Japanese logistics market likely to continue solid demand from internet retail operators

Half of new supply coming online in 2013 in the Tokyo Metropolitan Area is pre-leased

​2013/04/24

CBRE released today a report on leasing market trends and forecasts for large multi-tenant logistics properties in the Tokyo Metropolitan Area and the Kinki Region for the first quarter of 2013.

Hot Topics

•     The major logistics markets in Japan will likely continue to see favorable demand from major tenants such as internet retail operators, with growing demand expected from manufacturers and other retailers.
•     A large quantity of new supply is expected in the Tokyo Metropolitan Area over the coming year, and with almost half of the new supply in 2013 being pre-leased, concerns over the vacancy rate increasing are muted.
•     Going forward, rents are expected to be solid, with expectations of rents rising with the improved economy supported by the new economic stimulus package introduced with Abenomics.

The vacancy rate of logistics properties in the Tokyo Metropolitan Area (TMA) displayed further improvement in the first quarter of 2013, with the vacancy rate of large multi-tenant logistics properties (LMTs) in the TMA dropping 0.9 points quarter-on-quarter to 2.8% in the first quarter of 2013. This is the lowest vacancy rate recorded since 2004. The vacancy rate of LMTs that were more than one year old dropped by 0.7 points q-o-q to 1.8% in the first quarter, the second consecutive quarter of decling vacancies and the lowest level seen since 2004.

The limited available space has been absorbed by existing tenants, which has contributed to the lower vacancy rates. In the Kinki Region, the average vacancy rate of LMTs remained at 1.5% at the end of the first quarter, following a significant decline of 7.3 points in the third and fourth quarters of 2012. LMTs that were more than one year old continued to be fully occupied.

With the steep depreciation of the Japanese yen as well as the soaring Japanese stock market, prospects for corporate earnings and personal consumption are becoming brighter, and the new economic stimulus package sparked by Abenomics will enhance the market in the medium- to long-term.

Future prospects for the logistics leasing market are also bright. The major driver will continue to be the growth in internet retailing. Major retail operators are also planning to develop their own new, large distribution facilities, and this demand is expected to trickle down to medium and small retaliers as well.

In the fiscal year starting April 2013, a large quantity of new supply of LMT facilities is expected in the TMA. The average new supply over the last five years was 146,000 tsubo, while the new supply in between the second quarter of 2013 and the first quarter of 2014 is scheduled to be approximately 2.7 times that. Nevertheless, pre-leasing has progressed well, including several contracts for large space. While such a large quantity of supply is likely to raise vacancy rates, the increment appears limited.

In 2014, new supply in TMA will likely decrease to a noticeably lesser level than the historical average. Taking development duration into account, it is unlikely that additional large projects with mid-2014 completions will be seen, and vacancy rates are expected to improve.

For further details of market trends and forecasts as well as detailed market data by area, please review the Japan Industrial and Logistics MarketView Q1 2013 which is scheduled for release on April 30.

Attachment: Press Release

Related Links: MarketViews

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