Mid-market asking rents in Tokyo's 23 wards continued to show gradual increases in Q2/2016. Though global economic conditions are uncertain, high occupancy and continued urbanisation should support additional rental growth.

• Savills rental index: Tokyo ‘mid-market’ apartments

Savills collates over 20,000 leasing comparables each quarter in order to analyse trends affecting ‘mid-market’ rental apartment units in Tokyo. Our benchmark rental data is based on average advertised monthly rents for units which fit the following criteria: 

1) one- or two-bedroom rental apartments of up to 100 sq m in size,
2) reinforced concrete structures built within the last ten years, and
3) properties located in Tokyo’s 23 wards and situated within a ten-minute walk of the nearest station(s).

In contrast to the luxury residential market, advertised or ‘asking’ rents for mid-market units fitting the above criteria are typically non-negotiable and are not subject to incentives such as rent-free periods. Savills mid-market rental indices are therefore considered to closely reflect movement in contract rents for the Tokyo market. After hitting a low in Q4/2011, rents in Tokyo’s 23 wards have gradually recovered, though they are still almost 8% below the 2H/2008 average. In Q2/2016, average rents in Tokyo’s 23 wards rose 0.2% QoQ to JPY 3,639 per m2. Rents in the central five wards have bounced back with more strength, and are currently less than 3% below their 2H/2008 base. In Q2/2016, rents increased an average of JPY 77 per m2 or 1.8% over the preceding quarter, the single highest quarterly increase since the crisis. 

• Tokyo mid-market apartment rental trends by survey area

In general, centrally located areas such as the central five wards and their adjacent neighbourhoods show higher rental premiums due to their convenience and accessibility. Outer areas, such as Outer North and Outer East, tend to have discounts. 

As of Q2/2016, the highest premium was observed in the central five wards at 16.2%. The South and the Inner North recorded positive premiums of 3.8% and 1.8% respectively. The outer areas, meanwhile, showed discounts. The greatest discount was seen in the Outer East area at -22.6%, followed by the Outer North (-13.7%) and West (-7.5%) areas. The Inner East area – comprised of Koto, Sumida and Taito wards – currently shows a discount of -5.1% but is catching up to the 23- ward average as several developments progress leading up to the Olympic Games in 2020. 

Overall, in Q2/2016, the Central and South areas pulled slightly farther ahead of the 23-ward average, while variances in the remaining areas all remained flat or converged slightly toward the average. The Central area’s QoQ growth has propelled it into the lead in YoY terms, growing 2.9% since 2Q/2015. The submarket currently commands an average rent of JPY4,264 per sq m (JPY14,095 per tsubo), up 1.8% QoQ. All areas posted over 1.0% rental growth YoY in Q2/2016 except the Outer North area, which is up 0.7% YoY to JPY3,122 per sq m (JPY10,319 per tsubo). 

• Tokyo mid-market apartment rents by unit size

Tokyo’s rental market is principally made up of compact single-occupier units, typically less than 45 m2 (13.6 tsubo) in size. Unlike other major global cities such as London and New York, house or apartment sharing does not form a major segment of the rental market. As a result, there is a large, stable market for small- to midsized units. In Q2/2016, rental growth was concentrated primarily in larger units of 30 to 60 m2. Rents for units of such size increased 1.0% QoQ in the 23-ward area as a whole and 2.0% or more in the central five wards. Rental growth was much more muted for units of just 15 to 30 m2, growing only 0.4% in the central five wards and declining by 0.9% in the 23-ward area as a whole.

View the full market summary and report here.