Osaka’s retail on the riseSeptember 11, 2017 / By
The retail scene in Osaka is seeing a revival, driven by higher foreign visitor arrivals on the back of visa relaxations, improved air connectivity and a weaker Yen. This has led to growth in commercial land prices, particularly in Osaka, Kyoto and Fukuoka.
According to the National Land Price Survey in 2017, the top five fastest growth survey points for commercial land were all located in Osaka. A land price survey point near Dotonbori saw 41.3 per cent growth in 2017, marking the strongest growth in Japan.
Occupier demand coming from drug stores and pushing up rents
With the highest hotel occupancy rate across the nation in 2016, Osaka’s visitors are generating demand for hotels, restaurants and retailers, with drugstores particularly sought-after. Drugstores stock quality and inexpensive daily goods ranging from drugs to fever coolers and eyewear. Reportedly, Chinese, Korean and Indonesian visitors continue to flock to Japanese drugstores, with an average purchase per capita of JPY 20,000 – 30,000 (USD 180 – 270), sometimes in excess of JPY 100,000 (USD 910).
In response to growing tourist demand, a number of drugstores have opened alongside Shinsaibashi-suji, a shopping arcade with fast fashion brands one street east to the high street Mido-suji. With a new drugstore opening recently, there are now more than 10 drugstores between Nagahori-dori and Dotonbori. Rent levels for the newly opened drug store reportedly averaged more than JPY 200,000 (USD 1,800) per tsubo per month, a rate comparable to stores located in Ginza, the most expensive shopping district in Tokyo.
Investment demand increasing but lack of supply
Direct commercial real estate investment volume in Osaka City totalled JPY 249 billion (USD 2.3 billion) in 1H17, increasing 48 per cent year-on-year, with the retail sector investment volume up and accounting for a larger proportion of the total.
There are a few reasons for this:
- The sector typically sees stronger investment volume when the economy is strengthening
- Expectations around increasing revenues for growing business categories such as drugstores and therefore growth in rents and capital values
- A considerable capital spill over from Tokyo due to lack of tradable assets and relatively higher yields in Osaka
Notable transactions in recent quarters include Japan Retail Fund’s acquisition of G Bldg. Midosuji, a stand-alone retail situated alongside Mido-suji with Hermes and Harry Winston as tenants, for an estimated NOI cap rate of 3.2 per cent, remarkably low for a retail asset located in a regional city. Hulic’s multiple asset acquisition is all situated on a corner lot fronting the major Mido-suij and Nagahori-dori crossing, including a couple of buildings with podium retail with Louis Vuitton and Cartier respectively (undisclosed price).
Figures refer to transactions over USD 5 million in retail, office, industrial, hotels, others and mixed use.
Momentum to pick up further
With an improving economy with aid from visitor arrivals, Osaka’s retail market is likely to be in the spotlight for real estate players to consider as their next destination.
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