Grade A Office vacancy rate falls below 1% in Japan’s three major cities

Grade A vacancy rate falls below 1% in Japan's three major cities

According to CBRE‘s Japan Office Market View Q1 2019 report, Grade A Office vacancy rate falls below 1% in three major cities.

Tokyo Grade A vacancy rate fell 0.1 points q-o-q to 0.6%.The vacancy rate for all grades was lower than the previous quarter. Tokyo Grade A rents rose by 0.5% q-o-q to JPY 37,600 per tsubo.

Osaka Grade A vacancy rate fell 0.5 point q-o-q to 0.5%. Osaka Grade A rents rose by 2.1% q-o-q to JPY 24,350 per tsubo.

Nagoya Grade A vacancy rate fell 0.4 point q-o-q to 0.1%, a record low. Nagoya Grade A rents rose by 0.8% q-o-q to JPY 26,650 per tsubo.

Tokyo Office Maket

All-Grade vacancy rate dropped to 0.6%, a historical low for fourth quarter running. Demand drivers were large manufacturers and IT-related firms including e-commerce platforms.

As of the end of Q1 2019, the pre-leasing ratio for new Grade A buildings stood at over 80% at buildings slated for 2019 completion, and over 50% for those slated for 2020 completion. Although pre-leasing for new buildings is progressing well, some landlords, being wary of the 300,000 tsubo of new supply due for completion in 2020, 70% above historical average, are relatively conservative on their asking rents for existing premises. Grade A rents rose 0.5% q-o-q, slightly lower than the 0.9% rise in Q4 2018.

As potential economic downturn may result in vacancy arising in existing buildings, CBRE forecasts Grade A rents to rise by 0.3% over the next year, but then falling by around 5% in the subsequent year.

SEE ALSO : Australian office vacancy rates drop across the country

Osaka Office Market

The All-Grade and Grade B vacancy rates both hit record lows, with the latter falling below 1%. Grade A vacancy also dropped below 1% again. Interest is growing for coworking space, not only due to demand for flexible working environments, but as a means to accommodate additional floor space amidst limited availability. Tighter availability is accelerating rental growth even for lower grade offices. All-Grade rental growth this quarter was the highest since the survey began in 2005. With no new supply scheduled in 2019, CBRE forecasts all grades of rents (including Grade A and B) to rise by around 6.0% over the next year.

Nagoya Office Market

The All-Grade vacancy rate declined by 0.1 points q-o-q to 1.0% in Q1 2019, a record low. The little remaining space was taken up by companies moving from the suburbs. In the only Grade A building which had one entire floor available, a coworking operator secured the lease. Grade A vacancy rate fell by 0.4 points q-o-q to 0.1%. Grade A rent rose by 0.8% q-o-q to JPY 26,650 per tsubo. A few Grade A space put on the market for the first time in several quarters secured replacement tenants before the previous occupants vacated the property, at abovemarket rents. CBRE forecasts a 2.7% rise in Grade A rents over the coming year. rents (including Grade A and B) to rise by around 6.0% over the next year.

Source: CBRE