Outlook 2023 Japan

JAPAN

KEY MESSAGES TOKYO

SUPPLY

DEMAND

RENTS

 The redevelopment of the Azabudai/Toranomon area, KEY OUTLOOK

 Lump-up supply is forecast to enter the Tokyo C5W market every two years, tracking at above 5% of total stock or 240,000 tsubo (793,390 sqm) until 2027.

 Rebound from COVID lows remains slow. Net absorption is expected to follow the market cycle of incoming supply after recording negative absorption in 2021. ​  While the incoming supply of high-quality buildings are over 30% pre-committed for 2023, the overall vacancy is projected to increase from 0.6% in 2019 toward the mid 5% over the next three years. ​ ​

 Rents are forecast to decline by 13% until 2025, before stabilizing below the forecast inflation rate of 0.7%.​  Landlord pricing power is expected to remain strong in a small number of the amenity rich buildings. However, the overall market is expected to remain tenant favourable during our forecast horizon​ .

together with the ongoing flight to quality trend, will reinforce its ‘emerging destination precinct’ status within C5W, and bring together high-quality residences with amenities and improved public transport infrastructure. ​

TOKYO

NEW SUPPLY

NEW SUPPLY (TSUBO)

300,000

 Large supply is expected to enter the C5W market in 2023 and 2025.​  Key projects include Azabudai/Toranomon Hills (167,590 tsubo), Shinagawa New Development (202,170 tsubo), and Shinjuku Station front redevelopment (130,590 tsubo). ​  Rising construction costs continue to add pressure to development margins. Office construction costs have increased by 34.3% since 2011, and by 13.9% since 2019, before the pandemic.​

FORECAST

250,000

200,000

150,000

100,000

50,000

0

2020

2021

2022F

2023F

2024F

2025F

2026F

Source: Cushman & Wakefield

TOKYO

DEMAND & VACANCY

NET ABSORPTION (TSUBO) AND VACANCY RATE (%)

FORECAST

7.0%

250,000

 Tenant demand remains mixed, with floor reductions in other industries offsetting employment growth in the Technology and Real Estate sectors.​  Major tenants’ flight to quality and ongoing price discounts are expected to support the positive Grade A office demand. ​  Net absorption is forecast to turn positive from 2022, with further demand tracking behind the incoming supply at least until 2027.  Over the next five years, the vacancy is expected to increase to the mid-5% from a low of 0.6% in 2019. ​

200,000

6.0%

150,000

5.0%

100,000

4.0%

50,000

3.0%

0

2.0%

-50,000

1.0%

-100,000

0.0%

-150,000

2020

2021

2022F 2023F 2024F 2025F 2026F Net Absorption Vacancy Rate

Source: Cushman & Wakefield

TOKYO

RENT GROWTH

RENT (JPY/TSUBO/MO) AND RENT GROWTH (% PER ANNUM)

FORECAST

45,000

0.0%

 Rent growth is expected to remain negative with continued pressures from incoming supply. ​  We expect rent growth to remain in negative territory for the forecast period, though tracking back towards positive growth in 2026.  Increasing vacancy and price competition among non differentiated buildings are forecast to accelerate, widening the rental gap among many submarkets. ​

40,000

-1.0%

35,000

-2.0%

30,000

-3.0%

25,000

20,000

-4.0%

15,000

-5.0%

10,000

-6.0%

5,000

-7.0%

0

2020

2021

2022F 2023F 2024F 2025F 2026F

JPY/TSUBO/MO

Rent growth (%)

Source: Cushman & Wakefield

CONTACTS

RESEARCH: Mari Kumagi Head of Research, Japan​ mari.kumagai@cushwake.com​ LEASING: Keiji Kato Head of Leasing Advisory Group, Japan​ keiji.kato@cushwake.com​ Asia Pacific Dr Dominic Brown Head of Insight & Analysis, Asia Pacific dominic.brown@cushwake.com

TENANT REPRESENTATION: Manami Chisaki Head of Tenant Advisory Group, Japan​ manami.chisaki@cushwake.com​​ CAPITAL MARKETS : Nobuhiro Maruyama Head of Investment Sales, Japan​ nobuhiro.maruyama@cushwake.com​

Disclaimer. The information in this material is general in nature and has been created by Cushman & Wakefield for information purposes only. It is not intended to be a complete description of the markets or developments to which it refers. The material uses information obtained from a variety of sources which Cushman & Wakefield believe to be reliable however, it has not verified all or any information and does not represent, warrant or guarantee its accuracy, adequacy or completeness. Any forecasts or other forward looking statements contained in this material may involve significant elements of subjective judgment and assumptions as to future events which may or may not be correct and are beyond the control of Cushman & Wakefield. Cushman & Wakefield is not responsible for any loss suffered as a result of or in relation to the use of this material. To the extent permitted by law, Cushman & Wakefield excludes any liability, including any liability for negligence, for any loss, including indirect or consequential damages arising from or in relation to the use of this material. All expressions of opinion included in this material are subject to change. © 2022 Cushman & Wakefield. All rights reserved.