Japan - September 2023

S P OT L I G H T
Savills Research

Japan Logistics©ESR LTD

Japan Logistics

Large supply volumes likely tocontinue exceeding demand• In Greater Tokyo, demandhas been sound, but is being
outpaced by the growing
amount of new supply. As
such, vacancy rates rose by 3.0
percentage points (ppts) yearon-year (YoY) to 6.2%.
• In Greater Osaka, vacancy saw
a slight increase of 0.3ppts
YoY, reaching 2.6%. The
market exhibited a relatively
tight balance between supply
and demand due to thecomparatively limited number ofcompletions in 2022. This maychange with the large supply
forecast in 2024.

• Rents in Greater Osaka
experienced a contraction of
0.9% HoH and 5.4% YoY, and now
stands at JPY4,180 per tsubo.

Graph 1: Supply, Net Absorption and Vacancy in Greater Tokyo, 2010 to 1H/2023
Supply5Y Avg Completions (2018-2022)

Vacancy Rate (RHS)
16%

4,000

14%
12%

3,000

10%

2,500

8%

2,000

6%

1,500

4%

1,000
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 1H/2023 is as of July 2023.

Graph 2: Greater Tokyo Rent vs Vacancy, Q1/2016 to Q2/2023
Average Rent (LHS)

4,800

Average Vacancy (RHS)

8%

4,700

7%

JPY / TSUBO / MONTH

4,600

6%

4,500

5%

4,400
4,300

4%

4,200

3%

4,100

VACANCY RATE

• The pandemic has expedited
digital transformation in Japan,
and both hyperscale andlocal data centre markets are
expected to see considerable
growth going forward.

Demand

4,500

3,500

• Investment levels in 1H/2023
were larger than those of
1H/2022. Logistics facilities are
currently popular among foreign
investors, especially those who
would aim for larger exposures
to the Japanese market.
• New supply in 2023 is set tosurpass 2022 levels in boththe Greater Tokyo and Greater
Osaka markets, with Greater
Tokyo reaching record highs. The
influx of new supply is expected
to increase the competition fortenants, meaning that poorly
located and older facilities inparticular may struggle.

competition. While some facilities appear to
struggle with securing tenants, those withadvantageous attributes like prime locations
and cold storage capabilities remain in highdemand. As such, while some bifurcation will
likely persist in the market, prime logistics
facilities should perform well.
International investors have been
particularly active in the Japanese logistics
market in 2023, with many likely looking tocapitalise on the stabilised credit market
and the weak yen. Meanwhile, the data
centre market is rapidly expanding in Japan,

VACANCY RATE

• Rents in Greater Tokyo rose
marginally by 0.2% half-year-onhalf-year (HoH), but contracted
by 3.4% YoY, reaching JPY4,520
per tsubo.

1
Greater Tokyo is defined as the region which consists ofTokyo, Kanagawa, Chiba, and Saitama
2 Greater Osaka is defined as the region which consists ofOsaka, Kyoto, Hyogo, and Nara

THOUSAND SQ M

Summary

INTRODUCTION
While demand remains robust, the logistics
sector is witnessing a large amount of
new supply in Greater Tokyo1 and Greater
Osaka 2 that has affected the equilibrium
between supply and demand. This influx of
new logistics facilities has contributed to
an increase in vacancies and contraction
in rents, forcing developers to adopt
different strategies to stand out among the

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

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

accelerated by increased digitalisation
during the pandemic and a subsequent
increase in investments, with both
hyperscale and local data centres receiving
greater attention from investors.
Overall, the sector’s underlying
fundamentals remain robust, and tenant
demand is expected to endure, driven by
the substantial growth prospects of the
e-commerce industry. Consequently, theoverall long-term outlook for the logistics
market should remain positive moving
forward, although it will likely face someadjustments for the time being.

The resilient fundamentals and growthpotential of the e-commerce industry
offer a long-term positive outlook forthe logistics market, which has led to
the large upcoming supply. However,even sound demand is struggling tokeep pace with the elevated supply
in the market, and the industry also
faces headwinds such as labour
shortages and inflation. Although
fundamentals remain strong, themarket is likely to undergo a phase ofadjustments for the time being.

