Market Trends of Japan Office Real Estate Industry
This section covers the major market trends shaping the Japan Office Real Estate Market according to our research experts:
Rise in Start-ups Driving the Market
Since digital use is growing and e-commerce is booming in a post-Covid world, it is thought that fintech and logistics firms will drive the need for office space. Japan is lagging far behind the rest of the world in nurturing start-ups. As of 2021, Japan has only six unicorns. This is even fewer than the 41 in India and the 11 in South Korea. A huge quantity of VC capital, both local and foreign, supports the Japanese startup environment. The country raised a total of USD 6.3 billion among its startups in 2021, and the data for 2022 reflect a similar tendency, with USD 3.39 billion raised in the first half of 2022. In all, the organization has around 300 VC companies that invest in leading Japanese startups. The Japanese government is also extensively involved in the country's efforts to build a competitive and healthy environment for entrepreneurs.
In 2021, SmartNews, Inc. topped the list of leading start-ups in Japan in terms of money raised, with a total of USD 228.78 million raised. Mobility Technologies Co., Ltd. came in second with a total of USD 159.93 million in investment. In 2022, the government plans to introduce a framework to provide financial support for large companies when they hire people who plan to later start businesses and for start-ups that ask to borrow human resources from large companies.
Tokyo's office demands shifting to a hybrid model, boosting the market
Grade A office rentals in Tokyo's five central wards started a downturn phase in 2020 after growing for eight years since 2012. With unprecedented measures like the state of emergency and the government's call to work from home (WFH), a dramatic shift in work patterns is hurting Tokyo's office demand. Companies with headquarters in Europe and the US, where infection rates were higher, put the safety of their employees in Japanese offices at the top of their list of priorities.As a result of the reduced office footprint, numerous overseas enterprises have relocated.
Because of the concentration of domestic firms' head offices in Otemachi and Marunouchi, the rental level is the highest, and the area maintains a low level of 1.9%. Foreign enterprises are prevalent in the Akasaka/Roppongi region. Due to attractive rental levels for buildings with large vacancies, the vacancy rate momentarily jumped to 4% but gradually returned to 2.6%. After the state of emergency was declared in April 2020, the vacancy rate in Shinjuku/Shibuya, which is popular among IT businesses, increased to 3.6%, particularly in Shibuya. It recovered quickly after that. IT firms that are actively embracing WFH are transitioning to a hybrid working paradigm that combines regular offices, WFH, and flexible offices. Traditional office space demand has also recovered and is currently down to 2.5%.
