Office Leasing

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Office Leasing Tokyo – Q4/2018 MARKET IN MINUTES Offi ce Leasing Savills Research Savills team Please contact us for further information JAPAN Christian Mancini CEO, Asia Pacifi c (Ex Greater China) +81 3 6777 5150 [email protected] RESEARCH Tetsuya Kaneko Director, Head of Research Offi ce market beats expectations in 2018 & Consultancy, Japan +81 3 6777 5192 Vacancy remains extremely low and pre-leasing appetite is strong. If capital [email protected] market volatility lingers, it may weigh on the currently strong offi ce market. Yoshihiro Kanno • Tokyo’s Grade A offi ce market appears to be in a comfortable • Large supply in 2018 did not soften the offi ce market. Even Associate, Research & state with strong pre-leasing commitments through 2019. so, the upward phase of the property cycle is well extended Consultancy, Japan +81 3 6777 5142 Barring an exogenous shock, average rents should continue and some economic headwinds are gathering. [email protected] to rise for the time being. Simon Smith • Average passing rents for Grade A offi ce space in the C5W Senior Director grew to JPY34,592 per tsubo1 per month, representing a gain “The Tokyo offi ce market has Asia Pacifi c +852 2842 4573 of 1.4% quarter-on-quarter (QoQ) and 4.9% year-on-year [email protected] (YoY). outperformed expectations Savills plc in 2018 as rents have risen Savills is a leading global real • The average Grade A offi ce vacancy rate in the C5W hit 0.5% estate service provider listed on the London Stock Exchange. The in Q4/2018, dipping by 0.1 percentage points (ppts) QoQ and strongly and vacancy has company established in 1855, has a rich heritage with unrivalled by 0.7ppts YoY. growth. It is a company that leads continued to mark record rather than follows, and now has over 600 offi ces and associates • Average passing rents for large-scale Grade B offi ce space throughout the Americas, Europe, lows. The outlook for property Asia Pacifi c, Africa and the Middle rose to JPY26,376 per tsubo per month, growing by 1.3% QoQ East. This report is for general and 5.7% YoY. informative purposes only. It may in 2019 is positive, though the not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any • The average large-scale Grade B offi ce vacancy rate is 0.7%, macroeconomic environment contract, prospectus, agreement or other document without prior 0.2ppts higher QoQ but 0.2ppts lower YoY. consent. Whilst every eff ort has is uncertain.” been made to ensure its accuracy, Savills accepts no liability • Co-working demand in 2018 was robust and is likely to pick whatsoever for any direct or SAVILLS RESEARCH & CONSULTANCY consequential loss arising from its up pace in 2019, but is yet to be proven sustainable. use. The content is strictly copyright and reproduction of the whole or part of it in any form is 1 1 tsubo = 3.306 sq m or 35.583 sq ft. prohibited without written permission from Savills Research. savills.co.jp/research 1 Offi ce Leasing GRADE A OFFICES GRADE A RENTS AND VACANCY GRAPH 1: Offi ce Rents And Vacancy In Tokyo’s C5W* RATES BY WARD 2011 to Q4/2018 Grade A offi ce rents rose 1.4% QoQ and 4.9% YoY in Q4/2018 to JPY34,592 per Chiyoda 2 1 Average Grade A vacancy Average Grade B vacancy tsubo . Vacancy fell by 0.1ppts QoQ and Chiyoda’s Grade A vacancy rate of 0.7% Average Grade A rent Average Grade B rent 0.7ppts YoY, fi nishing the year at 0.5%. was 0.1ppts tighter QoQ and 0.8ppts tighter 35,000 14% Demand from tenants is strong, keeping YoY. Grade A rents climbed by 1.1% QoQ and vacancy low despite elevated supply levels. 3.4% YoY to JPY41,388 per tsubo. In Q1/2019 30,000 12% Prudent landlords are more eager to retain WeWork will establish a location at the creditable tenants than raise rents, leading to ) 25,000 10% recently completed Tokyu Yotsuya Building, o VacancyV rate b only mild rental increases despite extremely a u preparing approximately 1,300 seats on the c s t a tight occupancy. This moderate rental growth 20,000 8% n third to the ninth fl oors. San-Ai Oil will / c should help protect capital values when an Y y relocate its headquarters to the tenth fl oor of P r J 15,000 6% a unexpected speedbump appears. ( t e Otemachi Place East Tower in April 2019. It t n e intends to strengthen collaboration among Rent (JPY / tsubo) / (JPY Rent R 10,000 4% LARGE-SCALE GRADE B OFFICES its group companies by integrating them onto Large-scale Grade B offi ce32rents rose 1.3% 5,000 2% QoQ and 5.7% YoY in Q4/2018, to JPY26,376 