Japan - October 2023

S P OT L I G H T
Savills Research

Japan Retail

Retail sales in Beijing were up 4.4% year-on-year to RMB539.8 billion in 1H 2018

Japan Retail

Retail continues to recover, but persistent
challenges warrant a cautious view
• Average 1F rents in Tokyo
increased in 1H/2023, whilevacancy has contracted
across most submarkets,driven largely by demand
from inbound tourists and a
growing willingness from locals
to patronise brick-and-mortar
stores again.
• In regional markets, average
1F rents have remained ﬂat,
although they are still at peaklevels, indicating that demandremains sound.
• Investment volumes in Q3/2023
already mirrored those of thesame period in 2022 even
before factoring in the colossal
Seibu and Sogo transaction,and the overall momentum
looks strong.
• The luxury sector continues toperform well and used luxury
stores have similarly grown in
popularity.
• Businesses catering to
inbound tourism and thefood and beverage (F&B)
industry struggled during the
pandemic but are re-emerging,
contributing to the sector’s
overall strength.
• The pandemic has undeniably
altered behaviours andperceptions, particularly with
its contribution towards the riseof e-commerce. As such, theretail industry has been shifting
further towards prioritisingin-person experiences andoptimising ﬂoor usage.
• The retail market continues
to recover, supported by theoverall economic recovery
and the resurgence of inboundtourism. However, challenges
such as labour shortages andrising costs are putting pressure
on store operations and may
dampen the positive sentiment.

raw material prices, energy costs and labour
shortages are weighing heavily on store
operations. Some businesses have been
additionally cautious about opening newstores as they generally struggle to pass onthese increased costs to customers. That said,
market sentiment has consistently improved,
and with inbound tourism anticipated torecover even further, the retail market islikely to perform well going forward.
Ginza
Average 1F asking rents in Ginza experienced
a contraction of 6.5% HoH and 8.5% YoY,
reaching JPY72,500 per tsubo in 1H/2023.
Despite this decline, Ginza still maintains
a signiﬁcant premium compared to othersubmarkets in Tokyo. In contrast, non-1F
rents increased by 3.5% HoH and 5.7% YoY to
JPY35,300 per tsubo. While non-1F rents areslightly above the Tokyo average, they arestill below those of Omotesando and the gap
continues to widen.
Ginza’s retail landscape is characterisedby the pre-eminence of luxury andrenowned brands, which thrived during the
pandemic, and appear to have continued thismomentum. Indeed, the pace of new store
openings and relocations into the Ginza
submarket is expected to persist, bolstered by
the inﬂux of wealthy inbound tourists. Somenotable examples include the opening of theCanada Goose ﬂagship store and the Grand
Seiko ﬂagship store along Namiki-dori, whichis the largest in Japan, and the brand’s third
outlet in Ginza. Furthermore, aﬀordable
brands have also showed an interest in

GRAPH 1: Tokyo 1F Rents, 2008 to 1H/2023
Ginza
Shinjuku
Average asking rent

Omotesando
Shibuya90
80
THOUSAND JPY / TSUBO

Summary

TOKYO SUBMARKET RENTS
According to the semi-annual survey
conducted by the Japan Real Estate Institute(JREI) and BAC Urban Projects, averageasking rents for 1F units in Tokyo saw an
uptick of 1.3% half-year-on-half-year (HoH)
in 1H/2023, while remaining ﬂat year-on-year(YoY). Non-1F average asking rents have also
experienced a moderate increment of 2.7%
HoH and 3.5% YoY. Overall, there have been
an increasing number of new store openings
in previously underperforming areas, andrents appear to be gradually growing.
Japan is steadily returning to its prepandemic state of aﬀ airs, driven largely by
the resurgence of inbound tourism, which
has contributed notably to the growth of
new store openings in tourism-reliant areas.
According to the Japan National Tourism
Organisation, the number of inbound tourists
in September 2023 recovered to 96% of thelevel of the same month in 2019. Despite risingmaterials and energy prices, luxury brands
have maintained ﬁ rm sales growth, supported
partially by the weakened yen. Upper ﬂoors,which suﬀered due to lacklustre foot traﬃcduring the pandemic, are now experiencing
a resurgence, primarily given strong demandin the service sector, notably beauty clinics.
In addition, F&B stores, which were heavily
impacted by the pandemic, have also seen acomeback.
With the waning impact of the pandemic,
previously weak areas are witnessingheightened interest among potential tenants
and rental levels are beginning to stabilise.
However, economic pressures such as rising

