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Property

Tokyo office vacancies plumb historic lows -- but virus fears loom

Pandemic and weak economy threaten robust office demand

Tokyo's Minato Ward. Office vacancy rates continue to plummet in the city.   © Reuters

TOKYO -- Tokyo's office vacancy rate fell to a record low of 1.49% in figures out Thursday amid the calm before a possible storm caused by the new coronavirus.

Vacancies in the Chiyoda, Chuo, Minato, Shinjuku and Shibuya wards of central Tokyo dropped an average of 0.04 percentage point on the month in February to mark a sixth straight month of historic lows in the data from real estate brokerage Miki Shoji. Rents have continued to rise for more than six years.

Buildings completed within the past year had a vacancy rate of 3.95%, a 0.58-point increase from the previous month. Five buildings were completed in February, such as the new Otemachi One commercial complex developed by Mitsui and Mitsui Fudosan. The property has welcomed such tenants as agricultural lender Norinchukin Bank and is scheduled to be fully occupied. But other new buildings still have space left, raising the overall vacancy rate.

Existing buildings' vacancy rate decreased 0.06 point to 1.42% as businesses searched for more space. Hardly any existing leases were canceled after companies moved into new buildings.

The average listed rent increased 0.45% per 3.3 sq. meters from the previous month, reaching 22,548 yen ($214). It went up 6.86% over a year.

But COVID-19 is a major concern. At this point, tenants planning to move into major properties have not shown signs of canceling. Large corporations are looking to have more employees work remotely. But real estate insiders mostly remain positive that even if telecommuting increases, it will not lead to a move to downsize office spaces unless overall employment drops.

"If the economy and employment continue to decline, office demand will inevitably weaken," warned Toyokazu Imazeki, chief analyst at major brokerage Sanko Estate.

"When there have been market crashes in the past, the impact on the real estate market has started to be seen half a year to a year later," a broker said.

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