Xymax Real Estate Institute

Office Market Report
Tokyo | Q4 2019
February 5, 2020

Summary

In Q4 (October–December) 2019, the Tokyo 23 Wards’ office market remained robust as demand for officespace was strong due to increases in headcount and existing vacancies were filled promptly.



The vacancy rate was 0.78%, down 0.01 points from the previous quarter. In terms of the increase anddecrease of vacancies, the decrease exceeded the increase for the second consecutive quarter, as 54,000
tsubo (1 tsubo = 3.3 sqm) increased and 56,000 tsubo decreased. The vacancy turnover ratio, which is therate of decrease of vacant office stock, dropped 3.1 points from the previous quarter to 46.6%.

The new contract rent index, the level of new lease rent, was 128, down 7 points from the previous quarter.
The contract rent diffusion index, which is the percentage of buildings with a new rent increase minusthat of buildings with a new rent decrease, remained above zero for the nineteenth consecutive quarter at+38.



The paying rent index, which includes both new and existing rents, was 100, up 2 points quarter on quarter.



The average free rent months of lease with free rent was 1.3 months, 0.3 months less quarter onquarter, and ratio of free rent offered was 40.8%, down 5.1 percentage points.

Office Market Report | Tokyo | Q4 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 © 2020 Xymax Corporation. All rights reserved.

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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 Q4 2019 dropped 0.01

4%

points in the 23 Wards to 0.78%, rose 0.01 points in2%

the 5 Central Wards to 0.63%, and dropped 0.08

0%points in the 18 Peripheral Wards to 1.28%.
Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Tokyo 23 Wards

0.87%

0.81%

0.87%

0.79%

0.78%

Tokyo 5 Central Wards

0.69%

0.55%

0.59%

0.62%

0.63%

Tokyo 18 Peripheral Wards

1.46%

1.65%

1.77%

1.36%

1.28%

Companies’ needs for expanding their offices remain
high, which has led to record low vacancy rates in
the 23 Wards and the 18 Peripheral Wards.
The reasons for the drop in the vacancy rates
include companies placing priority on securing office

Figure 2: Vacancy Rate (by Size)
All Buildings

Large Buildings

Small & Medium Buildings

space regardless of location or age and formerly

12%

occupied spaces being filled from within the10%building without going on the market.

8%
6%
4%

Figure 2 is 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 sinceQ4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

All Buildings

0.87%

0.81%

0.87%

0.79%

0.78%

Large Buildings

0.70%
1.06%

0.68%
0.95%

0.79%
0.96%

0.73%
0.86%

0.74%
0.83%

Small & Medium Buildings

2011. In Q4 2019, the rate rose among large
buildings by 0.01 points quarter on quarter to 0.74%
and dropped among small & medium buildings by

Figure 3: Increase and Decrease in Vacancies

0.03 points to 0.83%.

(23 Wards, All Sizes)(tsubo)Increase

Decrease

Figure 3 shows the increase and decrease in

Vacancy Rate (right scale)

4000009%3500008%3000007%6%2500005%2000004%1500003%100000

2%

50000

1%

0

0%

vacancies. The increase was 54,000 tsubo and thedecrease was 56,000 tsubo in Q4 2019. The decrease
exceeded the increase for the second consecutive
quarter, as vacancies of existing properties were also
promptly filled.
Both increases and decreases in vacancies were
smaller in Q4 2019 than the previous quarter as

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Increase

88,00098,00063,00077,00054,000Decrease

113,000

106,000

60,00086,00056,000Vacancy (right scale)

0.87%

0.81%

0.87%

0.79%

0.78%

there was fewer new supply of vacant space fromthe completion of office buildings.

Office Market Report | Tokyo | Q4 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 © 2020 Xymax Corporation. All rights reserved.

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Figure 4 shows the vacancy turnover ratio (four-

Figure 4: Vacancy Turnover Ratio(4-quarter moving average)
50%

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

Q4 2019
46.6%

40%

30%

office stock (vacant office stock at the start of thequarter + vacancies added during the quarter).

20%

Although the ratio in Q4 2019 was down 3.1 points

10%

quarter on quarter to 46.6%, it remains at a high0%level. With the ratio trending at around 50% over the
Vacancy TurnoverQ4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

53.6%

53.6%

50.7%

49.7%

46.6%

(Q1 2010=100)

160

seems to be active.

