Robust demand from 3PLs and online retailers

• The logistics sector’s economic indicators were solid entering Q2 2024. In May, the industrial production index increased 2.8% m-o-m. Value of exports increased for the sixth consecutive month, and imports increased for the second consecutive month.
• Strong demand from 3PLs and online retailers, coupled with major new supply, pushed net absorption to reach a robust 641,000 sqm in Q2 2024. For H1 2024, the figure was more than 803,000 sqm.

Overall vacancy decreases for the first time in four quarters

• New supply totalled 608,000 sqm in Q2 2024, increasing the total stock by 3% q-o-q and 11% y-o-y. Six facilities, including Yokohama Fukuura Logistics Center in the Bay Area and Prologis Park Koga 5 in the Inland Area, entered the market.
• The vacancy rate in Greater Tokyo stood at 9.6% for Q2 2024, decreasing 40 bps q-o-q and increasing 230 bps y-o-y. The vacancy rate in the Bay Area fell to 8.2%, decreasing 70 bps q-o-q, while Tokyo Inland fell to 10.2%, decreasing 30 bps q-o-q.

Average rents grow moderately

• Gross rents in Greater Tokyo averaged JPY 4,638 per tsubo, per month in Q2 2024, remaining flat q-o-q and increasing 2.0% y-o-y. The Bay Area and the Inland Area have both increased by 0.2% q-o-q, reflecting new completions with higher rents.
• Capital values in Greater Tokyo remained flat q-o-q and increased 1.6% y-o-y in Q2 2024, reflecting moderate rent growth. A notable sales transaction involved KDX Realty Investment Corporation acquiring KDX Logistics Ebina Chuo for JPY 5.0 billion.

Outlook: Rents to remain stable but cap rates to compress

• According to Oxford Economics, in 2024, industrial production is expected to fall 1.4% and exports are likely to rise 0.3%, while imports are likely to fall 0.3%. Downside risks include the impact of the slowdown in global economies.
• Amid sustained strong demand, overall rents are expected to grow fairly well; however, given the huge volume of supply, rents are likely to feel downward pressure in some submarkets. Cap rates may compress further amid continued investor interest.