Japan - March 2020

S P OT L I G H T
Savills Research

Japan Logistics©ESR LTD

Japan Logistics

Logistics sector carries the day• Despite the large number ofcompletions during the year,
vacancy rates continued to
decline in Greater Tokyo as preleasing remained strong.
• Stability has returned to theGreater Osaka submarket,
resulting in a second successive
year of positive net absorption.
Vacancy rates fell sharply once
more as a result.
• Asking rents have seen their
downtrend stymied in Greater
Tokyo and have subsequently
bounced back to reach decadehighs. With the availability ofprime assets scarce, locations
outside the capital, particularly
those along major expressways,
have beneﬁtted.

MARKET TRENDS
Greater Tokyo saw vacancy rates tighten
despite the spate of new developments
in 2H/2019. The rate now stands at 1.9%
following a year-on-year (YoY) tighteningof 1.6 percentage points (ppts), marking thelowest level in a decade (Graph 1). Indeed, preleasing levels continue to impress, with overthree quarters of facilities completed between
August and January being fully leased,pushing net absorption markedly higher thanGraph 1: Supply, Take-up And Vacancy In Greater Tokyo, 2010 to 2019

Completions

Net absorption

5Y avg completions (2015-2019)

Vacancy rate (RHS)

3,000

12.5%

2,500

• Interest in the logistics sector isset to intensify considering thesector’s strong fundamentals,
higher yield relative to othercore assets and the prospect of
low inﬂation for the foreseeable
future.
• The ongoing national labour
shortage continues to weigh on
the sector. That said, steps arebeing taken to use technology
to combat cost-pressures arisingfrom this trend.

ongoing labour shortages. For the time being,
therefore, rental growth should be steady.

10.0%

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

VACANCY RATE

• A slight adjustment in Q3/2019
notwithstanding, rents havegrown impressively over theyear in Greater Osaka.

INTRODUCTION
Despite supply increasing signiﬁcantly inGreater Tokyo, vacancy rates tightened andrents rose, highlighting the solid underlying
fundamentals in the submarket. Supply to theGreater Osaka market, on the other hand, hascontinued to ease. This was expected, however,given the spike in completions experienced in2017, and has been a necessary condition forthe market to stabilise. New supply in bothsubmarkets is expected to be solid this year. As
for investors, the sector’s long-term prospects
remain attractive, and this is set to continue
as technology is adopted in order to counter

THOUSAND SQ M

Summary

2.5%

500

0

0.0%
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Note: Annual periods from February to January. Vacancy rates are as of the year end foreach annual period, while the rate presented for 2019 is as of January 2020.
Source Ichigo Real Estate Service, Savills Research and Consultancy

Graph 2: Greater Tokyo Rent Vs Vacancy, Q1/2016 to Q4/2019

Average rent (LHS)

Average vacancy (RHS)
6%

4,500
4,400

5%

JPY / TSUBO / MONTH

4,300
4,200

4%

4,100
4,000

3%

3,900
3,800

VACANCY RATE

• Increased competition, both withentrenched online platforms, aswell as in nascent sectors within
the e-commerce industry, suchas the online food and beverages(F&B) market, implies further
growth potential for the logistics
sector over the longer term.

2%

3,700
3,600
3,500

1%
Q1

Q2 Q3 Q4 Q1
2016

Q2 Q3 Q4 Q1
2017

Q2 Q3 Q4 Q1
2018

Q2 Q3 Q4
2019

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

savills.co.jp/research2Japan Logistics

the record levels set last year. As for rents,
the recent decline was ﬁnally reversed in
impressive fashion (Graph 2). After a solid
2.1% quarter-on-quarter (QoQ) and 4.5%
YoY growth, rents now stand at JPY4,370 per
tsubo, around 3% shy of the highs seen in2008. Given the levels of pre-leasing thus far,market participants appear somewhat calm
regarding the signiﬁcant pipeline of projects
anticipated over the longer term, supporting
the optimism towards the sector for the time
being. That said, the spectre of the novel
coronavirus (COVID-19) continues to weighon both the overall economy and global
capital markets, which could, in turn, drag on
the logistics sector, albeit with a lesser impact
than on other sectors.
Facilities located in the bay area continue tojustify their prime reputation. Rents remain
signiﬁcantly higher than for other locations
and availability is non-existent. Subsequently,
prospective tenants have been keen to occupy
other facilities near transportation routes
into the capital, leading to improving market

