2 2003

Q1 2019

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

80

Q2 2012in 2005 (vacancy down, rent up) and to the lower

9%

right again in 2008 (vacancy up, rent down).

60
0%

1%

2%

3%

4%

5%

6%

7%

8%

10%

Q1 2018

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Vacancy Rate

1.45%

1.29%

1.10%

0.87%

0.81%

New Contract Rent Index

109

113

122

123

123

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

The market entered a recovery phase in 2013, withthe trend continuing in 2019. During Q1 2019, thechart moved to the upper left due to a drop in thevacancy rate and unchanged rent.

Changes in calculation methods related to the vacancy rate
In order to better reflect the supply and demand balance of the office market in vacancy-related
indicators (vacancy rate, increase and decrease in vacancies, vacancy turnover ratio), we reviewed theconditions of the targets of calculation and carried out a recalculation, including past data. We will
apply the changes starting from this report (Q1 2019) but will not replace the reports we havereleased in the past.
The data that we have recalculated retrospectively can be found in our website (please refer to the
URL below). Those who are using the time series data for the vacancy rate, increase and decrease invacancies, vacancy turnover ratio, and market cycle (Figures 1–4 and 10) are requested to replace thedata.
*The data after the changes can be found below.
https://soken.xymax.co.jp/wp-content/uploads/2019/05/1905-office_market_report_q1_2019_data.xlsx

Office Market Report | Tokyo | Q1 2019
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 © 2019 Xymax Corporation. All rights reserved.

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Xymax Real Estate Institute

Reference
Figure 11: Major Building Completions (Q1 2019)
FloorsAbove Ground /Below Ground

Name

Ward

Address

Completion

Total floorarea(tsubo)DaiyaGate Ikebukuro

20/2

Toshima 1-16-15 Minamiikebukuro2019/02

15,022

Abema Towers

21/2

Shibuya40-1 Udagawachō

2019/02

11,478

Shinagawa HEART

26/2

Minato2019/02

11,050Nihonbashi Muromachi Mitsui Tower

26/3

Chuo

2019/0350,820SHIBUYA SOLASTA

21/1

Shibuya

1-8-23 Kōnan
2-3-1
Nihonbashimuromachi
1-21-1 Dōgenzaka

2019/03

14,204

Source: Complied by Xymax Real Estate Institute based on information released by the companies.

Figure 12: Major Office Relocations (Q1 2019)
Company
Japan Aviation
Electronics

To

Month
Year

PurposeSize(tsubo)SHIBUYA SOLASTAMay 2019

Expansion

528

Aug 2019

Betterefficiency

600

Sep 2019

Expansion

1,300

Oct 2020

Expansion

688

2020

BCP
strengthening

24,000Spring of2020

BCP
strengthening

1,700

From
Shibuya Dogenzaka
Tokyu building
Shibuya WardThreePro Group
Inc.
(Company name Nishishinjuku Daikyo
Building
after August 1,
Shinjuku Ward
2019: GiG Works
Inc.)

Shibuya Ward

Toranomon Twin Building (East)
Minato Ward

Nishimoto
Co.,Ltd.

Onward Park Building

Nihonbashi Muromachi Mitsui Tower

Chuo Ward

Chuo Ward

ES-CON JAPANLtd.

Try Edge Ochanomizu

The Okura Prestige Tower

Chiyoda Ward

Minato Ward

SoftBank Corp.

Tokyo Shiodome
Building

Takeshiba Area Development Project

Minato Ward

NN LifeInsurance

Minato Ward

The New Otani Garden
Court

SHIBUYA SCRAMBLE SQUARE East
Building

Chiyoda Ward

Shibuya Ward

Source: Complied by Xymax Real Estate Institute based on information released by companies.
The sizes of office space are estimates.

Office Market Report | Tokyo | Q1 2019
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 © 2019 Xymax Corporation. All rights reserved.

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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

Supply and demand balance in the market

Level of contract rents

Office Building
Tokyo 23 Wards

MarketBuilding Size

GFA 300 tsubo or more

GFA 300 tsubo or more

GFA 300 tsubo or more

GFA 300 tsubo or more

Every Quarter

ReleaseData 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.

Data Used in
Recent Quarter

8,467 buildings

4,179 contracts• Vacancy rate
= vacant space ÷ rentable space• Vacant Space
Total available vacant space in completedbuildings as of the time of the research.

How toCalculate

New Contract Rent Index

Vacant space versus total office stock in themarket.

SectorData Source

Vacancy Turnover Ratio• 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.

4,179 contracts

475 contracts• Vacancy Turnover Ratio= Volume of vacant space leased during thequarter ÷ (Initial vacancy + Vacancy added
during the quarter)
Then, compute the four-quarter moving
average amount with the ratio derived fromthis formula.

1) Develop a rolling hedonic model(overlapping period: five quarters) based on
the collected new contract data withproperty-specific factors as variables(location, building size, building age,facilities, date of signing of lease, etc.).

2) Estimate the quarterly contract rent by• Volume of vacant space leased during theassigning the values of a typical building toquarter: Same as the "decrease in volume of the model developed in the preceding step.
vacant space).
• Initial vacancy: Total volume of completed 3) The New Contract Rent Index is the rent
buildings that are available for lease as of the estimated in the preceding step based on Q1start of the quarter.
2010 as the base point (=100).
• Vacancy added during the quarter: Same as
the "increase in volume of vacant space"
This model shows changes in new contract
rents after removing property-specificvariables.

Survey Overview
Contract Rent DI

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.
824 contracts

Data of new and existing contracts signed for buildings
under management by Xymax.
3,926 contracts

Data of new contracts signed for buildings undermanagement by Xymax.
255 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 | Q1 2019
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 © 2019 Xymax Corporation. All rights reserved.

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Appendix: Xymax REI Research Updates (February – April 2019)The Shape of the Office in the Future

February 6, 2019

・ In this report we conducted a questionnaire survey of companies on workstyles and the places for work. It
summarizes the shape of the office in the future.

Office Specifications Changing with Time・

February 13, 2019

This report summarizes the changes in the specifications of buildings that constitute the office stock, with regard
to the Tokyo 23 Wards Office Stock Pyramid 2019 released on January 23, 2019.

Please contact below for inquiries on this report
Xymax Real Estate Institutehttps://soken.xymax.co.jp
E-MAIL: info-rei@xymax.co.jp

Office Market Report | Tokyo | Q1 2019
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 © 2019 Xymax Corporation. All rights reserved.

8