Domestic and international consumers support strong luxury goods sales

• With stable consumer confidence and increases in employee wages, the real consumption trend index was stable. Meanwhile, Tokyo’s department stores luxury goods sales increased 26.0% y-o-y in Jan-Jul, and tourist consumption increased 73.5% y-o-y in Q2 2024.
• Demand for prime retail space remained strong, led by international and domestic retailers in Q3 2024. New openings in the quarter included Chaumet opening at Omotesando Hills. The reopening of Celine at Ginza Six took place, with expansion across floors.

Demand for prime retail space remained strong, led by international and domestic retailers

• New supply in Q3 2024 included Omotesando. OJ Project (tentative name), a low-rise retail-led building with two storeys above ground. Ginza Sony Park was completed with a grand opening planned for January 2025; however, its use will focus on experience consumption.
• The outline of the Ginsen Omotesando Project has been confirmed. A retail-led building with three storeys above ground with a GFA of 1,300 sqm will be completed on a side street in Omotesando in 2027.

Rents continue to renew record highs in both Ginza and Omotesando

• Rents in Tokyo’s prime retail market reached JPY 97,527 per tsubo, per month in Q3 2024, increasing 3.0% q-o-q and 14.3% y-o-y. Ground-floor rents continued to renew record highs in both Ginza and Omotesando.
• Capital values continued to grow in Q3 2024, increasing 3.3% q-o-q and 16.5% y-o-y. The increase reflected growth in rents as cap rates remained stable. Notable transactions in the quarter included Kenedix’s acquisition of retail-led Onden Flat in Omotesando’s fringes.

Outlook: Capital values set to grow, underpinned by rent growth, albeit at a slower pace

• Oxford Economics’ October 2024 outlook has private consumption in 2024 at -0.2%; in 2025 the figure is expected to accelerate to 1.6%. Consumption recovery is expected to extend as real wages are improving.
• In the leasing market, rents are expected to grow, albeit at a slower pace, reflecting strong demand from affluent international brands against a limited supply of prime space. In the investment market, capital value growth is expected to reflect rent growth.