Japan - March 2024

S P OT L I G H T
Savills Research

Japan Logistics©ESR LTD

Japan Logistics

Sound fundamentals butwith challenges ahead
Summary• In Greater Tokyo, the market
has continued to loosen slightly
in the face of new supply,
increasing by 2.7 percentage
points (ppts) year-on-year(YoY) to 7.1%.
• In Greater Osaka, vacancy has
moved in a similar direction,
increasing by 0.6ppts YoY to
3.0%.
• Rents in Greater Tokyo haverecovered to JPY4,620 per
tsubo, increasing by 2.2% halfyear-on-half-year (HoH) and2.4% YoY.

INTRODUCTION
The logistics sector in Greater Tokyo1 andGreater Osaka 2 has continued to receive
heightened interest from investors over the past
half-year, with 2023 seeing exceptionally largetransaction volumes, especially from overseas
investors. However, the market is not as tighton the ground as it was during the pandemic.
Indeed, demand does not appear to havecaught up with the large amount of supply thatentered the market over the past year, leading toloosening vacancy rates which could potentiallyclimb higher as more facilities are completed.
1 Greater Tokyo is deﬁ ned as the region which consists ofTokyo, Kanagawa, Chiba, and Saitama
2 Greater Osaka is deﬁ ned as the region which consists ofOsaka, Kyoto, Hyogo, and Nara

Graph 1: Supply, Demand, and Vacancy in Greater Tokyo, 2010 to 2023

Supply• Supply levels are expected toremain high in 2024 and 2025,
which is likely to loosen themarket further.
• Increased construction costs
should also limit upcoming
supply, which should further
contribute to achieving a supply
and demand equilibrium in the
mid-term.

Demand

5Y avg completions (2019-2023)

20%

4,000

18%

3,500

16%
14%

3,000

12%
2,500
10%
2,000
8%
1,500

6%

1,000

4%

500

2%

0

0%

Source Ichigo Real Estate Service, Savills Research & Consultancy
Note Annual periods from February to January. Vacancy rates are as of the year end for each annual period,
while the rate presented for 2023 is as of January 2024.

Graph 2: Greater Tokyo Rent vs Vacancy, Q1/2016 to Q4/2023
Average Rent (LHS)

Average Vacancy (RHS)

4,800

8%

4,700

7%

JPY / TSUBO / MONTH

4,600
6%
4,500
5%

4,400

4%

4,300
4,200

3%

4,100

VACANCY RATE

• Data centres have been
extremely popular amongst
investors due to the growth ofdigital infrastructure in Japan.
However, sharpened pricing
may cause embedded risks toemerge.

Vacancy rate (RHS)

4,500

VACANCY RATE

THOUSAND SQ M

• Rents in Greater Osaka rosein tandem by 1.4% HoH to
JPY4,240 per tsubo, translating
to an annual increase of 0.5%.
• Investment levels in 2023 havesurpassed those of 2022 forthe logistics sector due to thelarge number of big-ticket
transactions over the year.

The data centre sector is an area that has
garnered a larger amount of attention due tothe overall paradigm shift in the country toward
digitalisation and cloud-based services. However,investors also should understand the risks
surrounding the sector, especially considering
sharpened pricing due to the robust popularityand limited stocks of the asset class.
Going forward, greater bifurcation between
prime and subprime logistics facilities is
expected, given the large amount of upcoming
supply, which will likely introduce greater
competition to the market. As such, facilityspeciﬁc features and location will play a growingrole in determining a development’s success.

2%
4,000
1%

3,900

0%
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

3,800

2016

2017

2018

2019

2020

2021

2022

2023

Source Ichigo Real Estate Service, Savills Research & Consultancy
Note Annual periods from February to January.

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

Japan Logistics

MARKET TRENDS
The Greater Tokyo market continues to facechallenges rooted in the large amount of
new supply added to the market, with 2023
having seen exceptionally high levels. As
a result, vacancy has continued to loosen
to 7.1% in Q4/2023, having increased by 1.0
percentage point (ppt) over the past half-year
and 2.7ppts YoY. Indeed, vacancy levels
in Greater Tokyo have risen signiﬁcantly
over the past few years from the extremely
tight rate of 0.2% in Q4/2020, with the large
amount of supply that arrived to the market
in that timeframe being a major catalyst.
Against this backdrop, pre-leasing for new
supply entering the market is reportedly
taking more time than it did previously,
especially in the case of facilities that arelocated in less desirable locations.
Meanwhile, rents in the Greater Tokyo
market have recovered slightly to JPY4,620
per tsubo per month, having increasedslightly by 2.2% HoH and 2.4% YoY. The
large amount of supply introduced into
the market has increased the competition
among new market entrants, much ofwhich is comprised of general multi-tenantfacilities. Hence, with the exception offacilities that have advantages such as
excellent location or unique features, it
has become more diﬃcult to increase rents
due to the fear of losing competitiveness.
As such, rental growth should remain

