Tokyo’s Office Rent Seen Peaking in Second Half 2020; Logistics Demand at Record High

Jan 17, 2020 -While the occupancy rate for office space in central Tokyo may see a slight decrease in 2020, demand for logistics facilities just outside the city has reached a record, according to the latest issue of the Nikkei Real Estate Market report. 

Net absorption for logistics facilities in the greater Tokyo area climbed to its highest level, exceeding the 1 million square metres (sqm) mark in the last quarter of 2019, the report said. The reported cited data from Ichigo Real Estate Service, which has been collecting real estate information since 2008.

The vacancy rate decreased from 5.1% in October 2018 to 2.6% in October 2019. “During this

period, advertised rent did not fall, remaining at around 4,200 yen per tsubo ($11 per sqm),” the report said. It added that completions were at the highest level of 2.45 million sqm in 2019, and they are projected to fall year-on-year to 2.2 million sqm in 2020. Completions will reach a record high of over 3 million sqm in 2021, but demand is expected to catch up with supply.

In contrast, the office sector may see a softer market going forward with rents seen peaking in the second half of 2020.

The consensus of about 19 professionals is that the office occupancy rate will show a slight

decrease in 2020 as supply increases, with rent seen flat to moderately higher.

For Tokyo’s office space sector, a “mass supply” is expected from 2018 up until 2020. However, the vacancy rate in the five central wards of Tokyo has remained low at 1.56% as at end-November 2019. The numbers signalled that the challenge of surplus office space in 2020, which had caused some concerns, is easily surmountable, according to Nikkei. 

Analysts, however, warned that a potential slowdown of the Japanese economy could hurt demand in the office and logistics sector. Other downside risks include uncertainty over the U.S. presidential elections in November 2020, the on-going U.S.-China trade war and local market conditions post-Olympics.