Robust demand from 3PLs and online retailers

• Strong demand from 3PLs and online retailers, coupled with major new supply, saw net absorption reach a robust 448,000 sqm in Q3 2024. For year to date, the figure was more than 1,251,000 sqm.
• As transport costs rise, demand for properties with good access to the city centre is strong, while properties in fringe areas with higher transport costs to the city centre are struggling.

Overall vacancy increases for the first time in two quarters

• New supply totalled 566,000 sqm in Q3 2024, increasing total stock by 3% q-o-q and 11% y-o-y. Six facilities, including MFLP LOGIFRONT Tokyo Itabashi (NLA 219,000 sqm), Hulic Logistics Hashimoto (NLA 55,000 sqm) and CBRE IM Noda (NLA 98,000 sqm), entered the market.
• The vacancy rate in Greater Tokyo stood at 9.9% for Q3 2024, increasing 30 bps q-o-q and 230 bps y-o-y. The vacancy rate in the Bay area fell to 8.1%, decreasing 10 bps q-o-q, while Tokyo Inland reached 10.6%, increasing by 40 bps q-o-q.

Average rents grow moderately

• Gross rents in Greater Tokyo averaged JPY 4,687 per tsubo, per month in Q3 2024, increasing by 1.1% q-o-q and 2.3% y-o-y. Rents in the Bay area increased 0.5% q-o-q and 1.4% q-o-q in the Inland area, reflecting new completions with relatively high rents.
• Capital values in Greater Tokyo remained flat q-o-q and increased 1.6% y-o-y in Q3 2024, reflecting a stable cap rate and rent growth. A notable sales transaction involved GIC acquiring DPL Yokohama Totsuka.

Outlook: Rents to remain stable but cap rates to compress

• As demand continues to grow and construction costs rise, overall rents are expected to grow moderately; however, given the higher vacancy rate, rents are likely to be under downward pressure in some Inland areas.
• According to Oxford Economics, the long-term interest rate is expected to rise for the next few years. However, there is strong investment demand, especially from core investors. Capital values are expected to grow as cap rates will remain relatively stable and rents will increase.