Office Market Report
Tokyo Q3 2023

October 25, 2023
XYMAX REAL ESTATE INSTITUTECorporationSummary( tsubo = approx. 3.3 sqm)

● In Q3 (July–September) 2023, the office market of the 23 wards of Tokyo (“Tokyo 23 Wards”)
remained flat relative to the previous quarter, with the vacancy rate declining marginally and rent
levels rising slightly.

● The vacancy rate was 3.65%, down 0.06 pt from Q2. The availability rate, which includes spacefor which a cancellation notice has been given and vacant space currently available (i.e., acceptingtenant applications), was 5.06%, down 0.39 pt from Q2. In terms of the increase and decrease invacant space, the decrease outweighed the increase, with the increase at 118,000 tsubo and thedecrease at 145,000 tsubo. The vacancy turnover ratio, the percentage of vacant space leased totenants, dropped 1.4 pt from Q2 to 28.3%.

● The new contract rent index, the level of new lease rent, was 90, up 1 pt from Q2. The contract
rent diffusion index, the percentage of buildings with a higher new lease rent minus that ofbuildings with a lower new lease rent, rose 2 pt from Q2 to －9, in negative territory for the twelfth
consecutive quarter.

● The paying rent index, which includes new and existing rents, was 103, down 2pt from Q2.
● The average free rent (month) among all lease contracts and lease contracts with free rent was
2.1 months and 4.2 months, respectively. The ratio of free rent for two months or more was
42.9%, and that for six months or more was 14.7%.
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Vacancy Rate 3.65%, Availability Rate 5.06%● The vacancy rate dropped 0.06 pt from Q2 to 3.65%.

Figure 1: Vacancy & Availability Rates (All Sizes)● The availability rate was down 0.39 pt from Q2 to 5.06%.
● The availability rate has been declining for four
consecutive quarters, indicating that the increase in newoccupancy has continued to outpace cancellation notices.
● There has been some polarization in that some vacant
space is quickly filled while others are not. However, officedemand is relatively robust due to office expansions asworkers return to the office and companies’ headcountincreases.
● Some newly completed large buildings are attempting to
attract large tenants through independent tenant
recruitment activities. We must continue to keep a close
watch on the impact this will have.

Vacancy rate: The percentage of vacant space (vacant space that has been vacated and is available for immediate
occupancy: currently vacant space) to total rentable area
Availability rate: The percentage of the sum of currently vacant space, space for which a cancellation notice has
been given, and space that is accepting tenant applications (before the previous tenant has left) to the total rentablearea
See Vacant Office Space Monthly Report for the rates by building size and area.

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Vacant Space Increase 118,000 tsubo, Decrease 145,000 tsubo● The increase in vacant space was 118,000 tsubo,down 49,000 tsubo from Q2.

Figure 2: Increase and Decrease in Vacancies (23 Wards, All Sizes)● The decrease in vacant space was 145,000 tsubo,down 22,000 tsubo from Q2.

● The decrease in vacant space outweighed the increaseon the back of relatively robust office demand.

Increase in vacant space: The sum of the following
・Vacant space in existing buildings caused by tenants leaving, etc.
・Total rentable area of new completions
Decrease in vacant space: The sum of the following
・Vacant space in existing buildings no longer available for tenants due to new occupancy, etc.
・Space in new completions where lease is signed prior to the completion
For further details, see Survey of Increase and Decrease in Vacant Office Space (Tokyo 23 Wards),released January 23, 2017. https://www.xymax.co.jp/english/research/images/pdf/20170123.pdf

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Vacancy Turnover Ratio at 28.3%● The vacancy turnover ratio was 28.3%, down 1.4
pt from Q2.

Figure 3: Vacancy Turnover Ratio● There has been little fluctuation in the vacancy
turnover ratio as vacancies are being filled at astable rate.

Vacancy turnover ratio: The percentage of vacant space leased during the quarter to the total
vacant office stock (initial vacancy + vacancy added during the quarter).

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New Contract Rent Index at 90● The new contract rent index was 90, up 1 pt fromQ2.

Figure 4: New Contract Rent Index● While there are concerns about a downturn in theoverseas economy, the Japanese economy is on a
gradual recovery trend, and new rent remained flat
this quarter due to balanced supply and demand.

