TOKYO -- Office rents in central Tokyo remain about 20% below where they were before the 2008 financial crisis amid waning demand for pricey properties as foreign financial institutions move out of the city.
Asking rents in the capital's five central wards -- Chiyoda, Chuo, Minato, Shinjuku and Shibuya -- averaged 18,322 yen ($180) per 3.3 sq. meters in August, according to office brokerage Miki Shoji. The figure has gained for 32 months in a row. But the increase from July came to just 0.3% -- a small uptick, given that no new major office space became available last month.
The vacancy rate hit a roughly eight-year low at the end of August after falling 0.04 percentage point from a month earlier to 3.9%. Properties owned by major developers are nearly full. "Our buildings are more than 90%-occupied," said Kengo Fukui, an executive managing officer at Tokyo Tatemono.
Even though the vacancy rate has fallen by more than half since the recent high in 2012, rents have gained only about 10%.
Since the March 2011 earthquake and tsunami, tenants have flocked to new buildings that are quake-resistant or have other disaster preparation measures, pulling the average vacancy down. The JR Shinjuku Miraina Tower, which was completed in March, is almost fully occupied, while the Otemachi Financial City Grand Cube was full when it opened earlier this year. Demand is also strong for buildings with favorable locations.
But while the vacancy rate is now where it was before the financial crisis hit, average asking rents are still far lower. Many foreign financial institutions have moved their regional headquarters to Hong Kong since the crisis, weighing down demand for high-rent properties.
"Offices where highly paid people work, such as foreign financial institutions, tend to have higher rents," said Toyokazu Imazeki, chief analyst at Sanko Estate. Contract rents at A-class buildings -- built within the last 15 years, with at least 990 sq. meters of space on each level and a total floor area of at least 33,000 sq. meters -- are starting to decline after more than four years of gains, according to Sanko Estate and the NLI Research Institute.
Office space offerings tend to drop once contracts do. "Some companies will start considering a move with an eye on new properties to become available in 2018," said Yuto Ohigashi of JLL.