Tokyo office boom fades with more space, but fewer workers

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.