70
60
50
40
30
20
10
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
23
Source JREI, BAC Urban Projects, Savills Research & Consultancy

savills.co.jp/insight-and-opinion/2

Japan Retailestablishing a foothold in the submarket,
exempliﬁed by H&M’s recent reopening in
Namiki-dori.
Overall, Ginza is expected to continue
performing well in the post-pandemic
market. 1F rents have returned to prepandemic levels, though it will take sometime for vacancy rates to follow suit.
Service-oriented businesses have excelled
in ﬁ lling vacancies in mid and high ﬂoors
during the pandemic and are expected tocontinue doing so moving forward. Whileevening footfall has not completely recovered
for the F&B industry, there are morerestaurants moving into vacant spaces. Rents
remain high along the main streets, withseveral stores scheduled for opening. Thatsaid, the disparity in performance in terms ofboth rent and vacancy between main streets
and non-main streets appears to persist.

Japan’s retail sector is experiencing
a notable resurgence, with areas thattypically cater more towards inboundtourists seeing greater interest
among potential tenants for new
store openings. Despite the recovery,
factors such as rising material andenergy costs, on top of labour
shortages, may continue to present
hurdles for retail operators. As such,
while the overall momentum in the
sector looks favourable, observers
may need to keep an eye on rental
levels moving forward.

Omotesando
Average 1F rents in Omotesando dippedslightly by 0.7% HoH and 2.9% YoY, settlingat JPY53,700 per tsubo. Conversely, non-1F
rents experienced considerable growth at
7.2% HoH and 3.3% YoY, reaching JPY37,100
per tsubo, making them the most expensive
non-1F rents in Tokyo by a signiﬁcant margin.
The Omotesando area is known for
its wide spectrum of fashion stores, fromextravagant luxury brands to aﬀordable
options, and caters to a wide range of
shoppers. Similar to Ginza, luxury brands
are concentrated along its main street,
Omotesando-dori, which has continued toperform well, demonstrated by the arrival of
famous brands like BVLGARI and Tiﬀany &Co. Nearby, Meiji-dori and Takeshita-dori,
known for their popularity among young

people and overseas tourists have seen
greater levels of activity following a prolonged
period of dampened activity during the
pandemic. Notable examples of new openings
of ﬂagship stores along Meiji-dori include
UGG and Fender. However, the recovery ofgeneral fashion stores has been slow, with the
exception of internationally renowned brands.
On the other hand, businesses that are popularparticularly among inbound tourists, including
sneakers, casual streetwear, and used clothing,have been performing well.

GRAPH 2: Tokyo Non-1F Rents, 2008 to 1H/2023
Ginza
Shinjuku
Average asking rent

Omotesando
Shibuya

45

35
30
25
20
15
10
5
0
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H

THOUSAND JPY / TSUBO

40

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
23
Source JREI, BAC Urban Projects, Savills Research & Consultancy

3

Vacancies in Omotesando have increased
in 2023, despite having gradually decreased
since the pandemic. This situation may
persist for some time, potentially due tothe sluggish turnover of larger properties
with high monthly rents. Although there
are a number of notable developments inthe pipeline for Omotesando, such as Tokyu
Plaza Harajuku Harakado, which is slated
for completion in 2024, demand appears to
struggle to keep pace with new supply, andthe overall recovery of the submarket is
expected to take some time.
Shinjuku
Average 1F rents in Shinjuku contracted
by 6.1% HoH and 4.8% YoY, to JPY53,600.
Similarly, non-1F rents, experienced amodest decline of 1.7% HoH to JPY34,100,
although amounted to an annual incrementof 2.4% YoY.
The resurgence of inbound tourism
has had a positive impact on the entire
submarket. Commercial activity appears
to have focused in the East Exit area,
particularly Shinjuku-dori, due to ongoingredevelopment around the West Exit area,
and Isetan Shinjuku continues to thrive.
Shinjuku-dori, Shinjuku-dori South, andMeiji-dori will welcome several new store
openings, catering to a diverse range ofbrands and price ranges, with rents inthese areas expected to remain elevated.
A signiﬁcant addition to the Shinjuku-doriarea will be the luxury watch boutique
Rolex, following the recent establishment