The logistics sector continues toperform well overall, but the large
new supply over the past year has
loosened the market, with vacancy
rates rising as some new properties
struggle to ﬁll available ﬂoors.
The industry will face a number ofchallenges moving forward, including
the sustained inﬂux of new supply andlabour regulations that may dampen
operations. While prime logistics
facilities remain fully occupied andeven display rental growth, older
facilities with outdated speciﬁcationsin less desirable locations are
expected to keep struggling.

Graph 3: Supply, Demand, and Vacancy in Greater Osaka, 2010 to 2023
Demand

5Y avg completions (2019-2023)

Vacancy rate (RHS)
16%

1,750

14%

1,500

12%

1,250

10%

1,000

8%

750

6%

500

4%

250

2%

0

0%

VACANCY RATE

THOUSAND SQ M

Supply2,000

Source Ichigo Real Estate Service, Savills Research & Consultancy
Note Annual periods from February to January. Vacancy rates are as of the year end for each annual period,
while the rate presented for 2023 is as of January 2024.

3

bifurcated, with prime or unique facilities
likely possessing a greater ability tocommand premium rents, while less popular
facilities may have to resort to rental
corrections or deals to attract tenants.
In Greater Osaka, the market has loosely
mimicked the performance of Greater
Tokyo. Vacancy has been on a general
upward trend, having increased 0.4ppts HoH
and 0.6ppts YoY to 3.0%, the highest levels
observed since 2019. New supply in 2023
has risen from 2022 and is likely to increase
even more over the next two years, which
is likely to loosen the market even further.
Meanwhile, asking rents in Greater Osaka
increased by 1.4% HoH to JPY4,240 per
tsubo, translating to an annual incrementof 0.5%. While the current rental levels are
considerably higher than pre-pandemic
levels, they are also lower than levels
observed a year ago, suggesting that further
rental growth will likely be gradual for themarket as a whole.
Going forward, the market looks toremain bifurcated, especially with the large
upcoming supply. Strategically locatedfacilities that are able to accommodate theJapan Logistics

Graph 4: Greater Osaka Rent vs Vacancy, Q1/2016 to Q4/2023
Average Rent (LHS)

Average Vacancy (RHS)
14%

4,500

12%
10%

4,000
8%
3,750
6%
3,500

VACANCY RATE

JPY / TSUBO / MONTH

4,250

4%
3,250

2%
0%
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

3,000

2016

2017

2018

2019

2020

2021

2022

2023

Source Ichigo Real Estate Service, Savills Research & Consultancy
Note Annual periods from February to January.

Graph 5: Annual New Supply* in Japan by Region, 2018 to 2026F
Greater Tokyo

Greater Osaka

Other

8
7

MILLION SQ M

6
5
4
3
2
1
0
2018

2019

2020

2021

2022

2023

2024F

2025F

2026F

Source Ichigo Real Estate Service, Savills Research & Consultancy* Projects in 2024 and beyond tend to be added later once details are ready to be announced. The data
provided by Ichigo only considers facilities with GFAs > 10,000 sq m and is as of 1 February 2024.

MAP 1: Upcoming Completions in Greater Tokyo with GFA greater than 50,000 sq m,
2024 to 2028*
GFA
50,000100,000
200,000
300,000
400,000
Completion Year
2024
2025
2026
2027
2028

Source Company Disclosures, Ichigo Real Estate Service, Savills Research and Consultancy* Projects where GFA and/or completion date are unavailable are omitted from the dataset.
New supply data is as of 1 February 2024.

