Vacancy Rates in Osaka at 1%, and Tenants Have Nowhere to Go

With high demand and tight supply, a fierce battle for floor space is on the horizon

A company with an office in Osaka needs to secure human resources in order to keep up with its growing business. They want to relocate to a bigger place, but no matter how long they wait, they just can’t find a property that meets their conditions - they want to move, but there’s nowhere to go. No wonder—according to a survey by the JLL Japan Research Department, the vacancy rate in Osaka A-grade offices for the fourth quarter 2017 was 1.9%. Vacant rooms are running dry, and companies’ relocation needs are not being met. Nariki Yamaguchi, JLL Japan’s Kansai Branch Manager, says, “The vacancy rate has been decreasing more and more, and the tight supply and demand situation is ongoing.” He notes that office buildings with large spaces for lease are flooded with real estate brokers. Newly available offices, in particular, are seeing fierce battles waged over them. 103,000 m² of A-grade office space was put on the market in 2017. Nakanoshima Festival Tower West, which was completed in March 2017, and the K-Opti.com Building (Shin MID Osaka Kyobashi Building), which was completed in September 2017, opened their doors with no vacancies. The leasing situation of Namba SkyO (also known as the Shin Nankai Kaikan Building), which will be completed in September 2018, also seems to be good. Yamaguchi gives his opinion. “While it is located in Namba, a commercial district, the rent they were looking for a year ago when they started leasing was 25,000 yen per tsubo, with common area charges included.” (A tsubo is a unit of area equivalent to roughly 3.3 square meters.) “ At the time, this was evaluated as ‘aggressively’ higher than the market price, but it was accepted by the market just like that around the end of 2017. The leasing situation has changed steadily, which shows that there is a high possibility that all rooms will be occupied by the time they open for business.” This makes it clear that the market is booming. After all of the buildings mentioned above are open, the Obic Midosuji Building, scheduled to be completed in January 2020, and the “Umeda 1-chome 1-banchi Project” (the name of the building has not yet been finalized), which will be completed in spring of 2022, are the only ones waiting. “The amount of available offices is not insufficient at all,” Yamaguchi insists.

Offices in the suburbs of Osaka being refilled smoothly

Looking at the big picture of the entire office market in downtown Osaka, the Umeda area in the north surpasses others in terms of both accessibility and building grade. It has the top rent, and most of the space in Grand Front Osaka, a landmark of the area completed in 2013, is now occupied. Finding an A-grade office to relocate to is very difficult. Even around Yodoyabashi and Honmachi, which are old and established business districts, empty rooms are steadily running out, and the market rent price has started to rise gradually. It is becoming difficult to secure large floor spaces, even in these areas. Some tenants that cannot handle the rent downtown are going to look for large offices to relocate to in more suburban locations, and actually vacant spaces are decreasing in buildings such as the Asia-Pacific Trade Center (ATC). It’s not just Japanese companies that are performing well who need more floor space - there’s also a voracious demand from companies who want to relocate from their own buildings outside of Osaka City to the heart of the city. According to Yamaguchi, “There are still many cases in which companies whose own buildings have gotten old sell their old building and relocate to the heart of the city. The main reasons for those kinds of cases are when the old building has a problem with its earthquake resistance, or when they want a better location in order to attract human resources.” Particularly when there is a pronounced shortage of human resources in companies, they judge that it is difficult to secure capable workers in the suburbs, to which it takes a lot of time to commute. There have also been cases of companies that consider establishing offices in the city center, if only as a kind of front desk for the company.

More tenants increasing office efficiency

Offices are hungry to relocate, but as mentioned above, there is an overwhelming lack of newly available space. The number of tenants that can’t relocate even if they want to appears to be considerable. How do they cope with the problem? Yamaguchi explains. “The number of A-grade offices currently on the market is small enough to count.  With limited options, it’s difficult to find a property that meets your wishes. On the other hand, because relocating can’t be done easily, companies have more time to think through their office strategies. By listening to tenants who want to relocate, we can discover potential management issues and suggest options other than relocating, and some of our clients are happy with us because of that.” Specifically, rather than increasing floor space by relocating, companies can increase their workforce by reworking the layout of the offices they already have and increasing efficiency. This is just one example of a suggestion we might provide in our consulting services. We also get a lot of inquiries about making effective use of flexible spaces outside their offices, such as satellite offices and coworking spaces. According to Yamaguchi, “There are many cases in which companies that want to relocate from the suburbs to the city center do so with the goal of attracting human resources with a good location, and they are particular about what kind of office they like. We put effort into creating workplaces with an emphasis on ‘work style reform.’ We provide a multiple range of services which we can combine to give you the best outcome possible.”

No vacancies in the Osaka office market - it’s an unprecedented situation, but it’s the one we’re in. If you are serious about work style reform and obtaining human resources, this may be the perfect chance to rethink your office strategy.