ECONOMY: Tokyo’s Employment Recovery Continues, Led by Growth in Technology Sector
Japan’s annual real GDP growth is expected to decelerate to 1.0%in 2024 from 1.6% in 2023 as global economies continue to normalize from the pandemic. According to the quarterly corporate earnings survey conducted by the Ministry of Finance, improving corporate earnings through Yen weakness started to decelerate with the aggregate ordinary income in Q4 2023, down 5% y-o-y, led by weakness in the manufacturing sector, down 10% y-o-y5. Tokyo’s unemployment rate ticked up by 0.4pp from Q3 2019, as an increasing number of young employees opted out of the workplace. However, the overall rising labor participation rate lifted Tokyo’s total employment figure to 8.4 million, growing at CAGR of 1.0% from Q3 2019. This compares to the corresponding national employment growth rate of 0.1%. By industry, technology sector employment grew at CAGR of 1.2%, while the wholesale & retail sector fell by CAGR of minus 2.9%, both from the baselinefigures as of Q3 2019.
SUPPLY & DEMAND: Expect Tight Supply-Demand Balance in 2024 With Fading Impact of Supply Cycle
Employment growth in the Tokyo C5W has been outpacing corresponding growth in available office stock since 2016, leading to office space per worker falling by 18%. With projected employment growth at 5Y CAGR of 1.6% until 20256, anchored by growing technology employment at 6Y CAGR of 4.5%6, overall demand is expected to remain stable. Key tenant relocation criteria also reveal growing demand for upgrades, better locations, and/or higher-grade facilities. Despite strategic floor reductions following the pandemic, higher office attendance rates have led to a growing shortage of workspace, pushing more workers towards serviced office providers. More flexible use of office space is likely to limit further demand weakness, leading to tighter market conditions ahead at least during the relative pause in new supply scheduled for 2024.
PRICING: Rental Cycle Bottoming Out, Expect Near-Flat Rental Movements With a Shift to Inflationary Environment