Tokyo’s record-low office rents may post further declines in the next six months as landlords compete to fill space with supply expected to reach the highest since 2006.
New office space will rise 12 percent to 1.54 million square meters (16.6 million square feet) in Tokyo next year, matching the level in 2006, according to a survey by Mori Building Co. JP Tower, a 38-story office tower located in the city’s main business district, will be completed in the spring, while the 27-story Marunouchi Eiraku Building will be built by January, according to the website of Mitsubishi Estate Co.
“There will still be some competitive options for tenants to consider if they wish to relocate,” said Tokyo-based Neil Hitchen, regional director at Jones Lang LaSalle. “For the next one to two quarters, the opportunities will still be good for tenants.”
Tokyo’s office vacancy rate rose to 8.8 percent in October, the first increase in seven months, while rents slid to a record low of 17,011 yen ($219) per tsubo, according to data released today by Miki Shoji Co., a privately held office brokerage company. The Topix Real Estate Index fell 4.4 percent at the close in Tokyo, the most in three months.
The city’s office vacancy reached its all-time low of 2.5 percent in November 2007, which drove the average rent to a new high the following year, it said. A tsubo, a standard measure of property area in Japan, is 3.3 square meters or 35.5 square feet.
Grade A Recovery
For buildings that were completed less than a year ago, the vacancy rate declined to 20.4 percent last month from 21.7 percent in September, while 8.6 percent of older buildings were empty, up from 8.4 percent as tenants moved to newer properties, according to the report.
The city’s so-called Grade A office buildings, which command the highest rents, may lead the recovery next year, according to DTZ Research. The vacancy rate for Grade A buildings has fallen to 5.8 percent in the three months ended Sept. 30, approaching the 5 percent level that is seen as a turning point for rents, said Kayako Hirao, head of Japan Research at DTZ Research.
“The vacancy rate is approaching the level of a landlord’s market,” Hirao said. “Rents will turn around some time next year as the market reaches the bottom.”
Signs of Turnaround
Mitsubishi Estate, the owner of about 30 towers in Tokyo’s most expensive business district, is also completing its 23-story Palace Building in January. The developer forecast its average office rents may increase in March 2012 from September, the first increase in more than a year, it said.
“We can see signs of a turnaround sometime next year,” said Jo Kato, senior executive officer. “The office market has bottomed.”
Sumitomo Realty & Development Co., Japan’s third-largest developer, filled almost all of five new buildings it completed since last year, said Yoshiyuki Odai, senior managing executive officer.
“We have seen increasing interest among tenants to move into new office buildings,” said Odai. “The leasing activity is going well for the two buildings that will be completed in the second half of the year.”