Japan - March 2021

S P OT L I G H T
Savills Research

Japan Logistics©ESR LTD

Japan Logistics

Logistics sector going strong•V acancy rates in Greater Osaka
have remained at 2.8%, withdemand catching up to the highlevels of supply seen in the firsthalf of 2020.
•H
 igh levels of rental growthseen previously in Greater
Tokyo have slowed down to
0.9% YoY. However, rents incertain areas have still shown adisproportionate increase.

• 2020 saw the highest proportionof investment into the logistics
sector, signifying the increased
interest with somewhat
overheated valuation that thesector has gained during the
pandemic.
• Modernised logistics facilities
with increased automation
capabilities and employee
amenities that can attract both
workers and high-profile tenants
are expected to remain popularin the logistics sector as it had
been facing a labour crunch.

Completions

Net absorption

5Y avg completions (2016-2020)

Vacancy rate (RHS)
12.5%

3,000

2,500

10.0%

2,000
7.5%
1,500
5.0%
1,000
2.5%

500

0.0%

0
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019 2020

Source Ichigo Real Estate Service, Savills Research and Consultancy
Note: Annual periods from February to January. Vacancy rates are as of the year end foreach annual period, while the rate presented for 2020 is as of January 2021.

Graph 2: Greater Tokyo Rent Vs Vacancy, Q1/2016 to Q4/2020
Average rent (LHS)

Average vacancy (RHS)

4,500

6%

4,300

5%

4,100

4%

3,900

3%

3,700

2%

3,500

1%

VACANCY RATE

• The inequality of the financial
capabilities between burgeoning
e-commerce tenants and thestruggling retail tenants can be
expected to grow, which will
likely shape the growth of thesector.

MARKET TRENDS
The strength of the logistics sector has held
steadfast in the past year. Vacancy rates inGreater Tokyo are at all-time low levels of
0.2%, tightening 1.7 percentage points (ppts)
year-on-year (YoY) despite the high levels of
supply entering the market in recent years.
The low vacancy levels can be attributed
to strong pre-leasing activity in both the bay

VACANCY RATE

• Average rents in Greater Osaka
have breached the JPY4,000
barrier, following a YoY increaseof 7.5%.

pandemic has served as a tailwind for thelogistics sector, and growth looks promisingwith high levels of investment pouring in.

Graph 1: Supply, Net Absorption And Vacancy In Greater Tokyo, 2010 to 2020

THOUSAND SQ M

• Demand for logistics facilities
in Greater Tokyo has again
outpaced supply, and vacancy
rates have dropped to recordlow levels of 0.2%.

JPY / TSUBO / MONTH

Summary

INTRODUCTION
The logistics sector has reigned supreme
during the COVID-19 era. Despite the adverse
impact that the global pandemic has hadon other sectors, rents have stayed strong
and vacancy levels remain at all-time lows.
The shift in consumer buying patterns fromtraditional retail stores to online retail wasexpedited by the pandemic, and this hasin turn led to an increase in demand forwarehouse space to better facilitate inventory
management as some companies adapt tohigher e-commerce volumes. Indeed, the

0%

3,300
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2016

2017

2018

2019

2020

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

savills.co.jp/research2Japan Logistics

area as well as inland areas, and it is worth
noting that net absorption levels have been
consistently higher than new completionlevels since 2017. This trend has beenbolstered by the pandemic accelerating
the rise of online shopping which hasconsequentially boosted the demand forwarehouse space. Hence, the surge of supply
expected in 2021 appears welcome in thecurrent market.
In alignment with prevailing robust market
conditions, rents in the Greater Tokyo area
have exhibited growth of 0.9% YoY, andcurrently stand at JPY4,410 per tsubo. For
instance, asking rents in Kanagawa havesurpassed JPY5,000 per tsubo, reachingrecord-high levels. Notable rent increases
have also been observed in regions of Chiba.
However, while rents maintain record
levels, growth appears to have slowed since2020, suggesting an affordability threshold2020 was another milestone
year for the logistics sector, withrent and occupancy levels both
improving further, and many parties
increasingly eager to gain exposure
to the growing sector. While theinterest pouring into the logistics
sector appears to have skewed somevaluations upward, its fundamentals
remain sturdy.

