Concern over declining orders as office supply in central urban areas stabilizes

「In the office leasing market in Tokyo’s five central wards, transactions driven by diverse needs, including relocations, expansions, the opening of satellite offices, and consolidation and integration, have been recorded, and the vacancy rate has declined. Transactions in large buildings continued throughout the year, while stable demand was also confirmed for existing buildings, indicating broader high occupancy. Rents have remained above ¥20,000 per tsubo and continued to rise recently.」

「According to a survey by Miki Shoji Co., Ltd., the office leasing market in Tokyo’s five central wards has seen transactions driven by diverse needs, including relocations, expansions and the opening of satellite offices, and the vacancy rate has edged down recently. Rents have remained above ¥20,000 per tsubo and are trending upward.」

「The average vacancy rate for office buildings in Tokyo’s five central wards fell into the 5% range from January 2024 and reached a 3-year low in March (source: Miki Shoji report). Although rents are showing signs of polarization, market conditions are changing, with signs of a strengthening recovery trend.」

「In the office leasing market in Tokyo’s five central wards, the vacancy rate was 6.03% in December 2023, remaining elevated, according to a survey by Miki Shoji. Average rent also remained below ¥20,000 per tsubo for 10 consecutive months. As the large supply of newly built offices is expected to continue for the time being, it is expected to take time to absorb vacant space.」

「The average vacancy rate in the Tokyo Business District (Tokyo’s five central wards: Chiyoda, Chuo, Minato, Shinjuku and Shibuya) remained high at 6.15% as of September. However, according to a survey by Nikkei Inc., rents for both newly built and existing office buildings in the second half of 2023 appear to have bottomed out.」

「The average vacancy rate for office buildings in Tokyo’s five central wards has remained in the mid-6% range, while average rents have declined for 32 consecutive months (source: Miki Shoji report). Companies remain cautious about construction investment because of changes in working styles and rising inflation.」

「In the office leasing market in Tokyo’s five central wards, tenant contract cancellations and moves to reduce leased space have continued, particularly among large companies with high rates of telework, as remote work has spread and taken hold during the COVID-19 pandemic. According to a survey by Miki Shoji, the vacancy rate remained elevated at 6.47% in December 2022, while average rent per tsubo fell to ¥20,059, marking 29 consecutive months of decline. As a large volume of supply is expected in 2023 and 2025, easing supply and demand, properties with less competitive advantages than other buildings are expected to take time to absorb vacant space.」

「According to the office rent survey by Nikkei Inc., companies have become cautious about office investment because of near-term economic concerns and the entrenchment of remote work, and office rents in Tokyo in the second half of 2022 (as of September) recorded their largest decline in 11 years. Office supply is expected to increase as newly built properties are completed, easing supply and demand and raising concerns about the impact on construction investment.」

「During the cumulative first 3 quarters under review, the construction industry remained sluggish, as the Tokyo metropolitan area entered a lull between large-scale urban redevelopment projects. In the third quarter, the floor area of non-residential buildings started in the region fell 34.9% year on year.」

「The business environment continued to deteriorate, partly because of a lull between large projects. According to Ministry of Land, Infrastructure, Transport and Tourism statistics, the floor area of non-residential buildings started in the Tokyo metropolitan area fell approximately 39.3% from the same period of the previous year (January–March 2022). Construction investment, including renovation work, was also postponed amid concerns about the economic outlook, including falling office rents and rising inflation.」

「Office supply in Tokyo's five central wards in 2022 is expected to be approximately 180,000 tsubo on a total floor area basis, roughly the same level as the previous year because there will be little supply of new buildings. However, as there is currently no factor likely to drive a substantial recovery in office demand, the office vacancy rate in Tokyo's five central wards is unlikely to improve significantly. The rate was 6.33% at the end of December 2021, according to Mitsui Fudosan Co., Ltd., and concerns remain over the impact on construction investment, making future earnings forecasts difficult.」

「In addition, the average office vacancy rate in Tokyo's five central wards rose to 6.43% at the end of September 2021, increasing for the 19th consecutive month because of the spread of COVID-19 and changes in working practices. Average rents also declined for the 14th consecutive month.」

「The office vacancy rate in Tokyo's five central wards rose by more than approximately 4 percentage points during the year from June 2020 to June 2021, reaching the 6% range for the first time since August 2014. Rents also fell by more than approximately 3% over the same period, indicating that the trend toward easing supply and demand in the office building market continues.」

「During the six-month period ended [second quarter], the construction industry entered a gap between large-scale projects, and the business environment deteriorated. According to Ministry of Land, Infrastructure, Transport and Tourism statistics, the floor area of nonresidential construction starts in the Tokyo metropolitan area fell approximately 5.7% year on year, while construction investment, including renovation work, was postponed because of the COVID-19 pandemic. From the third quarter onward, large-scale redevelopment projects in central Tokyo are expected to support a recovery, but uncertainty is expected to persist because the vacancy rate in Tokyo's five central wards rose to 5.42% in March, increasing for 13 consecutive months, while concerns remain over higher labor costs due to labor shortages and lower profitability caused by intensifying competition for orders.」