savills.co.jp/insight-and-opinion/4

needs of tenants by providing features suchas cold storage will likely remain highly
sought after, while less popular facilities are
expected to struggle. Indeed, the logistics
sector, already plagued with labour shortage
problems, will face steeper challenges with
the new labour laws for truck drivers thatwill take place from April 2024, and having
an attractive workplace in a good location
could be a key strategy in tackling the issue.
INCOMING SUPPLY
New supply in Greater Tokyo hit anotherhigh in 2023, introducing 4.5 million sq m of
GFA into the market. The largest completion
introduced in the second half of 2023 wasTokyo Ryutsu Center’s reconstruction of
Logistics Building A located in Ota ward.
The facility is located directly next to Ryutsu
Center station on the Tokyo Monorail, andis one kilometre away from the Heiwajima
entrance of the Metropolitan Expressway.
Such facilities that are located with goodaccess to public transit systems as well as
expressways are likely to be in high demand,and should not encounter diﬃculties
attracting tenants as long as they arereasonably priced, especially if they also havefeatures such as cold storage capabilities.
In the ﬁ rst half of 2024, the largest
development to be added to the market
is Orix Real Estate’s Atsugi III Logistics
Center in Kanagawa prefecture, with a GFAof 183,000 sq m. The facility is a 10-minutedrive from the Ken-O Expressway andHarataima station on the Sagami line. This
multi-tenanted facility has six ﬂoors and also
has storage areas that can house hazardous
goods. As of February 2024, the facility isreportedly around 70% pre-leased, and given
its location and features, could be expected toperform well in the market.
In Greater Osaka, a total of around amillion sq m of GFA came to the market in
2023. Developments were comparatively more
spread out, with the largest additions being
DPL Hyogo Kawanishi by Daiwa House andFujita, which added around 89,000 sq m,
and MCUD Minami-Suita by Mitsubishi
Corporation Urban Development and Sankei
Building, which added around 85,000 sq m.
Both facilities are in good locations proximate
to major stations and or expressways.
In the ﬁ rst half of 2024, the largest
addition to the market will be LOGI’Q
Minami-Ibaraki by Tokyu Land, which wascompleted in January 2024, adding around
162,000 sq m to the market. The facility is
located close to the Meishin expressway
and is a nine-minute walk from Senrioka
station on the Kyoto line. The accessibilityof the facility should make it easier to attract
labour, which will be crucial in the industry,
infamous for its labour shortages.

Japan Logistics

Graph 6: Share of Investment Volumes by Asset Class, 2007 to 2023
OfficeResidential

RetailHospitality

Other

Total
10

90%

9

80%

8

70%

7

60%

6

50%

5

40%

4

30%

3

20%

2

10%

1

0%

0

JPY (TRILLION)PROPORTION OF INVESTMENT (%)

Logistics
100%

INVESTMENT TRENDS
According to preliminary data aggregated by
MSCI, overall investment activity in Japan
has been strong in 2023 at JPY5.3 trillion.
Over the same period, investment levels in
the logistics sector grew to a new high of
JPY1.0 trillion, rising 35% from 2022 levels
due to a number of large transactions. In
addition, transaction data is preliminary andinvestment volumes will likely increase as
more transactions are conﬁrmed throughout
the rest of the year.
In the current challenging capital
market environment for J-REITs, which aretheoretically interest rate sensitive, the unit
prices of logistics J-REITs in particular are
relatively weak. Nonetheless, a few large
J-REIT transactions have been observed.
Industrial & Infrastructure Fund Investment
Corporation (IIF), a J-REIT managed by
KKR announced two large deals in February
2024, one of which entails acquiring 28
logistics properties for JPY108.3 billion
from LOGISTEED, which KKR has invested
in. The other deal was a silent partnershipinvestment into HK Logistics GK, an SPC
which will acquire four logistics properties
from LOGISTEED for JPY104.4 billion. IIF
REIT will also be disposing of two logistics
properties for JPY13.5 billion. Another notable
J-REIT transaction was the sale of part of
Logiport Nagareyama B by Lasalle Logiport
REIT for JPY13.1 billion.
Domestic ﬁrms have also been active overthe past half year, with Fuyo General Lease
having reportedly acquired 50,000 sq m of landin Higashihama from Kobe Steel, which posted
an approximate gain of JPY27.0 billion on thesale. While the purpose of the acquisition
has not been disclosed, the site is locatedin the Tokyo Bay area where many logistics
facilities are located. Meanwhile, looking at

Source MSCI, Savills Research & Consultancy

Graph 7: Six-month-ahead Expectations for Rent and Capital Appreciation, 2008 to
1H/2024
Rents

Capital Values

100
80

DIFFUSION INDEX

60
40
20
0
-20

78.0 80.974.3 75.0
67.5 66.7 66.3
69.2
66.8
66.3
56.2
53.3
48.8
53.3
50.7 54.7
38.0 43.2
50.5 48.8
38.9
27.3
29.9
45.1
41.0
29.0
34.8
29.7
22.6 25.9 25.337.0
20.7
25.6 28.6
13.8
28.4 19.6
28.7
14.0
23.1
21.0
19.2
18.7
13.0
8.4 7.7
16.315.319.5
14.1
6.9
5.0
-14.8 -4.8
-6.3 -13.1 -3.7
-15.9

