Commercial property prices in Tokyo, a bellwether for Japan’s market, look to have peaked as the capital faces a glut of new offices even as the number of office workers is set to decline. The property market had rebounded in the past three years as Prime Minister Shinzo Abe’s economic policies, with ultra-low interest rates, drew in investors attracted by the wider gap than in other developed markets between returns on property and borrowing costs. Also, as Japanese companies regained confidence, they sought more space, helping drive down office vacancy rates in the capital. Rents have been rising since 2014. But office rents are now expected to start falling as early as next year as new space comes on to the market, analysts and commercial property owners say. “Tokyo’s office space is almost full, but if the economy turns negative, some tenants may reduce their space or move to a cheaper location,” said Masashi Saio, section manager at the real estate department of Nippon Life Insurance, which owns office buildings nationwide. “If that happens, owners of office properties may have to cut rents. We expect a large supply of office space that could affect the balance between supply and demand,” he added. Newer space may be filled, but there will be vacancies in older properties. Demand for new office space is not expanding because financial institutions are not growing their space like they used to Shunji Kobayashi, senior manager at the real estate research team, Sumitomo Mitsui Trust Bank Between 2018 and 2020, when Tokyo is due to host the Olympic Games, the capital expects to add 2 million square meters of new office space – equal to more than 8 per cent of its total as of mid-2016, said Shunji Kobayashi, senior manager at the real estate research team for Sumitomo Mitsui Trust Bank. “Newer space may be filled, but there will be vacancies in older properties,” he said. “Demand for new office space is not expanding because financial institutions are not growing their space like they used to.” Worries over falling rents are already feeding into property firms’ share prices, with the performance of the Topix real estate index ranking 26th out of 33 sub-indexes last year. Mitsui Fudosan, one of Japan’s largest property developers, is already marketing space in its Tokyo Midtown, a 10-year-old office and retail complex in Roppongi, which is expected to become almost one-third vacant, a Tokyo-based broker said. Yahoo Japan Corp last year moved from the complex to the newly built Tokyo Garden Terrace, developed by Seibu Holdings Inc. And Fast Retailing Co, which operates the Uniqlo clothing retailer, also plans to move some of its operations out of the complex to a warehouse in a cheaper location.