「As of December 2020, the average office vacancy rate in Tokyo's five central wards was 4.49%, up 2.94 percentage points from 1.55% a year earlier, indicating a trend toward easing supply and demand, particularly for existing buildings. There are also concerns that construction unit prices could decline as construction investment decreases, making earnings forecasts difficult.」

「In the construction industry, concerns have arisen over declining office demand due to the economic downturn caused by the spread of COVID-19 and changes in working practices. According to a survey by the Ministry of Land, Infrastructure, Transport and Tourism, the value of building construction orders received by the 50 major general contractors fell 13.5% from the same period a year earlier between October 2019 and September 2020. In addition, the 29 large-scale building projects announced in Tokyo's 23 wards during the first half of fiscal 2020 were the lowest level in the past 5 years, and construction investment is expected to face increasing adjustment pressure as capital stock cycles and current business sentiment deteriorate.」

「Meanwhile, the floor area of nonresidential construction starts in the Tokyo metropolitan area fell approximately 22% year on year, partly because Tokyo Olympics-related facilities were completed and the market entered a gap between new construction projects.」

「During the six-month period ended [second quarter], concerns over soaring construction costs and labor shortages increased in the construction industry, and the nationwide floor area of building construction starts fell approximately 7.9% year on year as a result of extended construction periods, plan revisions and other factors.」

「No new business or other risks arose during the three months ended 30 June. There were also no material changes to the business and other risks described in the securities report for the previous fiscal year.」

「In the construction industry, Tokyo Olympics-related work has entered its final stages, signs of slowing construction demand have begun to emerge, and domestic orders at the 8 major general contractors are expected to trend downward. However, demand remains strong, particularly in central Tokyo, for new types of offices that promote innovation, and construction starts on large-scale redevelopment projects centered in major metropolitan areas are expected.」

「During the nine-month period ended [third quarter], signs of slowing construction demand began to emerge as Tokyo Olympics-related work entered its final stages and rush demand ahead of the consumption tax increase subsided. Domestic orders received by the 8 major general contractors are also expected to fall to their lowest level in 6 years. However, office demand remains strong, particularly in central Tokyo, and redevelopment projects continue to be planned. Although demand is expected to stabilize temporarily, the industry as a whole is expected to remain on a gradual recovery track over the medium term.」

「During the six-month period ended [second quarter], the construction industry followed a gradual recovery trend overall. Although the floor area of nonresidential construction starts in the Tokyo metropolitan area fell 15.5% year on year to 6,068 thousand square meters, office demand remained strong, particularly in central Tokyo, as the average vacancy rate in Tokyo's five central wards fell to 1.78%, and redevelopment projects continued to be planned.」

「No new business or other risks arose during the three months ended 30 June. There were also no material changes to the business and other risks described in the securities report for the previous fiscal year.」

「During the nine-month period ended [third quarter], orders for building construction and other work continued to recover moderately year on year. However, because large-scale redevelopment projects in the Tokyo metropolitan area account for much of the total, sentiment differs across the industry. There are also concerns over rising costs due to labor shortages, improved treatment of construction workers and work-style reforms, and uncertainty about the outlook remains unresolved.」

「During the six-month period ended [second quarter], the construction industry followed a gradual recovery trend overall. Orders for building construction and other work recovered moderately year on year from October 2017, while the floor area of nonresidential construction starts gradually trended upward as redevelopment projects in central Tokyo progressed.」

「No new business or other risks arose during the cumulative first quarter of the current consolidated fiscal year. There were also no material changes to the risks described in the previous fiscal year.」

「In the construction industry, private-sector construction investment is expected to continue increasing, driven by large-scale redevelopment projects and demand to rebuild aging buildings. Although there are concerns over significant fluctuations in construction market conditions as development projects in central Tokyo become concentrated within a certain period, creating tight supply and demand,」

「In the construction industry, construction investment has stagnated because of soaring construction costs and other factors, while the floor area of private-sector construction starts has remained flat year on year. However, led mainly by large-scale development projects in central Tokyo, private-sector nonresidential construction investment is expected to trend upward and the industry's overall business environment is expected to remain on a gradual recovery track.」

「In the construction industry, construction investment had temporarily stagnated because of soaring construction costs, with the supply of large office buildings in Tokyo's 23 wards falling below the average of the past 20 years. However, as large-scale development projects in central Tokyo progressed, the floor area of private-sector construction starts began to recover year on year, and the business environment for the industry as a whole is expected to remain on a gradual recovery track.」

「There are concerns that construction market conditions could temporarily deteriorate as a reaction to the sharp increase in office supply in central Tokyo.」

「As the volume of office supply in central Tokyo, which had been expanding, stabilized, there were concerns over a temporary decline in orders across the construction industry.」