2019 was a year to remember
for the logistics sector. With thesector’s potential upside, investors
were competing ﬁercely to getsome exposure to the asset class.
Investment volumes and completions
hit record highs, whilst logistics J-REIT
unit prices soared. Looking forward,
new initiatives by major retailers, suchas Aeon and Nike, may have profound
implications not only for the logistics
sector, but also for retail.

Graph 3: Supply, Take-up And Vacancy In Greater Osaka, 2010 to 2019
Net absorption

5Y avg completions (2015-2019)

Vacancy rate (RHS)
16.0%

1,500

12.0%

1,000

8.0%

500

4.0%

VACANCY RATE

THOUSAND SQ M

Completions
2,000

0.0%

0
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Note: Annual periods from February to January. Vacancy rates are as of the year end
for each annual period, while the rate presented for 2019 is as of January 2020.
Source Ichigo Real Estate Service, Savills Research and Consultancy

Graph 4: Greater Osaka Rent Vs Vacancy, Q1/2016 to Q4/2019
Average vacancy (RHS)
15%

3,700

13%

3,600

11%

3,500
9%
3,400
7%
3,300
5%

3,200

VACANCY RATE

JPY / TSUBO / MONTH

Average rent (LHS)
3,800

3%

3,100
3,000

1%
Q1

Q2 Q3 Q4
2016

Q1

Q2 Q3 Q4
2017

Q1

Q2 Q3 Q4
2018

Q1

Q2 Q3 Q4
2019

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

3conditions in these submarkets. For instance,
facilities located along the Tokyo Gaikan
Expressway, in areas such as the southernpart of Saitama and the western part of Chiba,
have witnessed signiﬁcant upward revisions
in rents. Kanagawa prefecture to the west ofTokyo also saw strong rental growth. Rents
in this submarket now stand at highs not seen
since mid-2008.
The vacancy rate in Greater Osakacontinued its descent in 2H/2019, falling4.2ppts YoY to 2.8% (Graph 3). Following
tough market conditions in 2017, it appears thesubmarket has recovered its poise. Positive net
absorption was achieved for the second year ina row – a trend last observed in 2011 – and withthis dynamic expected to carry on through2020, the market is even starting to show somemarked tightness. After a slight adjustment
in rents during Q3/2019, due to an increased
number of listings at the lower end, rents grew
4.5% QoQ and 7.5% YoY to JPY3,720 per tsubo
in Q4/2019 (Graph 4). With strong demand
expected for facilities in both bay-side andin-land locations, rent growth going forward
should be steady. For the same reason, any
vacancy from upcoming developments shouldbe temporary.
INCOMING SUPPLYIn Greater Tokyo, 2019 turned out to be abumper year for completions, as the previous
record set in 2018 was surpassed. The largest
addition in 2H/2019 was MFLP Funabashi
II, which was completed in October. Preleasing appears to have been solid at the
Chiba prefecture-based facility, with reports
soon after completion suggesting 80% of theoverall space had been leased. The MitsuiJapan Logistics

MAP 1: Greater Osaka Logistics Facilities Completions, 2018 to 2021*

Floor Area (GFA: sq m)
10,000100,000
200,000
300,000
400,000
Completion Year
2018
2019
2020
2021

* New supply data as of 28 February.
Source Ichigo Real Estate Service, Savills Research and Consultancy

Graph 5: Share Of Investment Volumes By Asset Class, 2007 to 2019
Logistics

OfficeResidential

RetailHospitality

Other

Total
8

90%

7

80%
6
70%
5

60%
50%

4

40%

3

JPY TRILLIONPROPORTION OF INVESTMENT (%)