MARKET TRENDS
Some difficulties persist in the Greater
Tokyo market, largely stemming from thenotable expansion in the number of new
developments; supply in Greater Tokyo
was elevated in 2022 and looks to reach

Graph 3: Supply, Net Absorption and Vacancy in Greater Osaka, 2010 to 1H/2023
Demand5Y Avg Completions (2018-2022)

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 1H/2023 is as of July 2023.

Graph 4: Greater Osaka Rent vs Vacancy, Q1/2016 to Q2/2023
Average Rent (LHS)

Average Vacancy (RHS)

4,500

14%
12%
10%

4,000

8%
3,750
6%
3,500

4%

3,250

VACANCY RATE

2%

3,000

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

JPY / TSUBO / MONTH

4,250

2016

2017

2018

2019

2020

2021

2022

2023

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

3even greater levels in 2023. The market
appears to be struggling somewhat withfully absorbing this new supply, and the gap
between supply and demand has widened
further. Consequently, vacancy loosened forthe tenth consecutive quarter, increasing 3.0
percentage points (ppts) year-on-year (YoY),
to 6.2% in 1H/2023. Meanwhile, asking rents
experienced a moderate contraction at 3.4%
YoY, to JPY4,520, although they increased by
0.2% HoH.
In the Greater Tokyo area, prospects
depend largely on the location. Looking at
vacancy by prefecture, Ibaraki exceeds 20%,and Kanagawa also demonstrates relatively
high levels of vacancy at 8%. Meanwhile,
Saitama appears to have only moderatelevels of vacancy at 5%, while both Chiba
and Tokyo are performing comparatively
well at slightly over 3%. The extensionof the Ken-O expressway has expanded
the number of areas with potential fordeveloping logistics facilities in Ibaraki,
and a development boom appears to havecontributed to destabilising the balance
between supply and demand. Meanwhile,in Saitama and Kanagawa, new logistics
developments have largely concentrated
around the Ken-O expressway, which has
also led to some softening in these markets.
It is highly likely that some bifurcation willcontinue depending on the area as the rental
markets continue on a lukewarm trend.
The market for general-purpose, multitenant logistics facilities appears to haveslowed down due to the large amount of
supply that makes it more difficult forsuch properties to stand out amongst thecompetition. As a result, rental increments
have paused, and some facilities appearJapan Logistics

to have had more challenges in securing
tenants. At the same time, logistics facilities
that are in good locations and that haveadvantageous features such as cold storage
capabilities have continued to perform well,suggesting that some bifurcation will persist
in the market. Indeed, despite the mild
contraction in rents overall, prime logistics
facilities have continued to enjoy rental
growth, supporting this statement.
The relatively stable performance of

the Greater Osaka market has continued
in 2023. Indeed, demand among tenantsremains firm, and new completions were
somewhat limited in recent years. As such,vacancy rates only saw a slight increaseof 0.3ppts YoY, to 2.6%. Indeed, most new
developments have been uneventfully absorbedby the market, demonstrating the relatively
tight balance between supply and demand.
Average asking rents in Greater Osakacontracted by 5.4% YoY to JPY4,180 per

tsubo, although rents remain comfortably
higher than two years ago. A significant
uptick in supply is forecast over the coming
years, which may result in some further
loosening of vacancy rates, and somedownward pressure on rents going forward.
For instance, the expansion of the ShinMeishin Expressway between Otsu and
Takatsuki, which is slated for completionin 2024, will create access to more areas
for developing logistics facilities, which
could exacerbate competition for tenants
and cause some fluctuations in the Greater
Osaka market.

Graph 5: Annual New Supply* in Japan by Region, 2018 to 2025F
Greater Tokyo

Greater Osaka

Other

8
7

GFA (Million SQ M)

6
5
4
3
2
1
0
2018

2019

2020

2021

2022

2023F

2024F

2025F

Source Ichigo Real Estate Service, Savills Research & Consultancy* Projects in 2023 and beyond tend to be added later once details are ready to be announced.
Only facilities with GFAs > 10,000 sq m and as of 1 August 2023.

