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Tokyo

Osaka – What Lies Ahead for the Second Largest City in Japan

Can Osaka become a cosmopolitan city? – A report on Osaka Grade A Office Market


TOKYO June 5, 2009  –  In addition to the data on Tokyo Grade A Office Market in its quarterly research publication, Asia Pacific Property Digest – Japan Edition, Jones Lang LaSalle will now be introducing Osaka Grade A Office data starting 1Q 2009.  To commemorate the launch, Jones Lang LaSalle is releasing a special report, Osaka Grade A Office Market, to introduce Japan’s second largest commercial centre and give insights to the market.

The definition of a Grade A office building in Osaka is that it is located in the CBD comprising Kita-ku and Chuo-ku that include major submarkets of Umeda, Midosuji and Nakanoshima, and of leasable floor area of 10,000sqm or more with a typical floor area of 600sqm or more.

The average rent for the first quarter of 2009 was JPY20,764 mo/tsubo in Osaka in comparison to Tokyo’s JPY43,247 mo/tsubo (including CAM charges).  The rent for Osaka market began to drop in the third quarter of 2008 at a rate of nearly 5% per quarter and took a nosedive in the first quarter of 2009 – at 9.1% reduction from the previous quarter.  However, the vacancy rate remains stable at 4.9%, which suggests that the owners have been able to retain tenants at the cost of lower rents.  The current economic environment leaves some uncertainties as to the future vacancy trend that may follow the footsteps of the Tokyo office market, where the rental decline and vacancy rate increase are consequently taking place.  As for the existing office stock, Osaka has a total leasable area of approximately 1.1Msqm in contrast to Tokyo’s 3.8Msqm – relatively small in scale to the size of the city’s economy.

“Even in Osaka, where the demand is traditionally limited and the majority of tenants are medium to small-sized businesses unwilling to pay high rents, the rental level for Grade A office has begun to decline in the third quarter of 2008.  This indicates that the deteriorating economy across the globe is affecting the market,”,says Takeshi Akagi, Head of Research & Advisory, Japan.

The issues facing Osaka in the short term include the upcoming massive new supply and the potential demand to absorb this. In 2012, the completion of large-scale projects including Osaka Umeda-North Yard redevelopment would add approximately 2.9Msqm of new Grade A space to the existing stock.  In the next five years, the new supply is expected to total nearly 6.4Msqm, equivalent to 60% of the entire stock as at end 2008.  According to the report, this may have more severe impact than the ‘Year 2003 problem’ that Tokyo faced, depending on the level of potential demand.  “The economy of Osaka, the second largest city in Japan, is more than twofold of those of Hong Kong and Singapore, and one of the largest amongst cities worldwide.  Given the size of its economy, the demand generated as a result of a major collaborative effort by public and private sectors would not only put Osaka on the global map but demonstrate its potential as a full-fledged cosmopolitan city.  Additionally, as its economy heavily depends on East Asia, the stabilising economy in China will potentially have a positive effect,” adds Mr. Akagi.

Looking ahead, Mr. Atsushi Tanaka, Local Director, Investors Services, who heads the firm’s Kansai Office, comments, “We have been in Osaka for four years since setting up our corporate office to handle property management business in Western Japan, and we are now looking into expanding our services based on the platform and network built over the years.  We see the current difficult environment as an opportunity to show our real value in Osaka market as the global real estate service provider with local market knowledge.”