APPD Market Report Article

Tokyo

December 1, 2021

1.4%

JPY 4,407

Growth
Slowing

Sustained demand from e-commerce retailers and 3PLs

  • Logistics sector economic indicators were uneven entering 3Q21. In August, the industrial production index decreased 3.2% m-o-m, decreasing for the second consecutive month, reflecting continued semiconductor shortage. Exports increased for the sixth consecutive month and imports increased for the seventh consecutive month. The fourth state of emergency had limited impact on the logistics sector.
  • Sustained demand from e-commerce and 3PL players, coupled with major supply, saw strong net absorption of 405,000 sqm in 3Q21. For 1Q21-3Q21, the figure totalled 1,194,000 sqm.

Overall vacancy rises to the 2% level

  • New supply totalled 658,000 sqm in 3Q21, increasing total stock by 4% q-o-q and 15% y-o-y. Six facilities, including JMT Kasai Building A (GFA 56,000 sqm) in the Bay area, and GLP Joso (GFA 58,000 sqm) and GLP Kitamoto (GFA 49,000) in the Inland area, entered the market. Overall vacancy rises to the 2% level for the first time since 3Q19.
  • The vacancy rate in Greater Tokyo stood at 2.4% for 3Q21, increasing 160 bps q-o-q and 230 bps y-o-y. The vacancy rate in the Bay area rose to 0.6%, increasing 60 bps q-o-q, and Tokyo Inland rose to 3.3%, increasing 200 bps q-o-q.

Rent growth accelerates in both Tokyo Bay and Tokyo Inland

  • Gross rents in Greater Tokyo averaged JPY 4,407 per tsubo per month, in 3Q21, increasing 0.1% q-o-q and 1.4% y-o-y. Growth continued to be driven by new completions that asked for higher rents. Rents in the Bay area increased 0.5% q-o-q and 0.2% q-o-q in the Inland area.
  • Capital values in Greater Tokyo increased 2.7% q-o-q and 12.8% y-o-y in 3Q21, reflecting cap rate compression and rent growth. A notable sales transaction involved Daiwa House REIT acquiring D Project Wako A for JPY 10.8 billion or at an NOI cap rate of 4.0%.

Outlook: Capital values to grow, reflecting cap rate compression

  • According to Oxford Economics, trade-oriented indicators are expected to be patchy in 2021. Industrial production is expected to fall 2.0%, while exports and imports are likely to rise 12.9% and 6.5%, respectively. The economy is expected to pick up as socioeconomic activities resume on the back of recovering overseas economies. Risks include the supply-chain constraints to industrial production.
  • Average rents are likely to be on an upward trend, as rising land prices and low vacancy rate encourage landlords to raise rents. This will be somewhat offset by downward pressure from new completions in submarkets with relatively low rents. Investor interest for assets with stable rental income may compress cap rates further.

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

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