What to expect from Tokyo’s office market in the near term

Savills expects the market to remain stable over the short to medium term.

According to a Savills report, the Tokyo office market is certainly in a somewhat optimistic state, with society having moved into a post-pandemic mindset, and more people overall returning to the office. 

At the same time, the global economic slowdown, on top of overall lifestyle changes, may warrant a cautious tone for this optimism. 

Here’s more from Savills:

A large amount of supply is also coming to the market over the next few years, and although this has seen progress in its pre-leasing, secondary vacancy is expected to arise, and is likely to further deepen the divide between offices that have been performing strongly and poorly.

Going forward, remote work is likely to remain as a benefit in many large companies, while the office remains the focal location to work, which should support greater office demand going forward. At the same time, the paradigm shift toward remote work appears to be more long-lasting for some companies, particularly those in the technology industry, with some companies promising effectively to forgo the office completely. This will likely dampen some small amount of demand in the mid-term, and vacancy levels will remain slightly higher than before. 

New office buildings going forward will have a greater propensity to be developed as mixed-use developments that will likely feature some high-end residential, and also other commercial uses such as event halls, retail space, and schools. Such changes in design to structure each development like a “city within a city” will change the landscape of Tokyo, and should serve to integrate office space with community spaces, and make such offices more attractive to prospective tenants. 

Indeed, with the labour shortages observed in the overall market, having an office in a desirable location could serve as one strategy to lure talent, and further drive demand for such office space. High-quality offices with strong ESG specifications should also be well received by both end users and corporate tenants. Overall, the office market should remain stable in the short to medium term, although there may be greater bifurcation observed between strong and weak offices.