100%

30%
2
20%
1

10%
0%

0

Source RCA, Savills Research and Consultancy

savills.co.jp/research

4

Fudosan owned facility boasts a GFA of over
220,000 sq m and is the second of threefacilities to be completed on the site. Oncethe third iteration is completed in mid-2021
the total GFA of all the facilities is expected
to be around 700,000 sq m. Whilst there arefew projects of similar size expected in 2020,2021 is primed to be a record-breaking year
in the submarket, with around 3 million sq
m due to be added. Even so, there appears
little concern for market forces to become
unbalanced, with demand likely to match
supply once more over the period.
Completions in Greater Osaka during 2019
amounted to around 425,000 sq m – a 50%
reduction compared to the previous year –adding to the sense of market normalisation.
That said, upcoming developments abound(Map 1). In fact, Hyogo prefecture, locatedtowards the northern side of Greater Osaka, ishome to the three largest developments. The
largest of which, the Amagasaki Distribution
Centre, developed by ESR, will add close to400,000 sq m of GFA to the market in June
2020. Vacancy rates are anticipated to loosen
on completion as result, albeit temporarily.
The reaction to the completion of various
developments over the next couple of years
is set to be a litmus test for the submarket’sJapan Logistics

Graph 6: Six-month-ahead Expectations For Rent And Capital Appreciation, 2008 to
1H/2020
Rents

Capital values

100
80.9

78.0
69.2

80

66.8

DIFFUSION INDEX

38.9

29.7

20 13.8

8.4
0
-20
-40
-60

13.0 -20.5

7.7
-14.8
-4.8

75.0

66.3 50.5
53.3

60
40

74.3

34.8
25.6
29.9
28.6
6.9
14.1

53.3

48.8
38.0
48.8
27.3
45.1
23.1 25.9 25.3 37.0
28.7
22.6
21.0 18.7
19.2
-6.3

-3.7
-13.1

-37.7
-25.9
-63.9
-42.0
-40.3

-80

5.0

-15.9

-86.2

-100
1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H2008 2009 2010

2011

2012

2013

2014

2015

2016

2017

2018

2019 20

Source Ichigo Real Estate Service, Savills Research and Consultancy

Table 1: Selected Investments, Announced August 2019 to January 2020

PROPERTY NAME

TRANSACTIONVALUE (JPY MIL)APPRAISALDIRECT CAP
RATE

BUYER

SELLER

Odawara Center 1, 2

40,000+n/a

SPC of Kenedix

BlackstoneGroup

Logiport Osaka Bay

37,500n/a

LaSalle Investment
Management

SPC(Affiliated with
ESR and PAG)

MJ Logipark
Kasugai 1

13,6704.5%

Mitsubishi Estate
Logistics REIT

SPC (Affiliatedwith Mitsubishi
Estate)

IIF Hiroshima
Seifushinto
Logistics Center

6,870

4.9%

Industrial &Infrastructure Fund

Domestic SPC

LOGIPORT Osaka
Taisho (20%)

5,755

4.2%

Mitsubishi Estate
Logistics REIT

SPC (Affiliatedwith Mitsubishi
Estate)Source J-REIT Disclosures, Company Disclosures, Nikkei RE, Savills Research and Consultancy

Graph 7: Respondents’ Best Performing Sectors In 2020

2019

2020

60%
55%
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
OfficeResidential

Hotellonger-term prospects. With over 2 million
sq m of GFA to be added by 2021, market
participants will be hoping that it will not
be a repeat of 2017, and that the stability
experienced hitherto will persist.