Map 1: Upcoming Completions in Greater Osaka with GFA greater than 50,000 sq m,
2023 to 2027*
GFA
50,000100,000
200,000
300,000
400,000

Completion Year
2023
2024
2025
2026
2027

Source Ichigo Real Estate Service, Savills Research & Consultancy* Projects where GFA and/or completion date are unavailable are omitted from the dataset.
New supply data is as of 1 August 2023.

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

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INCOMING SUPPLYIn Greater Tokyo, the pace of completions
increased significantly, with nearly
3.0 million sq m of new logistics space
introduced to the market in the first halfof 2023. The largest completion was the349,000 sq m multi-tenant facility, ESR
Higashi Ogishima Distribution Centre 1.
The 9-storey facility is now Japan’s tallest
logistics facility. Located in Kawasaki City’s
Higashi-Ogishima area, which is in close
proximity to the Tokyo Bay area, the facility
will gain even greater accessibility withthe completion of the Kawasaki Port Rinko
Road, which is slated for completion in 2028.
The development, which is located next toa large public park, also features a numberof on-site amenities designed to attract
workers, including free children’s day-carefacilities, rest space for drivers, 24-hour
stores, and bowling alleys.
Meanwhile, the 205,000 sq m Tokyo
Ryutsu Center Distribution Bldg.A is slated
for completion in August 2023. Located in
Ota ward, Tokyo, the facility will have directaccess to the 23W and Greater Tokyo market
via the Metropolitan Expressway and Loop
Road No.7, while direct public transport
connections to the Tokyo rail and bus
systems will ensure convenient access to thesite for employees.
Looking forward, the largest upcoming
development in 2024 in Greater Tokyo willbe the MFLP LOGIFRONT Tokyo-Itabashi,
which will reportedly have a GFA of around
256,000 sq m. The facility is located within
the 23W, and will likely appeal to tenants
given its proximity to the city centre andconvenient public transport access, aswell as to the Metropolitan Expressway.
Developers will likely aim to distinguishthe property with its large-scale modern
cold storage capabilities and specialisedzone dedicated to conducting R&D and
implementing last-mile drone delivery
services. Overall, the Greater Tokyo market
will welcome a record 4.4 million sq m of

Japan Logistics

new logistics supply in 2023, which may
exacerbate concerns regarding vacancy
rates going forward due to heightenedcompetition for tenants.
On the other hand, new supply in Greater
Osaka is scheduled to be relatively moderate,with a total of around 520,000 sq mscheduled for completion in the first half of2023, and there appears to be no upcoming
developments with a GFA of over 100,000
sq m in 2023. The largest addition in the firsthalf of this year was the MCUD Kobe Nishi II,
which has a GFA of 63,000 sq m. The facility
is located in Kobe Techno Logistics Park,and benefits from good proximity to majorroads and expressways for efficient regionaldeliveries, as well as securing a strong

workforce. Furthermore, the developer aims
to achieve net zero energy consumption
by utilising solar power and motion sensor
lighting. The largest completion in 2023 will
be Daiwa’s House DPL Hyogo Kawanishiin Hyogo, with a GFA of 89,000 sq m.
The facility is located near the Kawanishi
Interchange, which is close to the ShinMeishin expressway, providing convenient
access between Osaka, Kyoto and the wider
west-Japan region.
Overall, new supply is forecast to reachalmost 1.0 million sq m in 2023, and asubstantial increase in development activity
is forecast for Greater Osaka from 2024
onwards. The CPD Nishinomiya Kita I and
CPD Nishinomiya Kita II, both scheduled

for completion in Spring 2025, will have a
combined GFA of approximately 300,000 sq m.
Meanwhile, GLP is developing a number offacilities across the Greater Osaka market,
with the GLP ALFALINK Ibaraki 1, GLP
ALFALINK Ibaraki 2, and GLP ALFALINK
Ibaraki 3 set to be the largest, with a
combined GFA of 324,000 sq m, and arescheduled for completion between 2024 and2025. Looking ahead, over 1.2 million sq mof new logistics space is forecast for 2024, a
significant increment from the subdued levels
in previous years, which reflects the strong
sentiment in the market.
Going forward, elevated construction costs
and land prices are projected to slow down
future development, along with instances ofinvestors changing their development plansor selling development land, which could
potentially lead to more subdued and stablesupply, allowing more room for absorption
in the near term.

