Tokyo's office market is showing signs of recovery after a two-decade decline, prompting companies such as Apple and Morgan Stanley to relocate before rents rise and vacancies fall.
Real estate broker Jones Lang LaSalle and Barclays predict leasing costs for prime office space will climb this year and next.
The vacancy rate for grade A buildings in the city's major business districts fell for a second quarter to 8.8 per cent as of December from a record 10.3 per cent in the three months to June, according to broker CBRE Group.
"We are now seeing some very early signs of a return in confidence to the market," said Neil Hitchen, regional director at Jones Lang LaSalle in Tokyo.
Tenants "are renegotiating terms early to try to take advantage of the tenant-favourable market conditions and get in good shape for the next few years," he said.
The rebound may signal the end of a 21-year slide that cut rents for all categories of offices in the city's five central wards by 63 per cent, according to Miki Shoji Co, a Tokyo-based broker.
Japan has been struggling with deflation that has caused companies and households to put off spending since asset prices collapsed in the late 1990s.
Landlords are now seeking rent increases and investors are considering acquisitions as Prime Minister Shinzo Abe pursues fiscal and monetary stimulus to pull Japan out of its third recession in five years.
Contracted rents for prime office space in the central wards rose 13 per cent to 23,969 yen (HK$1,934) per tsubo in the fourth quarter from the previous three months, said Sanko Estate, a Tokyo-based broker.
"There is an increase in expectations that real estate investment will become more active, helped by monetary easing since Abe took over," said Masashi Hirano, head of Tokio Marine Property Investment Management.
Tokyo isn't alone. Office vacancies in Osaka, the second- biggest city, are declining after reaching a record high of 12.4 per cent in March 2011.
While vacancy rates are improving, leasing costs remain under pressure. Rents for all classes of office space in the central wards were at an all-time low of 16,554 yen per tsubo in January, compared with the peak of 44,193 yen per tsubo in 1991, according to Miki Shoji.
A tsubo, the standard measure of property in Japan, is 3.3 square metres.