The Tokyo Office Market's "2010 Problem"　-- A Net Decline in Office Demand Could Impair the Market From 2003

Toru Matsumura

The Tokyo Office Market's "2010 Problem"　-- A Net Decline in Office Demand Could Impair the Market From 2003

Abstract

With no full-scale economic recovery in sight to trigger an expansion in office demand， the large supply of office space entering the market in 2003 will inevitably increase vacancy rates and lower rents. Although competition to attract tenants is expected to result in a zero-sum game， both new and old large-scale buildings stand to benefit from the rising trend in corporate mergers and consolidation of operations. Competition will also intensify among medium-scale buildings as businesses cancel leases to consolidate offices; however， the risk of cancellations and rent decreases will be relatively low for buildings that are appropriately managed. For property managers and J-REITs， the 2003 over-supply problem represents a unique opportunity to show resistance in a faltering market and gain the confidence of investors.

During the decade from 2000 to 2010， the number of office workers in the 23 wards of Tokyo is expected to decrease by 5%. In the worst case， this would mean the disappearance from the market of 3.7 million square meters of office demand， or 23 times the size of the Marunouchi Building. Moreover， we predict that the decline could be exacerbated around 2007 to 2009 by a wave of retirement among the baby boom generation， and culminate in what we call the “2010 problem.” Market participants will need to devise long-term strategies that deal with the predicted decline in office demand， something they have never experienced before.

Since declining demand is forecast for the Tokyo office market， in which supply has always tended to create demand in the past， an increase in the development of outstanding properties will lead to greater disparities among projects and areas， and could potentially give rise to a large amount of dead stock. As such， urban development policy needs to shift from a supply-side orientation to one that emphasizes stock adjustment and the inducement of demand.

The Tokyo Office Market's "2010 Problem" -- A Net Decline in Office Demand Could Impair the Market From 2003

The Tokyo Office Market's &quot;2010 Problem&quot; -- A Net Decline in Office Demand Could Impair the Market From 2003

Toru Matsumura

The Tokyo Office Market's "2010 Problem"　-- A Net Decline in Office Demand Could Impair the Market From 2003

The Tokyo Office Market's "2010 Problem"　-- A Net Decline in Office Demand Could Impair the Market From 2003