Upbeat market a boost for Tokyo office demand Upbeat market a boost for Tokyo office demand
Share this on WhatsAppGrade A offices in Japan’s capital city could see rents peak in 2017 on the back of improved sentiments in the... Upbeat market a boost for Tokyo office demand

Grade A offices in Japan’s capital city could see rents peak in 2017 on the back of improved sentiments in the financial market, says global real estate consultant CBRE.

According to the firm, rents for offices in prime districts are expected to peak by the third quarter of the year before entering a period of gradual correction.

CBRE explained that companies looking to relocate have been cautious since mid-2016 because of concerns about earnings caused by rapid appreciation of the Yen since the start of the previous year. They have also been less keen to secure space ahead of the large volume of new supply scheduled for 2018 onwards.

However, according to a World Property Journal report, if the new United States administration begins to implement President Trump’s pledged tax cuts and infrastructure spending, the trend for a stronger dollar and weaker Yen could intensify.

CBRE said this could improve expectations of earnings growth, and office demand could exceed current estimates, potentially pushing back the timing of the peak in rents.

All-Grade office nett absorption exceeded new supply in Q4 2016. While tenants continued to be cost-conscious, companies that planned to increase staff numbers continued to look for office space. As such, the All-Grade vacancy rate resumed its decline, falling 0.3 percentage points quarter-on-quarter (q-o-q) to 2.3 per cent.

IT companies, as well as insurance and pharmaceuticals were among the most active sectors.

Assumed achievable rents increased 4.4 per cent on a year-on-year (y-o-y) basis. However, rental growth is sluggish overall compared with past performances.

Despite this, the take-up rate for pre-completed Grade A buildings continues to slow down, and some owners are becoming more flexible on leasing terms and conditions.

The vacancy rate for Grade A-Minus offices declined by 0.5 percentage points q-o-q to 2.0 per cent. In areas where rents are lower, several leases were signed for vacant units of 1,000 tsubo or more.

Even in new buildings with higher asking rents that still had space available, the quality of facilities and the size of floor plates were deciding factors that helped these properties to achieve full occupancy.

In the Grade B segment, the vacancy rate declined by 0.2 percentage points q-o-q to 2.5 per cent. A building completed in the previous quarter became almost fully let, while a large unit in an older building was let to a tenant opening a new office.

Grade B assumed achievable rents rose by 0.5 per cent q-o-q to JPY20,800 per tsubo. This is a y-o-y increase of 2.5 per cent.

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