New Contract Rent

Figure 5: New Contract Rent Index
180

past year, vacancy turnover in the office market still

Figure 5 is the new contract rent index, the levelQ2 2008
161
Q4 2019
128

140
120

of new lease rents. The index for Q4 2019 was 128,
down 7 points quarter on quarter but up 5 points
year on year. New rent has been rising since Q21002012. Due to an extremely low vacancy rate in Tokyo
Q2 201276

80
60

23 Wards and a shortage of vacant office stock inthe market, some lessors took bullish stances andindicated higher asking prices than previously.

New Contract Rent Index

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

123

123

127

135

128

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

Figure 6 shows the new contract rent index bysize of building. The index for large buildings with a(Q1 2010=100)180

GFA of 5,000 tsubo or more was flat at 127, while160

that for small & medium buildings with a GFA of less

140
120

than 5,000 tsubo dropped 6 points from the100

previous quarter to 129. However, the rising trend

80
60

since Q2 2012 has continued in both sizes of
Small & Medium (GFA less than 5,000 tsubo)

Large (GFA 5,000 tsubo or more)

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Large Buildings

118

119

118

127

127

Small & Medium Buildings

123

122

125

135

129

buildings.

Office Market Report | Tokyo | Q4 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 © 2020 Xymax Corporation. All rights reserved.

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Figure 7 is the contract rent diffusion index (DI)Figure 7: Contract Rent 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 2007
51

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

Q4 2019
38

Q2 2009-75

which indicates the direction of changes in newcontract rents. The DI in Q4 2019 was +38,
indicating that there were more buildings with ahigher new rent from six months ago than thosewith a lower rent. The DI has remained above zerofor 19 consecutive quarters.

Contract Rent DI

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

23

19

34

40

38

Paying Rent

Figure 8: Paying Rent Index
120

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

Q1 2009105

110

includes both new lease rents and existing lease rents.

Q4 2019
100

100

The index in Q4 2019 was 100, up 2 points quarter on

90quarter and up 9 points year on year. The upward
trend since Q3 2013 has continued. Negotiations for80
Q3 2013
77

70

raising new rent for new tenants as well as existing60

rent of existing tenants have been taking place due
to a shortage of vacant office stock in the market,

Paying Rent Index

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

91

94

96

98

100

Free Rent

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

which have led to the rise in paying rent.

Figure 9 indicates the percentage of new lease

1 day or more (%)

contracts with free rent to all new lease contracts

2 months or more (%)

6 months or more (%)(ratio of free rent offered) and the average free

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 period (average free rent months). In Q4 2019,the average free rent months were 3.2 months forleases with free rent, 0.4 months less quarter onquarter, and 1.3 months for all new leases, 0.3
months less quarter on quarter.
The ratio of free rent offered, which had been

Ratio ofFree Rent
GrantedAverage
Free Rent
Months

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

1 day +

51.0%

46.3%

47.3%

45.9%

40.8%

2 mon. +

35.3%

31.4%

33.0%

31.0%

28.3%

6 mon. +

7.9%

8.2%

11.8%

12.8%

8.7%

All

1.5

1.5

1.7

1.6

1.3

w/ FR

3.0

3.2

3.5

3.6

3.2

dropping since 2011, has remained flat since around2016, indicating that the custom of offering free rent
has spread across the market. The drop in both theratio of free rent offered and average free rent
months was likely a reflection of lessors’ aggressive
attitudes on free rent.

Office Market Report | Tokyo | Q4 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 © 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

scale on a quarterly basis. It shows the cyclicality of140

the market, with the chart trending to the lower

Q1 2001

120

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

Q2 2003

Q4 2019100

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

80

Q2 2012

60
0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Vacancy Rate

0.87%

0.81%

0.87%

0.79%

0.78%

New Contract Rent Index

123

123

127

135

128

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

2005 (vacancy down, rent up) and to the lower rightagain in 2008 (vacancy up, rent down).
The office rental market entered a recovery phasein 2013, with the trend continuing in Q4 2019.
However, the chart moved to the lower left due to amild drop in the vacancy rate and a decline in new
rent compared to the previous quarter.

Office Market Report | Tokyo | Q4 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 © 2020 Xymax Corporation. All rights reserved.

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Xymax Real Estate Institute

Reference
Figure 11: Major Building Completions (Q4 2019)
FloorsAbove Ground /Below Ground

Ward

Address

Completion

Total floorarea(tsubo)Shibuya Parco Hulic Bldg.

