APPD Market Report Article


September 4, 2023

Takeshi Akagi, Head of Research, Japan


JPY 81,528


Demand for high-quality space continues to come from luxury brands

  • Retail-related indicators continued to improve in 2Q23. Consumer sentiment was 36.2 in June, increasing for the fourth consecutive month. The department store component overall had room for recovery, but luxury goods continued to outperform 2019 by around 40%. This was driven by domestic consumers, as foreign visitor arrivals still recorded at around 60% of 2019 levels.
  • Under the circumstances, strong demand for high-quality space came from luxury brands in 2Q23. New openings in the quarter included Grand Seiko and H&M in Ginza, as well as Beams Boy and Keen in the fringes of Omotesando. In addition, Balenciaga opened a limited period shop at the ground floor of Tokyu Ginza Plaza. 

Ginza Takagi Building completes along Sotobori-dori

  • Ginza Takagi Building, a retail-led building with 12 storeys above ground and a GFA of 1,200 sqm, completed along Sotobori-dori. The top floors of the standalone building are built with wood, taking environmental sustainability into consideration.
  • There were no new Prime retail projects added to the development pipeline in 2Q23. However, there were a few on the fringes, including Minami Aoyama 5-chome project, which will provide nine storeys above ground and have 3,000 sqm of GFA upon completion in 2024.

Rent growth underpins capital value growth

  • Rents averaged JPY 81,528 per tsubo, per month, at end-2Q23, increasing 2.0% q-o-q and 10.1% y-o-y. Ground floor rents in Ginza continued to approach 2019 levels with a unit rent of JPY 275,000 per tsubo, per month, while Omotesando exceeded 2019 levels with a historic high of JPY 245,000 per tsubo, per month.
  • Capital values increased by 2.3% q-o-q and 11.7% y-o-y in 2Q23. The eighth consecutive quarter of growth was underpinned by rent growth as cap rates were stable. Notable transactions included Tukuyomi Holdings’ acquisition of the Taiyo Building along Ginza Chuo-dori for a confidential price.

Outlook: Capital values are expected to grow, reflecting rent growth

  • According to Oxford Economics as of June 2023, private consumption was revised upward to grow by 1.6% in 2023, with support from spring negotiation pay raises. The risks include the impact of global monetary tightening on the local market.
  • With healthy sales to continue and room for recovery in footfall, demand from retailers is expected to remain robust and underpin rent growth. In the investment market, capital values are expected to rise, reflecting rent growth, with possible cap rate compression given the prices set by high-net-worth individuals (HNWIs) and their asset management companies.

Note: Tokyo Retail refers to Tokyo's prime retail markets of Ginza and Omotesando.

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