Japan Retailof its high-end watch counterpart, IWC
Schaﬀ hausen, in the same area. The
Kabukicho area has also gained momentum,
bolstered by the opening of Tokyu
Kabukicho Tower in April 2023, a new
trendsetter in entertainment, breathing newlife into Kabukicho and signalling a broader
area-wide recovery.
Vacancies continue to fall in Shinjuku,
driven by the inﬂux of new establishments
due to the growing number of inboundtourists. Overall, demand for retail spacein Shinjuku is expected to continue its
upward trajectory, especially with many
developments in the pipeline that look tomake the area more appealing. Hence, rent
levels will likely remain stable and elevated,
especially in the East Exit area.

LINE CUBE SHIBUYA and the live musicclub eggman CLUB QUATTRO expanding
their operations. On the southern side of
the station, the opening of Shibuya Sakura
Stage is scheduled for November 2023.
The development also includes a three-way
elevated deck that links Shibuya Sakura
Stage, Shibuya Fukuras and Shibuya Stream
to a new ticket gate inside Shibuya station,
which has the potential to boost commercial
activities and generate new foot traﬃc routes.
Meanwhile, QFRONT, situated opposite
Shibuya station, is scheduled to undergorenovations in October 2023 and will reopenin spring 2024, which should further polishthe image of the station front area.
While vacancies have been gently
decreasing overall in Shibuya, large
properties in the Jinnan area and on thenorth side of Koen-dori have remained
vacant for extended periods. Furthermore,areas located further away from the station
continue to struggle. Conversely, the returnof inbound tourists has generated new
demand for space among tenants looking
to establish retail stores in the traditionally
popular west side of Shibuya, contributing toa signiﬁcant increase in 1F rents, indicatingthat wide-scale recovery is underway in the
Shibuya submarket.

Shibuya
Average 1F asking rents in Shibuya haverisen by 27.3% HoH and 24.7% YoY, reaching
JPY55,500 per tsubo. As such, Shibuya
is currently the second most expensive
submarket in terms of 1F asking rents,
despite historically having some of thecheapest over the past decade. Non-1F rents
also increased by 1.6% HoH and 2.5% YoY, toJPY32,700 per tsubo, albeit remaining theleast expensive.
Shibuya has made a comeback,invigorated by a surge in inbound tourism,
with the iconic Shibuya Scramble Crossing
bustling with people. Restaurants andbars have become increasingly lively,
exempliﬁed by the transformation of thewell-known Fukutaro drugstore into an
izakaya, a Japanese-style pub, signallingthe bright prospects of night-timebusinesses. The entertainment industry is
also booming, with major venues such as

REGIONAL CITIES
Average 1F asking rents in regional cities
rose by 8.2% HoH and 1.1% YoY, reaching
JPY26,520 per tsubo in 1H/2023. Non-1F
rents also witnessed an uptick of 4.7%
HoH and 8.2% YoY to JPY16,860 per tsubo.
Most markets have attained a greater
sense of stability due to the recovery of
inbound tourism and the transition toa post-pandemic mindset. Prime areas,

GRAPH 3: 1F Rents in Retail Districts of Regional Cities, 2014 to 1H/2023
Shinsaibashi
Fukuoka Tenjin
SapporoNagoya Sakae
SendaiAverage asking rent

