Briefing Office Sector Q4 2017
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Savills World Research Tokyo Briefing Office sector Q4 2017 Image: Office landscape in central Tokyo SUMMARY Take-up is maintaining strong momentum. Average rents in the C5W registered another gain in Q4/2017 and vacancy is extremely tight, encouraging strong pre-leasing activity. New offices continue to attract The average Grade A office tenants in the central five wards (C5W), vacancy rate in the C5W held steady “Tokyo offices had another tightening both Grade A and Grade B at 1.2%, representing a tightening of vacancy to the lowest level since we 0.5 percentage points (ppts) QoQ and strong quarter of rental growth started our survey. 0.7ppts YoY. reflecting extremely tight Pre-leasing activity is proceeding Average passing rents for large- at a robust pace, indicating strong vacancy. Given strong pre- underlying demand growth. scale Grade B office space rose to JPY24,953 per tsubo, climbing by leasing activity and positive Average passing rents for Grade A 1.0% QoQ and 3.3% YoY. economic conditions, rental office space in the C5W strengthened to JPY32,974 per tsubo1 per month, The average vacancy rate for growth should continue representing a 1.1% rise quarter-on- large-scale Grade B office properties towards late 2018 or even quarter (QoQ) and a 4.0% increase remained extremely tight at 0.9%, year-on-year (YoY). tightening by 0.1ppts QoQ and 1.2ppts longer.” Savills Research 1 1 tsubo = 3.306 sq m or 35.583 sq ft Yo Y. savills.co.jp/research 01 Briefing |Tokyo office sector Q4 2017 Grade A offices GRAPH 1 The Tokyo Grade A office market Office rents and vacancy in Tokyo’s C5W*, 2011– continued to show robust Q4/2017 fundamentals throughout Q4/2017. Average Grade A vacancy Average Grade B vacancy New, high-specification offices Average Grade A rent Average Grade B rent 35,000 14% are seeing steady absorption and achieving high rents. Strong pre- 30,000 12% leasing activity bodes well for 2018. Companies are competing to secure 25,000 10% attractive office space in order to rate Vacancy 20,000 8% attract talent, due to the tightness of Japan’s labour market. Although 15,000 6% there is risk of secondary vacancy, Rent (JPY/ tsubo) strong demand growth appears to 10,000 4% be sustaining market momentum at 5,000 2% this point. Tokyo’s vacancy continued to tighten in Q4/2017 and reached 0 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1.2%, an improvement of 0.7ppts 2011 2012 2013 2014 2015 2016 2017 YoY. Source: Savills Research & Consultancy * Chiyoda, Chuo, Minato, Shibuya, and Shinjuku. Grade A office rents strengthened 1.1% QoQ to JPY32,974 per tsubo GRAPH 2 per month. Rents grew 4.0% in Grade A office rental index by ward, 2011–Q4/2017 2017 despite concerns at the beginning of the year, comfortably Chiyoda Chuo Minato Shinjuku Shibuya Average exceeding our original expectations. 160 Strong economic conditions and rising corporate profits seem to 150 be translating into positive office 140 performance. 130 Large-scale Grade B offices 120 The average vacancy rate for large- 100 = Q1/2012 scale Grade B office21properties sat 110 at 0.9%, the lowest level since our 100 survey started, further tightening by 0.1ppts QoQ and 1.2ppts YoY. 90 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Vacancy remains tight due to the 2011 2012 2013 2014 2015 2016 2017 grade’s wide demand base, driven by its affordability and limited upcoming Source: Savills Research & Consultancy supply. GRAPH 3 Grade B rental growth is generally Grade A office vacancy by ward, Q3/2016–Q4/2017 continuing at a similar pace to that of Grade A. The average monthly rent Q3/2016 Q4/2016 Q1/2017 Q2/2017 Q3/2017 Q4/2017 for large-scale Grade B properties 10% was JPY24,953 per tsubo in Q4. This 9% represents a QoQ gain of 1.0% and a YoY gain of 3.3%. 8% 7% Grade A rents and 6% vacancy rates by ward 5% Chiyoda The average Grade A vacancy 4% rate in Chiyoda was 1.5% in Q4, 3% representing a tightening of 0.6ppts 2% QoQ but a softening of 0.5ppts YoY. 1% The average Grade A passing rent 0% 2 “Large-scale Grade B office” refers to buildings Chiyoda Chuo Minato Shinjuku Shibuya with a GFA of 4,500 tsubo (15,000 sq m) and a building age of less than 25 years. Some buildings are included that do not fit this definition. Source: Savills Research & Consultancy savills.co.jp/research 02 Briefing |Tokyo office sector Q4 2017 in Chiyoda stood at JPY40,009 per TABLE 1 tsubo, increasing by 0.8% QoQ and Major tenant relocations, Q4/2017 2.3% YoY. Origin Anderson Mori & Tomotsune plans Chiyoda Chuo Minato Shibuya Shinjuku Other to move from Akasaka K-Tower to the Otemachi Park Building. 