Graph 6: Share of Investment Volumes by Asset Class, 2007 to 1H/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 TRILLIONPROPORTION OF INVESTMENT (%)

Logistics
100%

Source MSCI, Savills Research & Consultancy

Graph 7: Six-month-ahead Expectations for Rent and Capital Appreciation, 2008 to
2H/2023
Rents

Capital Values

100
80.9
78.0
74.3 75.0
67.5 66.7 66.3
69.2
66.8
66.3
60
53.3
48.8 43.2 56.2
54.7
53.3
50.7
38.0
50.5 48.8
40
45.1
27.3
29.9 38.9
41.0
34.8
29.7
22.6 25.9 25.3 37.0 28.4
25.6
13.8
15.3 20.7
28.6
28.7
20
19.6
23.1 21.0 18.7
8.4 7.7
13.0
19.2
16.3 19.5
14.1
5.0
6.9
0
-14.8 -4.8
-6.3
-3.7
-20.5
-13.1 -15.9
-20
-25.9
-37.7
-40
-40.3
-42.0 -63.9-60

DIFFUSION INDEX

80

-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

-100
20082009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source Ichigo Real Estate Service, Savills Research & Consultancy

5

INVESTMENT TRENDS
According to preliminary data aggregatedby MSCI, investment activity in Japan
has been strong in 1H/2023, with total
investments around 26% greater than thoseseen in 1H/2022. Over the same period,
investment volumes in the logistics sector
nearly tripled due to a number of big-ticket
transactions. Furthermore, transaction
data is preliminary and investment volumes
will likely increase as more transactions areannounced throughout the rest of the year.
International investors have been notably
active in the logistics market in the firsthalf of 2023. For instance, the largest
transaction of 2023 was by GIC, which
acquired six facilities with an aggregate GFAof around 372,000 sq m from Blackstone for
US$800 million or approximately JPY107.0
billion in April 2023, marking one of themost significant logistics transactions everreported in Japan. Meanwhile, Mapletree
Logistics Trust bought six logistics facilities
that were all constructed within the past four
years from CBRE Investment Managementfor US$500 million or JPY66.0 billion.
Another notable transaction was by Mapletree
Industrial Trust, which acquired a 7F data
centre with a GFA of 12,600 sq m in Osakafrom SPC Suma TMK for JPY52.0 billion in
July 2023. The logistics market is the mostsought after, especially by international
investors who are seeking a larger exposure
to Japan, excluding the office market.
J-REITs also contributed a significant
proportion of logistics transactions in thefirst half of 2023. For instance, GLP J-REIT
acquired four logistics facilities in Kanagawa,
Okinawa, Okayama and Fukuoka for JPY58.2

Japan Logistics

Table 1: Selected Investments, Announced March 2023 to August 2023

PROPERTY NAME

TRANSACTION VALUE(JPY BIL)

APPRAISALDIRECT CAP RATEBUYER

SELLER

Blackstone Portfolio(6 facilities)

107.0

-

GIC

Blackstone

CBRE Investment Management portfolio(6 facilities)

66.0

-

Mapletree Logistics Trust

CBRE Investment Management

GLP J-REIT portfolio(4 facilities)

58.2

3.6% to 4.9%

GLP J-REIT

Aries GK, SMFL Mirai Partners

Suma New Construction

52.0

-

Mapletree Industrial Trust

Suma TMK

Prologis Soka

51.4

3.6%

Nippon Prologis REIT

Jimba TMKLRF2 Properties portfolio(3 facilities)

23.1

3.7%

LaSalle LOGIPORT REIT

LRF2 Properties GK

CRE portfolio(2 facilities)