-20.5

-40
-42.0

-25.9
-37.7
-40.3

-60
-63.9
-80
-86.2
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
2H
1H

-100
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 24

Source Ichigo Real Estate Service, Savills Research & Consultancy

Table 1: Selected Investments, Announced September 2023 to February 2024

PROPERTY NAME

TRANSACTION VALUE(JPY BIL)

APPRAISALDIRECT CAP RATEBUYER

SELLERLOGISTEED Portfolio(28 properties)

108.3

3.5% to 6.2%

Industrial & Infrastructure Fund
Investment Corporation

LOGISTEEDLOGISTEED Portfolio(4 properties)

104.4

-

HK Logistics GK

LOGISTEED

Kanto Logistics Center Higashihama
Warehouse (Land Transaction)

27.0 (gain on sale)-

Fuyo General Lease

Kobe SteelESR Aisai Distribution Centre

16.4

-

ESR Japan Income FundESR

IIF J-REIT Portfolio(2 properties)

13.5

4.6%*

Undisclosed domestic
operating company

Industrial & Infrastructure Fund
Investment Corporation

Logiport Nagareyama B(37.5% quasi co-ownership)

13.1

3.9%

Undisclosed

Lasalle Logiport REIT

Source Company Disclosures, Nikkei RE, Savills Research & Consultancy* Cap rate reﬂ ects only the transaction of IIF Yokohama Tsuzuki R&D Center.

5

Japan Logistics

international investors, ESR Japan Income
Fund, in which investors such as AXA
Investment Managers and GIC hold equity,acquired ESR Aisai Distribution Centre in
Aichi for JPY16.4 billion, marking the fund’sﬁrst entry in the Greater Nagoya area.
The 33rd bi-annual market sentiment
survey conducted by Ichigo Real Estate
Service has recorded some divergent views.
Largely speaking, the majority believes thatproperty prices remain elevated. On one
hand, a larger proportion of respondents,
albeit a minority at 10%+, have expressedmore pessimistic views on the prospectsof capital appreciation, with the diﬀ usionindex at its lowest since 2010, citing the likely
normalisation of monetary policy, and thelarge upcoming supply as major concerns.
However, there were also concessions thatrising construction costs would also have an
upward cost-push eﬀect on prices, which
was the primary driving factor that pushed
the diﬀ usion index for rents to the highest
level since 2022. Other respondents havealso indicated that needs for features suchas cold storage and the ability to store
hazardous materials would also drive rents
up, suggesting that such features will indeed
be key in attracting tenants going forward.
Overall investment appetite remains
strong, especially among international
investors, since many of them don’t have
suﬃcient exposure to the Japanese market
yet. In the meantime, sharpened pricing andelevated land and construction costs makedevelopment more diﬃcult, on top of labour
issues. In addition, rather lukewarm leasing
markets do not aid the situation. That said,
the fundamentals are strong, especiallyfrom a mid-to-long-term basis, despite theostensible short-term pain.

BLIND SPOTS IN THE DATA CENTRE
MARKETThe data centre market has continued to
grow robustly in Japan due to the continued
growing demand for digital infrastructure
to support the proliferation of cloud services
and the development of artiﬁcial intelligence.
In fact, the total power capacity of data
centres in Japan is forecast to double overthe next few years, demonstrating the rapid
expansion of the market. Nonetheless, whiledata centres have received a great deal ofattention and have become a hot topic ofdiscussion with the large amount of capital
directed at it, the sharpened pricing anddiﬃculty in repurposing may pose risks.
The ﬁ rst major concern surrounding thedata centre sector is the large amount ofenergy that it consumes. In FY2021, data
centres in Japan alone are estimated to haveconsumed about 20 TWh of electricity,
totalling more than 2% of the country’s
electricity consumption of 931 TWh in
2021, according to the International Energy
Agency. The projected rapid expansion of
the market and number of data centres
being constructed is expected to see thesector’s electricity usage skyrocket, and in
2020, the Japan Science and Technology
Agency forecasted domestic annual energy
consumption of data centres to rise to 90
TWh by 2030 using currently available
technology. The enormous amount of energythat the data centre sector demands is alreadyputting strains on Japan’s power grid, andmany development projects presently require
many years to acquire suﬃcient power for
operations. Furthermore, Japan uses fossil
fuels to generate about 70% of its electricity,
meaning that data centre investments are