Logistics

Healthcare

Source NLI Research Institute, Savills Research and Consultancy

5

INVESTMENT TRENDS
Investment into the logistics sector during
2019 was a tale of two halves. After a slow
start to the year, investment volumes soared in
2H/2019 to levels not seen for over a decade. To
wit, according to Real Capital Analytics (RCA),
around JPY363 billion1 was pumped into thesector over the period, representing a 43% YoY
increase. Over the calendar year, investment
volumes stood at an estimated JPY527 billion– the highest level since 2013. Tokyo andOsaka, in that order, were unsurprisingly
the main recipients of this ﬂow, with thelatter witnessing a near-ﬁvefold increase ininvestment volumes during the year.
Blackstone had a busy second half of theyear, quickly selling oﬀ parts of the logistics
portfolio acquired from Mapletree in July.
The ﬁrm sold a logistics facility located in
Odawara City, Kanagawa Prefecture for over
JPY40 billion to investors including Nuveen
Real Estate. Eager to deploy funds into thesector, LaSalle Investment Managementﬁnished oﬀ the year with a deal worth around
JPY38 billion for a logistics facility locatedin Osaka. This appears to be a somewhat
opportunistic investment given only a quarterof the facility was occupied at the time ofpurchase. Separately, Daiwa Securities and GLP
are expected to be active in the sector this year,with reports that the former is set to manage an
institutional-focused fund in March. The latteris reportedly following suit later this year.
Although there have been plenty ofdevelopments in the logistics sector,
investment opportunities have been rather
limited. With ample dry powder ready to be
deployed, however, demand from investors isrising. As a consequence, it is rumoured thatmultiple investors have undergone their own
development projects, including facilities forlast-mile deliveries. As such, with demandhigh for a range of assets, the momentum
for investment activity should continue thisyear. Indeed, the 25th bi-annual surveyof industrial market players, conductedby Ichigo Real Estate Service, echoes thispositive market sentiment (Graph 6). Shortterm prospects for both rents and capital
appreciation increased to four-year highs,
with the former’s rise being particularly
strong. To wit, with no respondents
estimating a fall in rents over the next six
months, expectations for rental growthexperienced a near 12-point increase. Given
that the study was conducted during thestart of the global COVID-19 outbreak (24–31
January), the sector’s positive outlook looks
1 In principle, RCA investment volumes exclude
related-party transactions, such as those between a J-REIT
and its sponsor.

Japan Logistics

GRAPH 8: J-REIT Performance, January 2019 to February 2020

J-REIT Logistics Index

TSE REIT Index
155
150
145
140
135
130
125
120
115
110
105
100
95

Source J-REIT Disclosures, Japanese Exchange Group, Savills Research & Consultancy

GRAPH 9: Wage Growth Index Of Workers In The Logistics Sector, 2012 to 2019

All Workers

Part-time Workers

120

115

110

105

100

95
2012

2013

2014

2015

2016

2017

2018

2019

*The data for all workers is based on ﬁ rms with ﬁve or more employees.
Source The Ministry of Health, Labour and Welfare, Jobs Research Center, Savills Research and Consultancy

relatively clear.
THE RUN CONTINUES
The wind is still very much in the sector’ssails in 2020. Based on the 16th annual survey
by the NLI Research Institute (consistingof 126 respondents), whereby market
participants were asked to pick their top
performing real estate sectors this year, thelogistics sector featured most prominently inresponses. In fact, over 55% of participants
had chosen the sector as one of their top picks,
with the oﬃce sector not far behind (Graph 7).
Indeed, with the momentum set to continue,
investor appetite looks unlikely to wane.
After a tepid 2018, the logistics sector took
centre stage last year, taking the crown as thebest performer in 2019. This was particularly
evident among J-REITs. Investors, after
observing demand more than match highsavills.co.jp/researchsupply levels, helped push J-REIT returns
north of 35% on average, comfortably
outpacing the broader market index (Graph8). In fact, the greatest divergence in returns
was seen in 2H/2019, as the spread reachedover 16% in December. This theme intensiﬁed
this year with the spread rising to as much as
26% in February. That said, logistics-focused
J-REITs were not exempt from the market
correction witnessed at the end of February
as the wider potential impact of COVID-19
started to be digested, giving back most of
the gains for the year. When compared to thebroader market index, however, the impact
seems less severe, with the TSE REIT index
losing over 7% in value year-to-date.
Of course, the sound fundamentals bornefrom the growing e-commerce sector was amajor contributor to these impressive returns,

