Tokyo office market fights back after 20-year slump

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.