Graph 8: Japan Energy Output by Source, 2000 to 2021

Fossil Fuels

NuclearRenewable Sources

1,200

ENERGY OUTPUT (TWH)

1,000

800

600

400

200

0

Source International Energy Agency, Savills Research and Consultancy

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

6

likely to solicit pressure from stakeholders
that have grown to become increasingly
environmentally conscious.
To be fair, technological advancements
certainly have the potential to addressconcerns about energy usage, and the
popularity of the sector has also drawn more
funding for research and development. At
the same time, technological advancements
could also be a double-edged sword forpresent data centres. For example, before
the proliferation of cloud technology,
mainframe computers that were usuallystored in-house or proximate to a company
were considered the primary means ofhandling and processing the data of a large
business. Japan had a large presence in themainframe industry and the prevalenceof legacy systems has made Japan slow toadapt to more modern technology. However,this technology has gradually come to be
replaced by cloud storage or colocation
services provided by data centres. Japan’s
success in this previous technology has
delayed transition, and consequently
fuelled demand for data centres now.
Likewise, groundbreaking technologicalinnovations could possibly render somelevel of obsolescence to either the current
technology installed, or in an extreme
scenario, the industry’s broader concept.
Indeed, the concurrent rise of artiﬁcial
intelligence and the amount of energy it
requires could fundamentally shift thefunction, design, and even choice of locationof data centres, and put existing facilities in amore precarious position.
While the timing of such predicaments
is impossible to predict accurately, capable
asset managers should always have a rangeof contingency plans available. However,data centres have comparatively less room
for strategic pivots as the land that manyof them are situated on is usually located
far from city centres, and has little value
aside from being used as an industrialsite. Moreover, the heightened interestin the data centre sector has led to many
opportunities being acquired at sharp cap
rates, only adding to the diﬃculty of ﬁnding
suitable opportunities that have adequate
returns. Indeed, there is a narrow margin for
miscalculation or error at sub-4% cap rates
for prime data centres, especially those withrelatively long ﬁ xed-term contracts. Althoughmany of the aforementioned scenarios
are hypothetical, they are not implausible
given the rapidly evolving environment andpace of technological advancements. As
such, investors may need to be aware of thepotential risks when venturing into the sector
at sharp pricing levels; only a 50bps spreadagainst the well-established logistics facility
sector with a two-decade track record.

Japan Logistics

OUTLOOK
Overall, the fundamentals of the logistics
sector have remained strong even into thepost-pandemic era with factors like the steadily
growing e-commerce industry helping to prop
it up. There have been many large transactions
over the past half-year by both domestic andinternational investors. However, a few cracks
have admittedly begun to show more clearly –vacancy rates have crept up over the past few
years, largely due to the large volumes of supply
entering the market, and rental growth appears tohave slowed. The bifurcation between prime andsubprime facilities is likely to widen even moregoing forward as tenants now have more choices
available to them. As such, facilities without
deﬁning features such as cold storage, the ability tohouse hazardous goods, or those in comparatively
less desirable locations, may encounter greaterdiﬃculties in attracting tenants.

There are also industry-wide headwinds on
the horizon that look to add further pressure tooperators, namely the limitations on the numberof overtime hours that delivery drivers will beable to work, in an industry that had traditionally
faced considerable labour shortage issues. Thatsaid, some nimble operators have come up withsolutions to improve transportation eﬃciency inthe face of the looming issue, like FamilyMart’s
partnership with Coca Cola Japan to use thelatter’s trucks in the delivery of the former’s
goods. Similar collaborations between companiesof diﬀerent industries have also been reported,
like those of Nissin Foods and JA Zen-Noh. As
such, tenant selection will likely become evenmore important going forward.
Overall, while the sector remains a very
popular destination for real estate capital, there
are challenges for both tenants and landlords
ahead. However, prime facilities in good locations

are still poised to do very well and should notface diﬃculties in securing tenants. On the other
hand, older facilities with outdated speciﬁcations
that are in less convenient locations are expected
to struggle, especially with the large supply still
to come over the next few years. One potential
silver lining for underperforming assets may bethat there have been delays and postponementsof some upcoming projects due to construction
costs that have skyrocketed, and supply chain
constraints, on top of the ever-present labour
shortage, which may give the market morebreathing room to catch up. Moreover, theincreased construction costs should also limit
upcoming supply, which should further contributeto achieving an equilibrium between demandand supply on a mid-term basis. Nonetheless,investors in the sector will need to be able todistinguish between winning and losing assets.

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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