40

THOUSAND JPY / TSUBO

35
30
25
20
15
10
5

2014

2015

2016

2017

2018

2019

2020

2021

1H

2H

1H

1H

2H

2H

1H

2H

1H

1H

2H

2H

1H

2H

1H

1H

2H

2H

1H

0
2022 2023

Source JREI, BAC Urban Projects, Savills Research & Consultancy

savills.co.jp/insight-and-opinion/

4

especially those accommodating luxury
brands, continue to perform well while lessprime locations and larger-scale properties
continue to struggle. At the same time, theretail market is also facing challenges ofinﬂation, heightened operational costs, andlabour shortages. Nonetheless, the overall
outlook of regional city retail remains
optimistic, bolstered by multiple ongoingredevelopment projects and inboundtourism, most notably the recent return ofChinese tourists.
In Osaka’s Shinsaibashi, average asking 1F
rents increased by 1.1% HoH but decreasedby 7.1% to JPY35,300 per tsubo, and are now
slightly higher than the pre-pandemic level.
Non-1F rents also saw a strong increment of
3.6% HoH and 15.5% YoY. Overall, vacancies
appear to remain elevated, especially inareas such as Minami-Semba 3-chomelocated north of Nagahori-dori. Elsewhere,
the prime areas of Midosuji that host many
luxury brands remain tight and have seen
stronger competition in recent times,
resulting in increased rental prices withminimal vacancies. Similarly, businesses
in the Shinsaibashi-suji shopping street,
Dotonbori, and its surrounding areas, which
suﬀered the largest impact during the
pandemic, have witnessed a resurgence ofinbound traﬃc, stimulating the emergenceof new store openings, and driving down
vacancies. Drugstores in the area have also
been making a comeback, although manyare operating in smaller spaces and at lower
rental levels compared to pre-pandemic
times. Looking ahead, while the continued
growth of inbound tourism is expected to
put upward pressure on the average asking
rents in the area, they are unlikely to reachthe elevated levels observed before thepandemic anytime soon.
In Nagoya’s Sakae, asking 1F rents haveincreased by 5.3% HoH but saw a marginal
decrease of 0.8% YoY to JPY23,700 per
tsubo, while non-1F rents remained ﬂat.
Vacancy levels have seen a slight uptick,with Otsu-dori being the notable exception
primarily due to its prime location andconcentration of luxury brands. The Sakae
Intersection is currently undergoing a majortransformation, and new developments
include a high-end commercial facility byParco, a cinema complex, oﬃces, and a
Conrad hotel, slated to open in summer 2026.
The north of the Sakae Intersection will be
the site of various prominent redevelopment
projects, including Rayard Hisaya-odori
Park and BINO Sakae. In addition, theretail segment of the Chunichi Building isscheduled to open in the spring of 2024.
On a separate note, Mitsukoshi Building’splanned reconstruction into a mixed-use
facility has been put on hold due to escalating

Japan Retailconstruction costs and uncertain oﬃce
market outlook. The overall outlook of thesubmarket is improving steadily, and future
developments will help the area gain further
momentum.
Tenjin’s average 1F asking rents increasedby 3.3% HoH and 6.4% YoY to JPY25,000
per tsubo and non-1F asking rents increased
by 13.6% HoH. Overall, vacancies havestabilised, while rents have gradually grownin the post-pandemic environment. In
addition, the easing of travel restrictions
has contributed to a rise in inbound tourist
traﬃc and overall sales, exempliﬁed bysales of SOLARIA PLAZA surpassing

pre-pandemic levels. In the prime districtof Nishi-dori, while interest in new store
openings has been increasing, rents haveremained high as many landlords have beenreluctant to negotiate, leading to somevacant spaces especially in multi-storiedand large-scale stores. Going forward, theupcoming redevelopment of Tenjin Big
Bang and the extension of the Nanakuma
Line are expected to boost foot traﬃc andencourage overall growth. The submarket
also anticipates an inﬂux of Chinese visitors
going forward, sparking increased interestin retail space from businesses catering to
inbound tourists.