Graph 3: Supply, Net Absorption And Vacancy In Greater Osaka, 2010 to 2020
Net absorption

5Y avg completions (2016-2020)

Vacancy rate (RHS)
16.0%

1,750

14.0%

1,500

12.0%

1,250

10.0%

1,000

8.0%

750

6.0%

500

4.0%

250

2.0%

0

VACANCY RATE

THOUSAND SQ M

Completions
2,000

0.0%
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019 2020

Source Ichigo Real Estate Service, Savills Research and 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 2020 is as of January 2021.

Graph 4: Greater Osaka Rent Vs Vacancy, Q1/2016 to Q4/2020
Average vacancy (RHS)
14%

3,900

12%

3,700

10%

3,500

8%

3,300

6%

3,100

4%

2,900

2%

2,700

VACANCY RATE

JPY / TSUBO / MONTH

Average rent (LHS)
4,100

0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2016

2017

2018

2019

2020

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

3has been reached for some industries.
Nevertheless, the market still shows promisewith some areas showing marked increases
in rents.
Similarly, in Greater Osaka, market
fundamentals within the logistics sector havestayed strong. Vacancy rates have remained at
levels of 2.8%, having increased slightly fromthe past quarter. Nonetheless, 2020 has stilloverall hosted the lowest vacancy levels in theregion. Supply in Greater Osaka has cooledslightly in 2H/2020, allowing net absorption
levels to catch up, and thus levelling demandwith supply. Furthermore, average rent levelsin the Greater Osaka region have breached
the JPY4,000 per tsubo barrier for the firsttime, increasing by 7.5% YoY. In fact, rents
have risen considerably over the past two
years, growing 15.6%. Indeed, the Greater
Osaka market has strong winds in its sails,
and with preleasing activity for upcoming
supply going smoothly, the region’s outlook
appears favourable.
INCOMING SUPPLY
There was no slowdown in Greater Tokyo
supply during 2020 despite multiple
consecutive years of increased volumes,
and completed projects delivered only
marginally less space than in 2019 - a record
year. Some of the completions in 2H/2020
were of significant scale1, and the largest
addition to the region was the Goodman
Business Park – East Gate in Chiba completedin October 2020. The 4F facility boasts an
NRA of over 111,000 sq m and is already fully
leased. Developed by Goodman Japan, thefacility was the fourth stage of the Goodman
Business Park series, with a fifth project
1 Defined as exceeding 100,000 sq m in GFA

Japan Logistics

Graph 5: Annual New Supply* In Japan By Region, 2018 to 2023F

Greater Tokyo

Greater Osaka

Other

5.0
4.5

GFA (MILLION SQ M)

4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2018

2019

2020

2021

2022

2023

Source Ichigo Real Estate Service, Savills Research and Consultancy* Projects in 2022 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 31 January 2021.

expected to be completed in mid-2021.
Another large contender recently entering
the market was the DPL Nagareyama III,developed by Daiwa House Industry. With an
NRA of over 100,000 sq m, the facility is thesecond largest to have been built in 2020 by
the developer.
Greater Tokyo is also looking forward tohigh levels of supply in the coming years. In
fact, 2021 and 2022 are already forecast to
have supply levels that surpass that of 2020.
Looking closer, 2022 supply is forecast to
be at a record level of greater than 3 million
sq m, with fifteen projects of significant
scale already announced. Vacancy levels ofcompleted facilities in the area are at alltime lows, and therefore these high levelsof supply should satisfy some of the current
demand.
Like its counterpart, Greater Osaka isalso looking forward to high levels of supply,with 2021 levels forecast to surpass its
previous record, set in 2017. In addition to
the Prologis Park Inagawa 1 and 2, expected
to bring in a total of more than 370,000
sq m of GFA, there are other multiple
projects of significant scale in the 2021

