Analysts’ Views Mixed On The Future Of Japan’s Office Rental Market

Experts’ take on the proliferation of remote working set-ups is a significant factor behind the varying views. 

July 22, 2022 – Experts polled by the Nikkei Real Estate Market Report showed that opinions on the demand for office spaces in Japan were divided, with some expecting favourable demand conditions and others seeing a grimmer state in 2023. 

In its biannual rental office building market condition survey, the publication asked think tanks, securities companies, asset managers, and brokerage and advisory firms to forecast market conditions over the year and a half from the second half of 2022 to 2023.

Six of the 20 respondents said office demand in 2023 will be favourable, seven said unfavourable, and the  remaining said “neither.” Those who expected demand to be unfavourable see supplies and the transition of office set-ups from the Covid-19 disruptions as the main challenges ahead.

On office supply, most believed that conditions are unfavourable, with 15 out of 20 respondents saying supply will be a “market harmful factor” weighing on rentals. 

For example, Tasuku Yoshida, a Researcher at the NLI Research Institute, said: “There is some concern that the number of office workers in central Tokyo will drastically decrease, but with the rise of working from home and free-address seating, office demand will lack strength. Mass supply is also expected, putting the vacancy rate on an upward trend.”

For the optimists, the economy’s overall recovery from the dips brought about by the pandemic is a cause for a more upbeat outlook ahead.

Mitsuaki Watanabe, CEO of the Market Forecast Institute and a Senior Analyst at TMAX, said: “Demand for office buildings will recover with the normalisation of the macroeconomy. Supply and demand will be balanced, and the vacancy rate and new rents will remain generally flat.”

A significant factor behind the varying views is experts’ take on the new type of working conditions from the normalisation of remote working set-ups due to Covid-19. 

Yosuke Ohata, Senior Analyst at Mizuho Securities, said: “Particularly at large companies, a certain level of remote work will remain even as the economy reopens. As a result, I expect we will lose around 5% of pre-pandemic office demand. Cases of tenants downsizing their office when their fixed-term lease contracts expire will persist.”

In contrast, Atsuro Takemura, Executive Director at Morgan Stanley MUFG Securities,predicts that tenants will still choose to expand their floor area.