GRAPH 4: Retail Property Investment by Region, 2009 to Q3/2023*

JPY BILLION

Tokyo
Osaka
Kanto (Ex-Tokyo/Yokohama)
Other

Yokohama
FukuokaKansai (Ex-Osaka)
Of which Tokyo (%) (RHS)

1,400

80%

1,200

70%
60%

1,000

50%
800
40%
600
30%
400

20%
10%

0

0%

(Y

TD
)

200

Source MSCI Real Capital Analytics, Savills Research & Consultancy* Q3/2023 volumes are preliminary and are likely to be revised upwards; notably,
these ﬁgures are yet to account for the Seibu and Sogo, and Sun Square transactions.
In principle, RCA investment volumes do not include related-party transactions,such as those between a J-REIT and its sponsor.

In Sendai, 1F rents increased by 10.6%
HoH but saw a slight decline of 1.7% YoY
to JPY28,200 per tsubo. The area around
Sendai Station has seen a prominenttransformation with the opening of theYodobashi Sendai No.1 Building, bringing
in a new wave of retail stores including
UNIQLO, GU, and various restaurants,
some having relocated from the shopping
arcade area. The Yodobashi Sendai No. 2
Building has also seen a major expansion,
with the addition of sporting goods stores
and a large supermarket, making thearea around the station livelier. On theother hand, vacancies remain high in the
shopping arcade area due to competition
from retail facilities around the station.
Nonetheless, footfall has recovered in the
post-pandemic environment, and various
new store openings have been observed,
including restaurants and a DIY store. While
the shopping arcade area will be less active
than the station area for the time being,
revitalisation plans are in place that look to
improve its prospects in the future.
Sapporo’s 1F rents have seen a prominent
uptick of 31.6% HoH and 20.0% YoY to
JPY20,400 per tsubo. Overall, vacancies
remained high since the beginning of 2021.
In Susukino, vacancies have been on a
downward trend as foot traﬃc recovers,
although many restaurants are facing
challenges in terms of rising costs andlabour shortages. Elsewhere, the large-scale
redevelopment around Sapporo station has
led to the closure of many facilities, which
will inevitably lead to decreased footfall in
the area, at least in the short term. Looking
forward, as the facilities that are undergoingredevelopment open and commercial
activity picks up, the Sapporo station area is
expected to regain its competitive edge.

TABLE 1: Selected Retail Transactions, announced Q2/2023 to Q3/2023

ANNOUNCEDPROPERTY

LOCATION

GFA(SQ M)

PRICE(JPY BIL)

DIRECT
CAP
RATE

BUYER

Sep 2023

Land and part of Seibu
Ikebukuro, Sogo Chiba,
and Seibu Shibuya

Various-Approx
300.0-

Yodobashi
Holdings

Aug 2023

Sun Square

Kita,
Tokyo

15,100

Undisclosed
but reported
a capital
gain ofapprox 25.4-

Undisclosed

Aug 2023

Shin-Kawasaki Square

Kawasaki,Kanagawa

17,400

9.4

4.2%

Frontier
REIT

Apr 2023

Aeon Mall Tsurumi
Osaka City,
Ryokuchi
139,000
Osaka(25% quasi co-ownership)

6.4

5.2%

Asset
Finance
Osaka
Tsurumi GK

Aug 2023

G-Bldg. Minami
Aoyama 02

Minato,
Tokyo

1,700

5.4

3.1%

Domestic
company

Aug 2023

Mitsui Shopping Park
LaLaport IZUMI (18.5%
quasi co-ownership)

Izumi,
Osaka

152,000

5.2

4.9%

Frontier
REIT

Source Press releases, MSCI Real Capital Analytics, Savills Research & Consultancy

5

INVESTMENT TRENDS
The semi-annual survey conducted by
JREI in April 2023 shows that cap rates
have remained relatively ﬂat across Japanover the past half year, demonstrating thestability of the retail market for both primeand suburban retail properties in the postpandemic era. In addition, Ginza saw cap
rates tighten by 10 basis points (bp) to 3.4%,
driven by a comeback in tourism in the postpandemic environment, as well as increased
wages, which have helped to bolster prime
retail properties in Ginza. That said, itshould be noted that actual market cap rates
could be as much as 100bps lower than thesesurveyed cap rates.
The retail sector has witnessed a surge
in interest, driven by the recovering
domestic economy and robust demand
from inbound tourists. This is also echoedby a survey by MUFG Trust showingJapan Retail

