APPD Market Report Article

Tokyo

November 28, 2022

Takeshi Akagi, Head of Research, Japan

3.0%

JPY 4,533

Growth
Slowing

New supply stimulates net absorption

  • Economic indicators for the logistics sector continued to demonstrate improvement in 3Q22. In August, the industrial production index increased 2.7% m-o-m, increasing for the third consecutive month. Exports increased for the 18th consecutive month and imports increased for the 19th consecutive month, reflecting the recovery of both domestic and overseas economies.
  • Sustained demand from 3PL players and online retailers, coupled with major supply inflow, supported the strong net absorption of 512,000 sqm in 3Q22. From 1Q22 to 3Q22, net absorption totalled 1,354,000 sqm.

Overall vacancy rises to 5% for the first time since 3Q18

  • New supply totalled 710,000 sqm in 3Q22, increasing total stock by 4% q-o-q and 18% y-o-y. Seven facilities, including Tokyo Rail Gate East (GFA 147,000 sqm) in the Bay area, MFLP Ebina 1 (GFA 107,000 sqm) and SOSiLA Chuo Rinkan (GFA 99,000 sqm) in the Inland area, entered the market.
  • The vacancy rate in Greater Tokyo stood at 5.0% at end-3Q22, increasing 100 bps q-o-q and 240 bps y-o-y. The vacancy rate in the Bay area rose to 4.6%, increasing 30 bps q-o-q, and Tokyo Inland rose to 5.2%, increasing 130 bps q-o-q, driven by new completions entering the market.

Rental growth accelerates in Tokyo Bay

  • Gross rents in Greater Tokyo averaged JPY 4,533 per tsubo per month in 3Q22, increasing 0.9% q-o-q and 3.0% y-o-y. Growth continued to be driven by new completions that asked for higher rents. Rents in the Bay area and Inland area increased 1.6% q-o-q and 0.6% q-o-q, respectively.
  • Capital values in Greater Tokyo increased 3.9% q-o-q and 9.2% y-o-y in 3Q22, reflecting moderate rental growth and cap rate compression. A notable sales transaction involved JA Mitsui Leasing Tatemono acquiring IIF Inzai Logistics Center for JPY 1.9 billion, with an NOI cap rate of 3.9%.

Outlook: Rents to remain stable and cap rate to remain flat

  • According to Oxford Economics, trade-oriented indicators are expected to be patchy in 2022. Industrial production is expected to fall 4.8%, while exports and imports are likely to rise 3.8% and 5.8% respectively. Downside risks include concerns about a decline in exports due to the global economic slowdown and supply-side constraints.
  • Average rents are likely to be on an upward trend, as rising construction costs pressure landlords to raise rents. This will likely be offset somewhat 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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