CBRE Publishes Q4 2017 Japan Retail MarketView

Prime Rents: Nagoya Increases 7.7% q-o-q to JPY 140,000 per Tsubo; Tokyo, Osaka Remain Flat

Tokyo, February 14, 2018 - CBRE today released its Q4 2017 Japan Retail MarketView covering retail market trends in Tokyo, Osaka, and Nagoya.

• In December 2017, the number of tourists visiting Japan rose to 2,520,000, a 23.0% y-o-y increase, recording the highest ever figure for that month. The number of foreign visitors to Japan in 2017 rose 19.3% y-o-y to 28,690,000, also the highest ever level.

• Nationwide department store sales fell by 0.6% in December 2017, the first drop in two months. Nationwide department store sales for the full year increased by 0.1% y-o-y, the first rise for three years. By region, there was a solid 6.6% increase in Osaka, and by product, sales of cosmetics were buoyant at +17.1%.

• In December 2017, duty-free sales at department stores increased 45.0% y-o-y to JPY 27.9 billion. Full-year nationwide duty-free sales at department stores increased by 46.3% y-o-y to JPY 27.04 billion, the highest ever recorded.

Tokyo (Ginza, Omotesando, Harajuku, Shinjuku, Shibuya)
Tokyo prime rents (assumed achievable rents, including CAM) were flat q-o-q in Q4 2017 for the tenth consecutive quarter at JPY 400,000 per tsubo. In Ginza, store demand among luxury brands increased, particularly for space along high streets. In Omotesando and Harajuku, the period saw a series of high profile store openings, including from brands launching their first outlet in Japan or launching a flagship store, solidifying its reputation as a trendy area. Selected new buildings in prime locations were pre-leased at rents above the local market level. In Shinjuku, tenants were quickly found to replace departing tenants at buildings in the prime location along Shinjuku-dori. In Shibuya, a rare stand-alone unit in a prime location was pre-leased to a budget apparel brand.

The vacancy rate in the Ginza high street area rose 0.7 points q-o-q to 1.5% in Q4 2017, marking an increase of 1.0pt y-o-y. The high street rent index was flat q-o-q.
Prince Phillips, assosiate director of CBRE's Retail Services team, commented, "The number of retailers looking to open stores in the Ginza area has fallen since peaking between 2015 and early 2016. Some retailers are becoming more cautious towards leasing terms, and this has led to a slight increase in vacancy. However, given that Ginza is one of the best known shopping districts worldwide, store demand remains solid. In many cases, tenants are eventually found at the owner's asking rent, even for buildings that take some time to let."

Ginza Vacancy Rate^{*1, 2}

Source: CBRE, Q4 2017
^{*1 The vacancy rate for Q1 2017 has been revised since the Q3 2017 Retail MarketView
*2 The Ginza vacancy rate is based on high street spaces which were physically available at the time of the survey (does not include those scheduled to be vacant)}

Outlook on Ginza high street rents
We expect Ginza high street rents to reach its lowest point in Q3 2018 and rise thereafter, on the back of recovery in luxury sales and inbound demand.

Average Rent for Ginza High Streets^*3

Source: CBRE, Q4 2017
^{*3 Average of the upper and lower end of high street rents in Ginza.}

Osaka (Shinsaibashi, Umeda)
In Q4 2017, Osaka prime rents (assumed achievable rents, including CAM) were flat q-o-q for the sixth consecutive quarter at JPY 300,000 per tsubo. In Shinsaibashi, the period continued to see strong demand from drugstores, especially in the Shinsaibashi-suji shopping district south of Nagahori-dori. However, this is increasingly limited to brands that have not yet launched a store or have a small number of stores in the Shinsaibashi area. In Umeda, which has not traditionally been home to many boutiques, store demand was concentrated on properties in new developments.

Tsuyoshi Hashikawa, senior director of CBRE's Kansai Retail Services team, commented, "Ten million foreign tourists visited Osaka in 2017, equivalent to one in three visitors coming into Japan. Spending by these visitors exceeded JPY 1 trillion. Store demand remains strong from drugstores, whose sales are being boosted by tourist spending. If Osaka succeeds in winning its bid to host the 2025 World Expo and establishes an integrated resort, the number of foreign visitors to Osaka is likely to increase further. For this reason, we will continue to see many more store openings among retailers looking to capture tourist demand."

Nagoya (Sakae)
In Q4 2017, Nagoya prime rents (assumed achievable rents, including CAM) rose by 7.7% q-o-q to JPY 140,000 per tsubo. During the quarter, one large property on the high street, where the rent is expensive, was pre-leased to a drugstore at a rent exceeding the market level. In the Sakae area, while a number of large drugstores opened in 2017, store demand remains strong.

Hideo Oue, senior director of CBRE's Nagoya Retail Services team, commented, "The department store Maruei announced that it would close its store on Hirokoji-dori in June 2018 and open a new retail complex in 2020. In addition, several properties are being renovated in the Sakae area, particularly in the prime high street area. Store demand is also emerging from luxury brands, including luxury watch and jewellery brands, thanks to higher share prices and stable exchange rates. If share prices remain high amid expectations of strong business conditions, store demand among luxury brands will likely continue, and will be focused on new property developments."

A detailed discussion of market conditions can be found in the Q4 2017 Japan Retail MarketView published today on the CBRE website.
https://www.cbre.co.jp/en/research-reports/