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Overview of the Tokyo Office Market Report

Cushman & Wakefield (C&W), a leading global real estate services company based in Chicago, has recently unveiled its Q1 2025 Tokyo Office Market Report, providing valuable insights into the burgeoning office market in Japan's capital. The report estimates that the employment figures for office-related industries in Tokyo will grow by approximately 20,000 people per year over the next two years, reflecting a steady increase of around 1% annually.

Market Outlook

The report forecasts that while the upcoming year will see new supply reaching 1.4 times the average of the past decade, these buildings are anticipated to achieve an occupancy rate of 73.8% by the end of Q1 2025. Instances of secondary vacancies being filled by existing tenants seeking to expand their spaces suggest that significant increases in vacancy rates are unlikely. However, due to tight demand and landlords delaying tenant attractions to anticipate rent increases, there is a possibility that the vacancy rate could temporarily rise to the 3% range during 2025. Nevertheless, with strong ongoing demand, it is expected to decrease back into the 2% range by 2026. Interestingly, around 80% of the 35 submarkets in Tokyo currently maintain vacancy rates below 2%, and an average rent increase of approximately 4% is forecast for the next two years across these submarkets.

Economic Conditions

The average annual increase in the number of office workers is estimated at around 50,000. However, the GDP growth rate for 2024 is projected to slow down to 0.6% from last year's 1.5%. In contrast, a rebound in personal consumption due to improvements in real wages is expected to lift the growth rate to about 1.0% in 2025. Nonetheless, uncertainty looms over global economic prospects due to U.S. import tariff policies. Despite this, the anticipated ordinary profit for 2025 is expected to slightly increase by 0.2% compared to the previous year, remaining approximately 30% above the average of the last decade, indicating resilient rental-paying capabilities among local businesses.

In Tokyo, the job market continues to improve at a rate faster than the national average, with a projected annual increase of 0.9% between 2019 and 2024, compared to a national rate of only 0.2%. The information and telecommunications sectors are experiencing a particularly robust growth rate of 2.8% per year, driven by increases in internet-related employment, thus contributing significantly to the rise in the overall workforce. The estimated average annual increase in the total office workforce is approximately 1.6%, demonstrating a consistent rise in demand for office space.

Supply and Demand Dynamics

In Q1 2025, Grade A offices in the five central wards of Tokyo are anticipated to experience a significant net absorption rate of 189,000 tsubo, reflecting a 53.6% increase from the previous year. Despite slight rises in both vacancy rates and recruitment area ratios from the previous quarter, figures are lower compared to the same period last year. Notably, 13 out of the 35 submarkets report zero availability, leading to a depletion of vacant space. There is a trend of tenants moving from lower-grade buildings or their own offices to higher-quality office spaces aimed at enhancing labor productivity.

Secondary vacancies are frequently being filled by existing tenants before the release of spaces to external parties due to their expansion needs. By the end of Q1 2025, the occupancy rate for buildings completed within the last year is expected to reach 84.4%, indicating prospects for further improvements in occupancy rates.

Rental Price Trends

In Q1 2025, the average expected rental price for Grade A offices in the central five wards of Tokyo is projected to increase by 6.1% year-on-year, reaching ¥37,012, which exceeds the rise in listing prices (4.5%). Driven by a steady decline in vacancy rates coupled with a cumulative construction cost increase of around 29% since 2019, rental prices for incomplete buildings are under further upward pressure.

Overall, the report offers a comprehensive outlook on Tokyo's office market, forecasting continued resilience amidst tightening supply and robust demand. For further insights and detailed analysis, the complete report can be downloaded from the C&W website.

About Cushman & Wakefield

Cushman & Wakefield (C&W) is a major player in commercial real estate services, publicly listed on the New York Stock Exchange. With approximately 52,000 employees across 400 offices in about 60 countries, the company provides an extensive range of core services, including facility management, transaction advisory, valuation, tenant representation, leasing, and project management. Under the philosophy of 'Better never settles,' C&W has cultivated a highly regarded corporate culture, earning numerous accolades from industry and business communities. For more information, please visit Cushman & Wakefield's official website.