The vacancy rate for office buildings in Tokyo has been on the rise, casting a sense of uncertainty over the outlook for the property market.
The average vacancy rate in five central wards of the capital — Chiyoda, Chuo, Minato, Shinjuku and Shibuya — stood at 3.07% in August, up 0.3 percentage point from the previous month and climbing above 3% for the first time since February 2018, according to major office brokerage company Miki Shoji Co.
The average rent climbed to ¥23,014 per tsubo, or approximately 3.3 square meters, in July, the highest value since January 2002, but dropped in August, reflecting the rise in the number of vacancies in the rental office market. In August, rents averaged ¥22,822, marking the first drop in six years and eight months.
Many real estate industry officials noted changes in the market. "The tide has completely changed," one of them said.
The coronavirus pandemic has prompted many companies to shelve plans to expand their offices or relocate to bigger ones, consolidating workplaces or canceling rent contracts as a result of increasing work-from-home practices.
Startups and other emerging companies were quick to change working styles. Since April, many have been cutting office space or relocating, even to suburban areas, an official of a midsize office broker said.
Following the outbreak of the coronavirus, many tourism companies, hit hard by a plunge in the number of tourists from abroad, and apparel companies, which took a beating as more people stayed at home, resorted to office space cuts or relocations.
Working-style changes, such as an increase in working from home, started to affect demand for offices in June. "Moves like a tenant returning two of five occupied floors are pushing up the vacancy rate," a Miki Shoji official said.
Even high-end office buildings with large companies as tenants are struggling to fill vacancies, a property industry official said.
An office building in the Shiodome district of Tokyo's Minato Ward drew industry attention when it openly solicited a new tenant to replace SoftBank Group Corp, which will relocate its head office to a new building.
"A new tenant should have been found behind the scenes before the epidemic," the official said. "It is unusual for such solicitation to surface."
The recent rise in the vacancy rate of office buildings in Tokyo chiefly reflects businesses' reluctance to conclude new leases due to the coronavirus-triggered rapid deterioration of economic environments, analysts said.
In addition, a majority of companies are still considering whether to shift to new working styles such as working from home. If more companies opt for the shift, the cancellation of leases and reductions of office space are likely to gather steam.
"A second wave of rises in the vacancy rate will come," a worried office broker said.
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