APPD Market Report Article

Tokyo

May 31, 2022

1.8%

JPY 4,462

Growth
Slowing

Solid demand from 3PLs and EC retailers continue

  • Logistics sector economic indicators were strengthened entering 1Q22. In February, the industrial production index increased 0.1% m-o-m, increasing for the first time in three months. Exports increased for the 12th consecutive month and imports increased for the 13th consecutive month.
  • Net absorption totalled 584,000 sqm in 1Q22, with strong, sustained demand from 3PLs and online retailers, despite a slowdown from the previous quarter due to large supply.

Overall vacancy increases to 3% for the first time in 11 quarters

  • New supply totalled 798,000 sqm in 1Q22, increasing total stock 5% q-o-q and 20% y-o-y. Seven facilities, including MFLP Ichikawa Shiohama 2 (GFA 161,000 sqm) in the Bay area, and Matsudo Logistics Center (GFA 67,000 sqm) and LOGI’Q Sayama Hidaka (GFA 114,000) in the Inland area, entered the market.
  • The vacancy rate in Greater Tokyo stood at 3.0% for 1Q22, increasing 120 bps q-o-q and increasing 210 bps y-o-y. The vacancy rate in the Bay area rose to 4.1%, increasing 340 bps q-o-q; and Tokyo Inland rose to 2.5%, increasing 30 bps q-o-q, driven by new completions entering the market.

Average rent growth accelerates

  • Gross rents in Greater Tokyo averaged JPY 4,462 per tsubo, per month, in 1Q22, increasing 1.0% q-o-q and 1.8% y-o-y. Growth continued to be driven by new completions that asked for higher rents. Rents in the Bay area increased 0.9% q-o-q and 0.6% q-o-q in the Inland area.
  • Capital values in Greater Tokyo increased 4.0% q-o-q and 11.0% y-o-y in 1Q22, reflecting cap rate compression and rent growth. A notable sales transaction involved Mitsui Fudosan Logistics Park’s acquisition of MFLP Yachiyo Katsutadai for JPY 18 billion and an NOI cap rate of 4.3%.

Outlook: Capital values to grow, reflecting cap rate compression

  • According to Oxford Economics, trade-oriented indicators are expected to be uneven in 2022. Industrial production is expected to fall 1.3%, while exports and imports are likely to rise 6.0% and 4.4%, respectively. Downside risks include the impact of supply-side constraints and raw material price surges.
  • The vacancy rate is expected to remain almost stable as robust demand is expected to absorb the record new supply due to come on stream in 2022 and 2023. As such, rents will likely remain stable. Capital values are expected to grow as cap rates may compress further amid continued investor interest.

Note: Tokyo Logistics & Industrial refers to the Greater Tokyo prime logistics market.

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