19/3

Shibuya15-1 Udagawacho

2019/10

19,317

Shibuya Fukuras

18/4

Shibuya

1-2-3 Dogenzaka

2019/10

17,838

Sumitomo Fudosan Akihabara First Bldg.
CIRCLES Ginza

23/1
10/0

ChiyodaChuo

1-5-1 Sotokanda
3-7-6 Ginza

2019/10
2019/11

7,915
658

PurposeSize(tsubo)Name

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

Figure 12: Major Office Relocations (Q4 2019)
CompanyOZAX
QUICK
Isuzu Motors
Kanematsu

From

To

Uchikanda Suisui Bldg.

Jinbocho Kita Tokyu Bldg.

Chiyoda Ward

Chiyoda Ward

Nihonbashi Mitsui Tower KABUTO ONE
Chuo Ward

Chuo Ward

Omori Bellport Bldg. A

Yokohama Gate Tower

Shinagawa Ward

Yokohama city

SEAVANS North

JP Tower

Minato Ward

Chiyoda Ward

Month
Year
Jan. 2020
Summer2021
May 2022
Autumn2022

Greater
efficiency
Greater
efficiency
Greater
efficiency
Greaterconvenience

801
2,466
9,000
1,936

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

Office Market Report | Tokyo | Q4 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 © 2020 Xymax Corporation. All rights reserved.

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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.
8,516 buildings

3,899 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• 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

3,899 contracts

1,165 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.

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.
586 contracts

Data of new and existing contracts signed for buildings
under management by Xymax.
4,119 contracts

Data of new contracts signed for buildings undermanagement by Xymax.
265 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 | Q4 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 © 2020 Xymax Corporation. All rights reserved.

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Appendix: Xymax REI Research Updates (November 2019 – January 2020)
Analysis of the Economics of Green Buildings in Tokyo’s Office Market

November 20, 2019

・ This report is a comparison of the economic effects of green labels with the previous results amid a volatile officemarket and an examination of the causes of the effects.

Metropolitan Areas Office Demand Survey Autumn 2019

November 27, 2019

・ This report is an analysis of the relationship between office demand and the results of a semi-annual survey oncompanies’ use of offices and workstyles that has been carried out since autumn 2016.

Building Owner Survey 2019
・

December 17, 2019

This report is a compilation of the results of a questionnaire survey and interviews on the current management stateof the building lease business, its outlook, and responses to changes in the environment surrounding the buildings.

Greater Tokyo Office Worker Survey 2019
・

December 19, 2019

This report is a summary of the actual workstyles and values of workers working in Greater Tokyo, based on the
results of a questionnaire survey conducted to capture changes in workstyles and the workplace from theperspectives of both companies and office workers.

Reflections on Future Commercial Facilities

December 24, 2019

・ This report summarizes the hints and directions of considering the trend of commercial facilities in the near future,such as the points to bear in mind for the survival of Japan’s commercial facilities.

Relationship between Flexible Workstyles and Productivity

December 26, 2019

・ This report analyzes and summarizes the results of company surveys and office worker surveys to prove that flexible
workstyles—flexible locations in particular—are beneficial not only to the workers but also to companies.

Supply of New Office Space 2020
・

January 8, 2020

This report is a summary of the results of an annual aggregation of office lease area, targeting buildings with a grossfloor area of at least 3,000 tsubo used mainly for offices and completed in Tokyo 23 Wards and Osaka City.

Office Stock Pyramid 2020
・

January 10, 2020

This report is a summary of the results of an aggregation of office lease area and number of buildings by size andage of building, targeting buildings with a gross floor area of at least 300 tsubo used mainly for offices in Tokyo 23
Wards and Osaka City.

Current Status of Hotel Management 2019

January 29, 2020

・ This report is a summary of the results of a questionnaire survey of hotel operators on matters considered to havean especially large effect on hotel operation, such as the condition of the hotel business, responses to foreign lodgers,
situation of buildings and equipment, disaster control measures, and labor shortage.

Flexible Office Market Survey
・January 31, 2020

This report is a summary of the results of an independent collection and analysis of data such as the area and launchyear of flexible offices in Tokyo 23 Wards in order to quantify the growth trend of the overall market.

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 | Q4 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 © 2020 Xymax Corporation. All rights reserved.

8