GRAPH 5: Department Store Sales, vs Sales Per Sq m of Sales Space, 2008 to 2022
Department Store Sales (LHS)

Sales per sq m of sales space (RHS)
1.2

9
8

1.0

6

0.8

5
0.6
4
3

JPY MILLION

JPY TRILLION

7

0.4

2
0.2
1
0

0.0
20082009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Source Ministry of Economy, Trade and Industry, Savills Research & Consultancy

that 56% of investors want to invest in
the retail sector in 2H/2023, up from 41%
in 1H/2023. In addition to institutional
investors, retail facilities strategically
positioned in prime locations continue tobe highly coveted among high-net-worth
individuals as a means of preserving andenhancing their wealth. Suburban malls
may also see heightened attention given theattractive and stable yields that they oﬀer.
However, despite the recovery in Japan’s
economy, concerns are arising from higher
operational costs due to increased material
and fuel prices, which supresses retail storesoperations. The transference of costs to thecustomer depends on the type of business,and close monitoring will be necessary
to determine the performance of each
respective business.
Notably, Fortress Investment Groupplans to capitalise on the acquisition of
the struggling department stores, Sogo
and Seibu, by implementing a turnaroundstrategy, and subsequently selling the landand part of the assets to Yodobashi Holdings
for JPY300 billion. Another notabletransaction that occurred between Q2/2023
and Q3/2023 was the sale of Sun Squareby Nippon Paper Industries, reportedly
resulting in a capital gain of JPY25.4 billion.
The buyer likely intends on redeveloping theproperty in the future.
According to preliminary data fromMSCI Real Capital Analytics (RCA), retailtransactions in year-to-date Q3/2023 arein line with those from the same period in
2022, with transactional volumes of roughly
JPY400 billion, signifying a sense of stability

savills.co.jp/insight-and-opinion/

persisting in retail investment market.
These preliminary ﬁ gures will continue
to increase as more deals are announced,
especially as they have yet to account for
the gargantuan deals involving the Sogo and
Seibu department stores, and Sun Square.
In addition, with the continuous weakeningof yen, increased spending power among
inbound tourists as well as heightenedinterest from international investors canbe expected, exempliﬁed by the acquisitionof the Sogo and Seibu department stores byFortress Investment Group. Consequently,
the overall appeal of investing in the retailmarket should naturally grow further.
BUSINESS TRANSFORMATION OF
RETAIL FACILITIES
Department stores used to represent ahigh watermark of prestige, and the largest
operators boast roots dating back to Edoperiod Japan. They were a staple of weekend
family outings and where most people
would go shopping. However, department
stores have gradually been declining inprominence, with the emergence of GMS
and amusement parks. In addition, therecent development of e-commerce has
also accelerated their decline. Presently in
2023, there are fewer than 200 department
stores in Japan, down from its peak of over
300 in 1999, and a survey from the Ministryof Economy, Trade and Industry (METI)
estimates that the number of employees
at department stores has halved between
2008 and 2023. This declining trend in
department stores can be highlighted by the
recent enormous deal of Seibu and Sogo.

