Tetsuya Kaneko, Director, Head of Research and Consultancy for Savills Japan discusses mid-market rental trends within Tokyo's central five wards.
Although the premium of C5W rents over the average of 23W rents shrank this quarter, there has been steady growth in the average annual premium since 2014; it has grown from an average of 11.9% in 2012 to stand at 18.1% as of Q2/2018. Increasing demand for centrally located properties should drive this premium higher for the foreseeable future, as should a steady supply of new buildings. It stands to reason that fresh stock in the C5W is likely to command a quality premium over ageing stock in outer wards such as those in the West submarket, for instance, where the average age of listed buildings has risen.
A law governing land use that incentivised owners to maintain farmland through tax relief, enacted in 1992, is due to expire in 2022. The expiry could result in an increased supply of residential property as owners are finally able to sell their land without additional tax being levied under this law. Developers are expected to seek to maximise profits from converted land use and take advantage of the strong market if good sentiment continues. The addition of fresh, higher specification housing stock might help narrow the discount of the West submarket, but excess supply may work adversely. This effect would be greatest in Nerima in the West submarket and Setagaya in the South submarket, where a significant proportion of such land is concentrated. The real impact is still uncertain and it is too early to tell how farmland owners are likely to respond to the change.
The bright spot in the C5W was Shinjuku which registered a fourth consecutive quarter of rental growth, reaching 6.0% YoY after a 1.9% gain this quarter. For instance, Comforia Shinjuku Eastside Tower, a block of luxurious flats, is currently advertising multiple units over 40 sqm at an almost 30% premium to last quarter’s average rent for the ward. Given its high quality and that occupancy in this building has comfortably met or exceeded 95% for the last year, these rents should be attainable.
Elsewhere in the C5W, Chuo posted an unprecedented decline of 3.8% QoQ as premium listings from last quarter dropped out of the sample and numerous more affordable listings were added in less convenient locations such as Harumi and Hatchobori. In Chiyoda, premium listings which had brought up the average last quarter appear to have been snapped up, causing the ward average to fall 1.8% QoQ. YoY growth in both wards is strong at 5.7% and 6.3% for Chuo and Chiyoda, respectively. In Shibuya, multiple units at Zoom Sasazuka are offered at a discount of over 10% to this quarter’s average asking rent, partly contributing to a 2.7% QoQ fall in average asking rents across the ward. In Minato, asking rents dropped 1.7% QoQ despite a slew of multiple premium listings at the recently completed Canalfront Shibaura representing more than 10% of Minato's listed space this quarter. YoY growth for Minato rents currently stands at 2.8%.
In the South submarket, average rents fell 1.5% QoQ, led by Setagaya and Shinagawa, down 3.0% and 2.9%, respectively, but balanced by a fall of 0.5% in Ota and growth in Meguro of 0.4%. The West submarket registered a decline of 1.0% QoQ, with Suginami falling 3.0% and Nakano 2.3%, but Nerima rising 3.0%. In the Outer North submarket, rents grew 1.4% this quarter, while the Inner North submarket saw even better growth than its neighbour, rising 2.7% QoQ.
For more information about Tokyo's mid-market rental trends, phone or email Tetsuya Kaneko, Director Head of Research and Consultancy, of Savills Japan.
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