Map 1: Upcoming Completions in Greater Osaka, 2021 to 2023*

Year of Year
2021
2022
2023
GFA
<50,000
100,000
150,000>200,000

Source 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 as of 31 January 2021.

savills.co.jp/research

4Japan Logistics

capability to afford the higher land prices
of more convenient locations that werepreviously unavailable. Given these factors,
and the shorter lead time for logistics
development, supply and demand may shift
into equilibrium sooner than some market
participants anticipate.

pipeline, including those from LOGiSTA,LOGIFRONT and SOSiLA.
Recently, an increase in the number ofupcoming inland logistics facilities thatare located close to major expressways like
Hanshin and Meishin has been observed.
These areas provide convenient access tothe transport network in the Kansai regionof Japan, and such locations are likely toincrease in popularity going forward.
Indeed, infrastructure development, as
well as land readjustment projects havemade more regions viable and available
as suitable locations for logistics centres.
Moreover, the strength of the sector
has afforded developers the financial

INVESTMENT TRENDS
With 2020 centred on the global pandemic,
it was a challenging year for the real estateindustry. According to data aggregated by
Real Capital Analytics (RCA), overall yearly
investment volumes in Japan have fallen
more than 20% YoY to the lowest levels
seen since 2012. However, this decrease wasGraph 6: Share of Investment Volumes By Asset Class, 2007 to 2020

OfficeResidential

RetailHospitality

Other

Total (RHS)
10

90%

9

80%

8

70%

7

60%

6

50%

5

40%

4

30%

3

20%

2

10%

1

0%

0

JPY TRILLIONPROPORTION OF INVESTMENT (%)

Logistics
100%

Source RCA, Savills Research and Consultancy

GRAPH 7: Six-month-ahead Expectations For Rent And Capital Appreciation, 2008
to 1H/2021
Rents

100

78.0 80.9

8074.3 75.0

67.5
66.8
53.3
48.8
53.3
38.0 43.256.2
50.5 48.8
38.9
40
29.9
25.3 45.1
27.3 28.7
29.7
34.8
25.6
23.1
21.0 37.0
28.6
28.4
20 13.8
22.6 25.9
8.4 7.7 14.1
19.2
18.7
6.9
0
5.0
-14.8
-13.1
-6.3
13.0 -20.5
-3.7
-4.8
-20
-15.9
-37.7 -25.9-40-42.0 -63.9
-40.3
-60
69.2

66.3

60

-80

2008 2009 2010

2011

1H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

1H

2H

-86.2

-100
2H

DIFFUSION INDEXCapital values

2012 2013 2014 2015 2016 2017 2018 2019 20202021
2021
Source Ichigo Real Estate Service, Savills Research and Consultancy

5

unevenly distributed towards the hospitality
and retail industries, with the two sectors
bearing the brunt of the impact from theglobal pandemic. On the other hand, thelogistics sector has emerged as one of thewinners, with the drawn-out pandemic
only appearing to have boosted it. While
overall inflows in 2020 are around 10% lower
than the record high volumes that 2019 had
achieved, they are still more than 30% higher
than 2018 volumes. Furthermore, 70% of
the 2020 transaction volume occurred in
2H/2020, signalling a strong end to the year
and providing the momentum for 2021.
Many large companies had a busy second
half of the year. GLP Japan Income Fundwith US$5.4 billion AUM completed its
second round of fundraising. Elsewhere,
Daiwa House Industry has also started toconsider the establishment of a JPY300
billion logistics fund, funnelling additional
capital into the market.
Cross-border investment was also active.
ESR announced the development of ESR
Higashi Ogishima DC that will be built
in two phases, each with a GFA of over
300,000 sq m, completed in 2023 and 2025.
Furthermore, Mapletree will be investing
JPY43 billion to build two logistics facilities
in Fukuoka prefecture, forecast to be thelargest facilities in the Kyushu region, to becompleted in 2023 and 2024.
Moreover, multiple headline transactions
were also observed in 2H/2020 within the
J-REIT space. Notable deals include GLPJ-REIT’s acquisition of seven logistics
facilities in December for JPY98.2 billion,
REIT Mitsui Fudosan Logistics Park’s
acquisition of two logistics facilities in
October for JPY77.4 billion, and LaSalle
Logiport REIT’s acquisition of four logistics
in September for JPY76.5 billion. The second
half of 2020 was indeed a busy period for thehottest sector of the year, as supported by
the strong J-REIT unit prices. The J-REIT
market has rapidly recovered year to date,and logistics J-REITs will likely remain
active this year.
Indeed, with the high volume of largetransactions and amount of investment
pouring into the market, it is unsurprisingthat investor confidence levels should behigh. The 27th bi-annual survey market
sentiment conducted by Ichigo Real
Estate Service echoes this opinion, withexpectations of rent and capital appreciation
increasing by 27 points and 23 points
respectively, the largest jump since 2012.
Understandably, investors have upgradedtheir views given the strong market
fundamentals and the high level of activity
around. 2021 so far has ticked many boxes
required for us to expect a promising year forthe logistics sector.