6

but there are also other factors to consider.
Previously, in a world with some expectation
for inﬂation, investors faced potential
uncertainties from committing to long-term
ﬁ xed rent leasing contracts that are typicalin the sector. Yet, in the low-yield, lowinﬂation environment we currently ﬁ nd
ourselves in globally, a wider spread relative
to other asset classes gives investors more
comfort. Another factor to consider is scale.
With logistics assets being big-ticket items
by nature, scaling up should be less of an
obstacle. This is especially appealing forinvestors new to Japan with plenty of dry
powder available. Given these tailwinds,
especially with the relatively wide yieldspread, we should, therefore, see further cap
rate compression going forward.
The logistics sector continues to suﬀer
from the labour-shortage impacting thenation, and this is likely to be a signiﬁcant,long-lasting issue. To wit, average wages forworkers in the sector have increased by over 13%
since 2012, with part-time workers seeing evengreater growth of around 16% during the period(Graph 9). Consequently, in some cases, thishas meant that consumers have had to bear thebrunt in the form of higher delivery fees.
Yet, there is plenty of scope for change,
and the logistics sector, more than most, iswell-placed to beneﬁt from the advancements
in technology. For instance, according to
the Financial Times, Aeon – Japan’s largest
supermarket operator – is set to build robotpowered warehouses in collaboration with
Ocado, the UK food delivery service-cum
provider of automated warehouses. With thewarehouses slated for completion in 2023, thejoint venture is reportedly aiming for a sales
capacity of over JPY200 billion. Given the low
penetration of e-commerce for the food andbeverages (F&B) sector, this collaboration
could have a profound impact on the logistics
sector overall. Speciﬁcally, the heightenedcompetition with established online platforms
such as Rakuten and Amazon from a retail
giant, such as Aeon, could be a catalyst for
further growth in the e-commerce market andrelated logistics activities.
In another example, it has been reported
that Nike has joined forces with Geek+,a provider of robotics technology for thelogistics sector, to provide same-day delivery.
This was made possible thanks to theinstallation of over 200 robots, tasked withcollection and transportation within thefacility, which increased eﬃciency whilst
alleviating the workload for human workers.
As such, the future looks brighter for the invogue sector. The heightened competition byretail players against online platformers, thesole victors so far, may change the prospects
for the e-commerce industry and the shapeof retail facilities, with a rise in showroom
functions, for instance.

Japan Logistics

OUTLOOK
After a fantastic year for the logistics sector,
the momentum is expected to continue
throughout 2020. The sector’s prospects are
expected to move in concert with the growthof e-commerce in Japan, and therefore
plenty of potential upside remains. Thisis especially true for relatively untapped
sectors such as F&B. This in turn could
spread further to other sub-sectors, pushingbroader demand higher and potentially
increasing rents. This dynamic is expected
to have profound implications not only forthe logistics sector, but also for the retailindustry. Although the labour shortage
continues to be a long-lasting headache forthe logistics sector, the use of technology tocounter this problem is encouraging.
Despite the high levels of supply expectedin Tokyo over the next few years, demandshould be more than able to match,ensuring market stability for the time being.
Hence, rent growth should be stable. Withavailability in prime locations limited,facilities in the next grade, such as thoselocated along major expressways, stand to
beneﬁt. In Greater Osaka, the story should
be somewhat similar. The reaction of both
rents and vacancy to the levels of supply
coming online by 2021, however, is worth
keeping an eye on. That said, the submarket
has sounder fundamentals this time aroundand looks more resilient compared to 2017.
Therefore, any spikes in vacancy should be

temporary.
As for COVID-19, the outbreak continues
to cast a shadow over the global economy.
Indeed, strong volatility has manifested
in capital markets worldwide, and there
appears be to no reprieve in sight. Evenso, the impact should be relatively limited
compared to other asset classes given the
structural changes facing the logistics
sector. The rise in e-commerce is expected
to be a long-term transition, and therefore
the sector is somewhat shielded from shortterm adjustments. In addition, modern
facilities, which have features that mitigate
labour shortages and are more resilient tonatural disasters, should have sound longterm demand.

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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