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CPI continues to improve
The consumer price index (CPI) continues to show positive signs as oil prices recovered. The Japanese economy also grew by 1.6% in the last quarter, making it the eighth consecutive quarter of positive growth. A tight labor market and an unemployment rate below 3.0% also continue putting upward pressure on wage growth.
Strong market conditions continue with occupiers’ demand
Asking rent for Grade A office space increased 1.6% year-on-year. This uptick is statistically due to the remaining smaller space with tight vacancy rates, which is offered with higher rents than bigger spaces. Also, absorption is mainly influenced by two factors: increased expansion/relocation needs for talent acquisition, and stimulated relocation demand due to landlords of the new supply offering flexible lease conditions to their new tenants (mainly key tenants).
Market to continue strong until inflection point in the fourth quarter
Data for the office market showed a rather slow response due to strong pre-leasing activities of the new supply that does not reflect in official statistics. Considering a time lag of secondary vacancy caused by the tenant relocation into new supply showing up in the existing office stock, the impact of the supply will appear in the fourth quarter of the year.