Japan Logistics

Table 1: Selected Investments, Announced August 2020 to February 2021

PROPERTY NAME

TRANSACTIONVALUE (JPY MIL)APPRAISALDIRECT CAP
RATE

BUYER

SELLERGLP Logistics
Portfolio(3 facilities)

98,2303.7% to 4.3%

GLP J-REIT

SPCs of Sumitomo
Mitsui Financing
and Leasing

MFLP Portfolio(2 facilities)

77,4004.0% to 4.1%

MFLP REIT

SPC of Mitsui
Fudosan

LaSalle Logiport
Portfolio(4 facilities)

76,5004.0% to 4.5%

LaSalle Logiport
REIT

Various

Prologis Portfolio(3 facilities)

62,2004.3% to 4.6%

Nippon Prologis
REIT

SPC of Prologis

Cross Gate
Shinsuna Data
Centre22,000n/a

AXA Investment
Managers

Dream Private REIT

Source J-REIT Disclosures, Company Disclosures, Nikkei RE, Savills Research and Consultancy

Graph 8: Average GFA Of Newly Built Logistics Facilities, 2000 to 2022*
70,000AVERAGE GFA SQ M

60,00050,00040,00030,00020,00010,00002000 2002 2004 2006 2008

2010

2012

2014

2016

2018

2020

2022

Source RCA, Savills Research and Consultancy*The average GFA is calculated as a 5-year moving average of logistics facilities larger than 1,000 sq m.
Data for 2021 onwards is based on the projected GFA of facilities that have been publicly announced.

Graph 9: Cap Rate Vs GFA Of Transacted Logistics Properties, 2016 to 2020*
Greater Tokyo

Greater Osaka

NagoyaFukuokaOther

12%70,00011%70,00010%
60,00060,0009%50,000CAP RATE

CAP RATE

50,0008%

7%40,000
6%30,0005%

4%
20,00040,00030,00020,0003%
10,00010,0002%

1%

0

0
20K 40K 60K 80K 100K
120K 140K 160K 180K 200K 220K 240K 260K
2000
2002
2004
2006
2008
2010
2012
2014
2000 2002 2004 2006 2008
2010
2012
2014
2016
2018
2020
2022
SQ M

2016

Source RCA, Savills Research and Consultancy* Only publicly announced transactions larger than JPY1 billion are included.