6

In the meantime, surviving department
stores appear to have maintained high levelsof space eﬃciency. According to METI,
while overall department store sales havebeen tapering oﬀ, decreasing from JPY8.1
trillion in 2008 to JPY5.5 trillion in 2022,
space eﬃciency has been on an increasing
trend since the great ﬁ nancial crisis (Graph
5). Going forward, greater levels of retailspace consolidation, especially in industries
that have lost signiﬁcant market share to
e-commerce such as clothing and household
goods, are likely to be in the crosshairs,
consequently freeing up space for other uses.
Floor usage should be optimised in responseto the changing consumer behaviour andpreference. The pandemic has undeniably
altered behaviours and perceptions,profoundly reshaping daily lives. Yet, theretail industry has been slow to adapt
to these transformative shifts, failing toadequately respond to the evolving needs
and preferences of consumers. This has
been exacerbated by the industry’s belated
reaction to the accelerated penetration of
e-commerce.
Developers and landlords have had tobecome more innovative to thrive in thecurrent environment. For instance, the47-ﬂoor Tokyu Kabukicho Tower is anentertainment high-rise which combines
two hotels on top of retail ﬂoors thatprimarily feature facilities such as cinemas
and live entertainment. The establishment
appears to have taken a two-pronged
approach in focusing on tenants that provide
experiences that can only be enjoyed inperson, and having a myriad of facilities
that cater to both daytime and nighttime
crowds. Given that the location is famousfor nighttime entertainment, tenantsalso catering to nighttime businesses are
preferred due to their economical advantage.
Indeed, this development could represent
the beginning of a shift toward more retail
outlets focusing on customer experiencesthat cannot be duplicated online, andcasting a wider net in their target audiences.
Nonetheless, traditional retail space isunlikely to disappear signiﬁcantly; Isetan
Mitsukoshi’s ﬂagship store in Shinjuku
recorded their highest year of sales in 2022,
while department stores such as Marui andLumine that have a business model centredon leasing ﬂoor space to independent
retailers appear to also be faring well. While
e-commerce gradually gains a larger presence,brick-and-mortar retailers will need to
become increasingly strategic with land andﬂoor space utilisation, providing customer
experience in person at their premises.

Japan Retail

OUTLOOKThe Japan retail market has seen considerable
recovery, and should continue to improve moving
forward. The most recent quarterly performancesof publicly listed retailers have shattered historical
records. Notably, luxury products, especially inurban areas, have thrived, partly attributed torobust inbound demand. As long as recent wage
growth trends persist into next spring, consumer
sentiment should be bolstered and ignite further
consumption growth. At the same time, thebifurcation narrative persists; prime areas havecontinued to perform well, exceptionally so in thecase of luxury goods, while non-prime areas arestill struggling in general, although there haveadmittedly been gradual improvements.
The retail industry has undergone tremendous
changes over the past decade, most notably withthe proliferation of e-commerce, which looks tocontinue chipping away at the market share ofbrick-and-mortar stores, on top of Japan’s declining
population. Retail spaces must continue evolving
and transforming to adapt to the changing lifestyles
and consumer preferences. The sale of Seibu
Ikebukuro, formerly the king of department stores,
has marked the end of an era. The retail landscapeis likely to continue evolving, and many shopping
areas may look to introduce greater proportions ofshops that focus heavily on in-person experiencesthat cannot be replicated online in an attempt todiversity and attract diﬀerent crowds, and recently
developed establishments such as Tokyu Kabukicho
Tower, a 47F entertainment high-rise building,
exemplify this.
Looking ahead, businesses that have suﬀeredduring the pandemic, including restaurants,

bars and mid-market fashion, are expected tomake a comeback, driven by the higher footfall
bolstered by inbound tourists and the growing
willingness to venture outside among locals.
However, challenges such as labour shortages andelevated raw material and energy costs continue
to put pressure on store operations, especiallythose in the F&B industry due to their wafer-thin
proﬁt margins. In the interim, the recent ongoing
momentum in wage growth stands out as a silver
lining. As long as this positive trend persists into
the coming spring, it is poised to act as a catalyst
for further expansion in the retail markets.
Overall, the sentiment is favourable in the retailsector, but future performance will depend
greatly on the industry and location.

For more information about this report, please contact us

Savills Japan

Savills Research

Christian Mancini
CEO, Asia Paciﬁc(Ex. Greater China)+81 3 4330 3611
cmancini@savills.co.jp

Tetsuya Kaneko
Managing Director, Head of
Research & Consultancy, Japan+81 3 4330 3103
tkaneko@savills.co.jp

Simon Smith
Regional Head of Research& Consultancy, Asia Paciﬁc+852 2842 4573
ssmith@savills.asia

Savills plc: Savills plc is a global real estate services provider listed on the London Stock Exchange. We have an international network of more than 600 offi ces and associates throughout the Americas, the UK,continental Europe, Asia Paciﬁc, Africa and the Middle East, offering a broad range of specialist advisory, management and transactional services to clients all over the world. This report is for general informative
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