one fl oor. Dyson will relocate its offi ce to the per tsubo. Vacancy rose 0.2ppts QoQ but Sumitomo Fudosan Fukuoka Hanzomon 0 0% Building in Kojimachi, leasing two fl oors with Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 dipped 0.2ppts YoY to fi nish the year at 0.7%, Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 2011 2012 2013 2014 2015 2016 2017 2018 moving wider than the Grade A market for an estimated fl oor area of approximately 800 tsubo. Source Source: Savills Research & Consultancy the fi rst time since the beginning of 2017. *Chiyoda, Chuo, Minato, Shibuya, and Shinjuku Large-scale Grade B offi ces continue to attract a deep, diverse pool of tenants as Chuo corporate profi tability soars and demand Chuo’s Grade A vacancy rate of 1.0% was GRAPH 2: Grade A Offi ce Rental Index By Ward 2011 to Q4/2018 spills over from the tight Grade A market. mostly fl at this quarter but has tightened Minato, which has the most vacant space, has by 2ppts YoY. Grade A rents grew 0.5% Chiyoda Chuo Minato Shinjuku Shibuya Average seen vacancy dip to just 0.7ppts. Chuo was QoQ and 5.2% YoY to JPY32,534 per tsubo. 170 the only ward which saw increased vacancy, Sumitomo Chemical intends to relocate its rising 1.5ppts QoQ and bringing the YoY 160 Tokyo headquarters to Tokyo Nihonbashi change up to 1.4ppts. Tower in 2H/2021, leasing just under 5,000 150 Large-scale Grade B supply remains tsubo with enough space for 1,400 employees. lacklustre, as developers attempt to minimise Boston Consulting Group will relocate its 0 140 0 land acquisition and construction costs 1 Tokyo offi ce to Nihonbashi-Muromachi = through economies of scale and strive to 2 130 1 Mitsui Tower, taking approximately 3,900 0 meet tenant demand for newer and larger 2 tsubo over three fl oors, a signifi cant increase / 1 120 fl oor plate buildings. With a low volume of Q1/2012 = Q1/2012 Q 100 from its existing space of 2,600 tsubo. expected supply and a wide demand base – Several of Mitsui Fudosan’s satellite offi ces 110 consisting of both large and small tenants will also move into the building in August 100 – the outlook for large-scale Grade B offi ces is steady. 2019. Shinsei Bank is considering leasing 90 2,400 tsubo over four fl oors in the Tokyo 2 Throughout the report, “per tsubo” is shorthand for “per Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q1 Q2 Q2 Q2 Q2 Q2 Q2 Q2 Q2 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 tsubo per month”. Dia Building 5-gokan in Shinkawa, as part 2011 2012 2013 2014 2015 2016 2017 2018 3 “Large-scale Grade B offi ce” refers to buildings with a of an attempt to consolidate offi ces that are GFA of 4,500 tsubo (15,000 sq m) and a building age of less Source Savills Research & Consultancy than 25 years. Some buildings are included that do not fi t dispersed across diff erent locations. this defi nition. GRAPH 3: Grade A Offi ce Vacancy By Ward TABLE 1: Major Tenant Relocations Q4/2018 Q3/2017 to Q4/2018 Q3/2017 Q4/2017 Q1/2018 Q2/2018 Q3/2018 Q4/2018 ORIGIN 10% 9% Chiyoda Chuo Minato Shibuya Shinjuku Other 8% 7994 16 DESTINATION 7% 6% 61 1 2 10Chiyoda 5% 18 2 11Chuo 4% 52 5 12Minato 3% 22Shibuya 2% 1% 22Shinjuku 0% 358Other Chiyoda Chuo Minato Shinjuku Shibuya Source Savills Research & Consultancy Source Nikkei RE, Savills Research & Consultancy savills.co.jp/research 2 Offi ce Leasing TABLE 2: Notable Offi ce Leasing Transactions Q4/2018 BUSINESS FORMER/CURRENT APPROXIMATE SPACE COMPANY TYPE NEW LOCATION SECTOR LOCATION TSUBO SQ M Yotsuya Station Redevelopment JR Shinjuku Miraina Tower Information Project Line Expansion 6,400 21,200 Technology Shinjuku-ku Shinjuku-ku Tokyo Sumitomo Twin Building Tokyo Nihonbashi Tower East Sumitomo Chemical Chemicals HQ relocation 5,000 16,500 Chuo-ku Chuo-ku Nihonbashi-Muromachi Mitsui New Otani Garden Court Tower Boston Consulting Group Consulting HQ relocation 3,900 12,800 Chiyoda-ku Chuo-ku Tennozu Yusen Building Urbannet Uchisaiwaicho Building Nippon Light Metal Manufacturing HQ relocation 3,630 12,000 Shinagawa-ku Minato-ku Multiple locations Tokyo Dia Building 5-gokan Financial Shinsei Bank Consolidation 2,400 7,900 services Multiple locations Chuo-ku Source Nikkei RE, Savills Research & Consultancy MAP 1: Average Rents Per Tsubo In Selected Submarkets Q4/2018 ¥30.6 ¥31.6¥31.6 ¥46.4 ¥35.3 ¥24.5 ¥33.7 ¥33.2 ¥29.0 ¥37.1 Source Nikkei RE, Savills Research & Consultancy Grade A buildings, average passing rent + CAM per tsubo per month in thousand JPY.
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