savills.co.jp/research

6

2018

THE EVOLUTION OF THE LOGISTICS
SECTORThe Japanese logistics sector has enjoyedunprecedented growth over the past decadewith an ever-increasing appetite for logistics
space boosted by structural changes, including
the growth of e-commerce. While theoverall amount of new supply entering themarket has risen rapidly in the past decade,facilities themselves have also undergone
transformations to match the new logistics
paradigm.
For instance, the declining population andlow levels of unemployment in Japan has led
to a persistent scarcity of labour, although theimpact of COVID-19 has admittedly createdsome leeway in the labour market. In order toaccommodate this, recent logistics facilities
have become increasingly automated withadvanced robotics and computerised racking
systems. These newer facilities have a sharper
competitive edge and have the potential topoach tenants from older buildings. Moreover,newer state-of-the-art logistics facilities may
also come with additional amenities such as
children day-care centres, as well as being
equipped with feature such solar panels thatwill help attract high-profile clients.
Another noticeable trend that has takenplace is the increase in size of newer facilities.
From 2000 to 2020, the average size of newly
built facilities has almost doubled. Larger
facilities allow for increased economic andoperational efficiency by maximizing land
utilisation by building upwards, as well as
allowing more space for automatic systems.
Notably, the size of facilities does not seemto dramatically affect transaction cap rates.
On the other hand, there may be two major
drawbacks of large logistics facilities. The firstwould be maintaining the large workforce
required to operate the facility in a country
suffering from a labour-deficit. The second
would be an increase in road traffic in certain
areas around the facilities.
Bolstered by the pandemic, 2020 saw
a 25-year high for new logistics facility
construction starts to meet the increased
demand for logistics space that arosefrom the boom in e-commerce, and highlevels of supply are expected in upcoming
years. However, according to data from the
Ministry of Land, Industry, Transport andTourism, the number of new logistics facility
construction starts in recent years was only
approximately half of Japan’s previous peak
periods, and even the 2020 levels draw palein comparison. Therefore, as a vast majorityof the current logistics stock was built
decades ago, there appears to be a notable gap
between the demand for facilities that canmeet the various needs of tenants and the
supply2022
available in the market, meaning that2020
there is still room for even more modernised
logistics facility space to enter.

Japan Logistics

GRAPH 10: New Logistics Facilities Construction Starts, 1980 to 2020
20,00018,000Peak period

THOUSAND SQ M

16,00014,00012,00010,000
8,000
6,000
4,000
2,000
0

Source Ministry of Land, Infrastructure, Transport and Tourism, Savills Research and Consultancy

OUTLOOK
The momentum that the logistics sector
had built up was not lost in the second halfof 2020. Despite record levels of supply
entering the market in major areas, thedemand for logistics facilities has kept up
with or even superseded the new supply.
This robust demand encouraged high levels
of investment, crowning it the most popular
sector of 2020.

However, while the sector as a whole has
undoubtedly seen growth, there are starkdifferences between the strength and growthof the industries directly related to the sector.
For instance, e-commerce had been on therise, and the pandemic seems to have only
spurred the growth of the sector further.
Conversely, the global pandemic has greatly
impacted the retail sector’s decline. To wit,
not all is equal within the logistics sector

itself; while the victors of the global pandemic
have thrived, those on the other end of thespectrum are still hurting. As a result, slower
rental growth can be expected in some areas,
particularly after the strong growth alreadyseen in the sector.
Given the robust fundamentals of thesector, both existing and new investors are
enthusiastically seeking development andacquisition opportunities. Competition for
attractive opportunities has intensified,pushing up prices for development land andcompressing cap rates for stabilised assets.
This in turn is increasing the pressure on
developers and investors to seek higher rents,
potentially testing affordability, and riskinga slowdown in demand from some occupiersegments. Notwithstanding, with current
record-low vacancy in the sector, continued
rental growth is expected, albeit at more
moderate rates. Near-to-mid-term prospects
for the sector therefore remain buoyant,although given the heated market environment
some level of caution may be wise.

For more information about this report, please contact us
Savills Japan

Savills Research

Christian Mancini
CEO, Asia Pacific(Ex. Greater China)+81 3 6777 5150
cmancini@savills.co.jp

Tetsuya Kaneko
Director, Head of Research& Consultancy, Japan+81 3 6777 5192
tkaneko@savills.co.jp

Simon Smith
Senior Director
Asia Pacific+852 2842 4573
ssmith@savills.com.hk

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