The Impact of the Flight to Quality on Office Rents and Vacancy Rates in Tokyo

Matsuo Kazushi (), Tsutsumi Morito (), Imazeki Toyokazu () and Kudoh Takeshi ()
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Matsuo Kazushi: Graduate School of Systems and Information Engineering, University of Tsukuba, 1-1-1 Tennodai, Tsukuba, Ibaraki 305-8577, Japan
Tsutsumi Morito: Graduate School of Systems and Information Engineering, University of Tsukuba, 1-1-1 Tennodai, Tsukuba, Ibaraki 305-8577, Japan
Imazeki Toyokazu: Sanko Estate Co., Ltd., Ginza Sanwa Bldg. 4-6-1 Ginza, Chuo-ku, Tokyo 104-0061, Japan
Kudoh Takeshi: Sanko Estate Co., Ltd., Ginza Sanwa Bldg. 4-6-1 Ginza, Chuo-ku, Tokyo 104-0061, Japan

Real Estate Management and Valuation, 2024, vol. 32, issue 3, 77-86

Abstract: With the rapid spread of telecommuting since the COVID-19 pandemic, companies have been relocating to high-end business centers, thereby enhancing the workplace experience for employees, a phenomenon called the "flight to quality." However, this trend’s impact on rents and vacancy rates in individual office buildings has not been extensively studied. To determine the effects of the flight-to-quality phenomenon on individual buildings, we examine the impact of modern amenities, which directly influence employee lifestyles, on rents and vacancy rates in the Tokyo office market. Using a propensity score-based quasi-experimental method, we find that commercial properties with such modern amenities command higher rents and experience lower vacancy rates than those without. The difference in vacancy rates has increased since 2020. However, the significance of these amenities diminishes for properties less competitive in age, size, and location. The results indicate that the "flight to quality" may further polarize the office real estate market into two categories: one for high-end buildings experiencing increasing demand, and another for those with modest amenities experiencing decreasing demand. The findings have implications for office building owners/investors and the government, make educated decisions as to whether to invest in modern amenities, join the quality competition, or encourage urban restructuring.

Keywords: flight to quality; amenities; office rent; vacancy rate; propensity score (search for similar items in EconPapers)
JEL-codes: R30 R33 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:remava:v:32:y:2024:i:3:p:77-86:n:1006

DOI: 10.2478/remav-2024-0026

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