New contract rent index: An index for new unit contract rent with property-specific influences
removed by adjusting for quality in factors that form rent, including size and age of the building.
Please refer to the following reports for further details.
Xymax New Contract Rent Index, released September 19, 2014
https://www.xymax.co.jp/english/research/images/pdf/20140919-04.pdf

Revised New Contract Rent Index, released April 19, 2021 (in Japanese only)
https://soken.xymax.co.jp/2021/04/19/2104-new_contract_rent_index_revise2021/

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New Contract Rent Index (By Size): 90 for Large Buildings, 90 for Small & Medium Buildings● The new contract rent index for large buildings(gross floor area (GFA) of 5,000 tsubo or more)
was up 2 pt from Q2 to 90.

Figure 5: New Contract Rent Index (By Size)● The new contract rent index for small & mediumbuildings (GFA of less than 5,000 tsubo) wasdown 1 pt from Q2 to 90.
● New rent levels for both large buildings and small &medium buildings have been rising gradually ortrending flat over the past year, with no difference intrend by the size of building.

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Contract Rent DI at -9● The contract rent diffusion index (DI) was －9, up
2 pt from Q2. The DI was in negative territory for thetwelfth consecutive quarter. A negative DI means
there are more buildings with a rent decrease thanthose with a rent increase.

Figure 6: Contract Rent DI● After slumping into deeper negative territory in Q2,
the DI rose again in Q3. Some building owners who
had set asking rent levels lower restored their asking
rent to the former levels due to a decrease invacancies.

Contract rent DI: An index derived by ”the percentage of buildings with a higher new contract rent
than six months ago － that of buildings with a lower rent).” It indicates the direction of change innew contract rent.
For the DI’s relationship with various economic indices, see Release of Quarterly Contract Rent DI
Report, released December 11, 2013.
https://www.xymax.co.jp/english/research/images/pdf/131211_News-release.pdf
For the DI’s relationship with the new contract rent index, see Office Market Report Tokyo Q4 2020
TOPIC 1, released February 3, 2021.
https://soken.xymax.co.jp/2021/02/03/2102-office_market_report_q4_2020/8© Xymax Real Estate Institute Corporation. All rights reserved.

Paying Rent Index at 103● The paying rent index was 103, down 2 pt from Q2.

Figure 7: Paying Rent Index● Although there have been cases where rent risenegotiations were made at the time of leaserenewals, the index has remained flat.

支Paying rent index: A rent index that includes both new and existing lease rents. It lags newcontract rent and has less volatility.
For further details, see Paying Rent Index Is Released, released October 15, 2015.
https://www.xymax.co.jp/english/research/images/pdf/20151015.pdf

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Ratio of Free Rent Granted 49.1%, Average Free Rent of All Lease Contracts 2.1 Months● The ratio of free rent granted for 1 day or more
was 49.1%, up 0.8 pt from Q2.

Figure 8: Free Rent

● The ratio of free rent granted for 2 months ormore was 42.9%, up 3.6 pt from Q2.

● The ratio of free rent granted for 6 months ormore was 14.7%, up 3.2 pt from Q2.
● The average free rent (month) of all leasecontracts was 2.1 months, up 0.4 pt from Q2.

● The average free rent (month) of lease contracts
with free rent was 4.2 months, up 0.6 pt from Q2.

Free rent: Calculated from the time lag between the start of a new contract and the start of rent
payment for the contract.
Ratio of free rent granted: The percentage of contracts with free rent
Average free rent (month): Average number of months of the free rent period

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Market Cycle Moving Upper Left, with -0.06 pt Vacancy Rate & +1 pt New Contract Rent Index● The market cycle moved to the upper left as thevacancy rate was down 0.06 pt, and the newcontract rent index was up 1 pt.

Figure 9: Market Cycle● The current office lease market has not shown aclear direction, having remained in a range for morethan a year since the market’s downward trend thatstarted in Q3 2020.

Market cycle: The vacancy rate plotted on a quarterly basis on the horizontal scale and the newcontract rent index on the vertical scale. It tends to move to the upper left (vacancy down, rent up)
when the office market is booming and to the lower right (vacancy up, rent down) when the market
is in a recession.

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Major Building Completions and Office Relocations
Major building completions

Major office relocations

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