8 5 11 3 0 10 Destination The law firm is expected to lease over 3,000 tsubo. Mitsubishi Real 6 2 2 10 Chiyoda Estate Services plans to move its headquarters from the Shin- 2 2 1 5 Chuo Otemachi Building to Otemachi 1 1 8 2 3 15 Minato Financial City Grand Cube in May 2018, leasing about 1,300 tsubo. 1 1 2 Shibuya Mitsubishi Materials is likely to 1 1 Shinjuku move from Keidanren Kaikan to the Marunouchi Nijubashi Building, which 1 1 2 4 Other is slated for completion in October 2018. Source: Nikkei RE, Savills Research & Consultancy Chuo the building afterwards. Transaction Tower to the Sumitomo Fudosan Chuo’s average Grade A vacancy Media Networks and Mitsuuroko Azabu-Juban Building and will rate tightened 1.0ppts QoQ to Green Energy both plan to move to lease about 630 tsubo. FinTech sit at 2.9% in Q4. Rents in Chuo the Taiyo Seimei Nihonbashi Building. Global will relocate its headquarters strengthened 0.8% QoQ and 4.8% from Toranomon Towers Office to YoY. The average Grade A passing The project is slated for completion rent in Chuo stood at JPY30,926 per in January 2018. Meguro Central Square in January tsubo. 2018. The company will consolidate Minato its operations with FGI Capital Recruit Marketing Partners will Average Grade A vacancy in Minato Partners, whose headquarters are relocate from Kyobashi Trust Tower tightened 0.1ppts QoQ and 1.2ppts currently located in Executive Tower to Oak Meguro, leasing 1,557 tsubo. YoY to sit at 1.1%. Grade A rents Toranomon. Remixpoint will relocate J. Front Retailing will relocate its strengthened 0.9% QoQ and 2.9% from the KDX Nakameguro Building headquarters to the Nihonbashi YoY to JPY30,930 per tsubo. to Sumitomo Fudosan Roppongi 1-Chome Mitsui Building in January Newly-completed buildings are Grand Tower for expansion and 2018. The Yanmar Tokyo Building, attracting new tenants. In January security enhancement. where J. Front Retailing is located, 2018, Funplex, a subsidiary of will undergo reconstruction and it is online game operator Gree, plans Shibuya unclear if the company will return to to move from Roppongi Hills Mori The average Grade A vacancy rate TABLE 2 Notable office leasing transactions, Q4/2017 Approximate space Company Business sector Type Former/current location New location tsubo sq m Roppongi Hills Mori Tower Shibuya Stream Google IT HQ relocation 14,000 46,200 Minato-ku Shibuya-ku Shibuya Scramble Square East Various Tower Mixi IT HQ relocation 7,000 23,100 Shibuya-ku Shibuya-ku Akasaka K-Tower Otemachi Park Building Anderson Mori & 3,500- 11,600- Law firm HQ relocation Tomotsune 4,000 13,200 Minato-ku Chiyoda-ku Various Tokyodo Chiyoda Building Japan Information IT HQ relocation 3,600 11,900 Processing Koto-ku Chiyoda-ku Various Jingumae Tower Building Universal Music Music HQ relocation 1,800 6,000 Minato-ku Shibuya-ku Source: Nikkei RE, Savills Research & Consultancy savills.co.jp/research 03 Briefing |Tokyo office sector Q4 2017 MAP 1 Average rents per tsubo in selected submarkets, Q4/2017 Chiyoda ¥30.1 Shibuya Minato ¥30.0 Meguro ¥45.1 ¥34.1¥34.1 ¥23.8 ¥32.6 ¥32.3 ¥27.1¥27.1 ¥34.2 Grade A buildings, average passing rent + CAM per tsubo in thousand JPY. Coloured areas for illustrative purposes only. Source: Savills Research & Consultancy in Shibuya sat at 0.5%, flat QoQ but and 6.0% YoY to reach JPY29,773 to be going smoothly, and the 1.1ppts down YoY. Grade A rents per tsubo. In addition to Shinjuku’s gradual growth is likely to continue. increased 2.0% QoQ and 4.9% YoY extremely tight occupancy, rents That being said, some submarkets to JPY33,233 per tsubo. lower than other wards make it easier may see a large influx of availability. for landlords to secure increases. Impending vacancies from moves The biggest move announced in scheduled in 2019 could precipitate Q4 was Google’s relocation from Pharmaceutical company SSP some softness in the market in Roppongi Hills Mori Tower to will relocate its headquarters from 2018. The market could exceed our Shibuya Stream, which is slated the SSP Headquarters Building in expectations and excel for another for completion in 2018. This will Chuo to Tokyo Opera City Tower year, but it is too early to make that be a remarkable return to Shibuya in Nishi-Shinjuku in December.