Trends in Tokyo's Office Market - Tokyo's Dominance Grows Amid Concern of a Market Downturn

Toshihiko Yamakata

Introduction

Tokyo's office market enjoyed steady growth last year as strong demand from foreign financial institutions and IT companies brought the vacancy rate down to 3.6% in the first quarter of 2001. In particular， new large office buildings were in short supply， becoming almost fully occupied by the time construction was completed.

However， the effects of the ailing U.S. economy and IT downturn from the second half of 2000 have been cropping up in the market data from the second quarter of 2001. Moreover， with the terrorist attacks in the U.S. and war in Afghanistan creating uncertainty in the global economy， many companies including foreign financial institutions and hi-tech companies are postponing office relocations and implementing further cost cuts. Considering these market conditions and the large supply of large office buildings slated to come on line in 2003 in central Tokyo， there is growing concern that the market will deteriorate further.

However， compared to Osaka and Nagoya， Tokyo's office market， being at the center of Japan's economy， has strong potential. Demand for advanced and diverse office space is concentrated in Tokyo， giving depth to the market. This， along with the renewed population concentration in Tokyo， are enhancing Tokyo's preeminent position.