Leading office markets in Japan
Economic activities in Japan are highly concentrated in Tokyo, and many of Japan’s largest corporations and financial institutes have their headquarters in the capital city. With around 37 million inhabitants, the Tokyo metropolitan area, which includes Tokyo and the neighboring prefectures Kanagawa, Saitama, and Chiba, is one of the most populous urban agglomerations in the Asia Pacific region. As the financial and administrative center of Japan, Tokyo is the leading market for office real estate in the country, followed by Osaka and Nagoya. While Osaka is considered the economic center of the Kansai region, the Greater Nagoya Area is known as a hub for the manufacturing and automotive industry. Office space in the three metropolitan areas of Tokyo, Osaka, and Nagoya makes up half of the total office floor space in Japan.Office property continued to be a major asset class for the real estate investment market, making up the largest share of properties held by real estate investment trusts (REITs) and accounting for one-third of real estate acquired by securitization vehicles in general.
Impact of the global pandemic
Prior to the global coronavirus (COVID-19) pandemic, vacancy rates for office space had fallen to decade lows across Japan. The vacancy rate of office space in Tokyo’s five central business districts, Chiyoda, Chuo, Shibuya, Shinjuku, and Minato, temporarily dropped to less than two percent. Likewise, commercial land prices and rents rose steadily.The coronavirus pandemic has interrupted this growth trend. Since the outbreak of the pandemic in early 2020 and throughout 2021, rising vacancy rates and negative net absorption could be observed in Tokyo’s office market, indicating that the office space vacated exceeded the available space absorbed. Although the change was not as significant as expected and leveled off over the course of 2021, the pandemic has led to a rethinking regarding working styles and office space among employers in Japan. In response to the pandemic, a surge in the share of companies offering telework could be observed and some of Japan’s largest corporations announced plans for a permanent shift to remote working and a reduction of their office space in the coming years.