22.5

3.9% to 4.2%

CRE Logistics REIT

CRE

Source Company Disclosures, Nikkei RE, Savills Research & Consultancy

billion, the largest deal being the acquisitionof a 30% quasi co-ownership stake in the
GLP Alfalink Sagamihara 5 in Kanagawa for
JPY19.4 billion. Additionally, Nippon Prologis
REIT acquired the 143,800 sq m Prologis
Soka logistics facility in Saitama for JPY51.4
billion, while LaSalle Logiport REIT acquired
three logistics facilities in Kyoto and Aichi
for an aggregate total of JPY23.1 billion.
Elsewhere, in May 2023, Kenedix acquired the
ST Tokorozawa Logistics Center in Saitama,
appraised at JPY13.0 billion, with part of thedeal financed via a real estate securitised token
offering (STO).
Despite concerns regarding recent
interest rate increments and sharpened
pricing, the demand for logistics facilities in2023 remains robust, as the large transaction
volume in 2023 indicates. Indeed, logistics
assets in Japan will likely remain sought
after, particularly among overseas investors,
due to the large growth forecast for Japan’s
e-commerce industry. That said, the 32nd
bi-annual market sentiment survey conductedby Ichigo Real Estate Service indicates thata majority of respondents have a somewhat
neutral outlook, citing concerns regarding
rising interest rates, labour shortages,
and inflation, which suggests a dampened
outlook of further rental growth.
THE DATA CENTRE MARKETThe pandemic has expedited demand for
digital infrastructure in Japan, which hasserved as a catalyst for economic growth andinvestment, with foreign direct investment
into communications having seen significant
increments over the past few years tosavills.co.jp/insight-and-opinion/

more than JPY300 billion in 2022. With
the notable recent growth of Japan’s
e-commerce sector, the government’s
increasing focus on domestic semiconductor
manufacturing, and the heightened needfor digital security, a paradigm shift isoccurring, which has brought data centres
into the spotlight as a base for digital
infrastructure going forward. As a result,
their presence has expanded notably inrecent years, and, in physical terms, thenumber of server racks is expected to double
from around 138,000 in 2023 to 272,000
in 2027. Although historically dominatedby domestic IT companies, the market isseeing many international investors making
significant progress which appears to be thesource of most upcoming growth. For a morein-depth overview, please refer to our “Japan
Data Centres 1H/2023” report.
Hyperscale data centres are typicallyowned and run by major operators, andoften have more than 5,000 servers withcapacities upward of 20MW. Many such
facilities are located on the outskirts ofmajor urban areas and are situated inclusters due to the large amount of land andenergy required. Meanwhile, smaller local
data centres tend to be located in closer
proximity to central business districts, andmany older facilities are housing outdated,company-tailored IT systems that havebecome more difficult to maintain. In
recent years, many companies appear tobe migrating to cloud-based solutions that
hyperscale data centres provide.
That said, local data centres situatedcloser to central areas remain in demand.
Firstly, some companies like to maintain6

their IT systems in a hybrid fashion, using
both cloud services, as well as some formof in-house storage, which could be either
in-office or colocation space. Colocation
data centres close to central areas have an
advantage as they can provide relatively
easier physical access compared to thosesituated further afield. As such, local data
centres near business districts have gainedsome traction among investors.
The conversion of office buildings
to local colocation data centres where
possible appears to also be a viable strategy,
considering that leases for data centres will
be longer and can generally generate greater
net operating income than a similar officebuilding would, due to the specialised natureand scarcity of such properties. A notable
example of this approach would be theGotenyama building located in Shinagawa,Tokyo, which Sekisui House REIT decided
to sell to TIS for JPY70.0 billion in March2023 at an appraised direct cap rate of 3.3%.
While it is officially designated as an officebuilding, the buyer TIS has used the building
as a data centre during its tenancy.
Overall, the data centre market in Japan
is growing rapidly and is expected to see
considerable growth in the coming years, withmany large hyperscale developments in thepipeline, particularly in the Greater Tokyoand Greater Osaka areas. That said, there are
multiple constraints that will likely hinder
this, including the scarcity of suitable landfor data centre development, and the time
taken to attain the requisite power supply.
While more investors are likely paying closer
attention to the local data centre market,

Japan Logistics

which is comparatively easier to break into, boththe hyperscale and local data centre markets are
expected to see considerable growth going forward.
OUTLOOK
Transitioning into the post-pandemic era, thefundamentals of the logistics sector remainstrong, driven by growing demand from various
industries such as e-commerce, retail, wholesale,and consumer goods manufacturing. The sector
remains popular with investors, and many
significant transactions were recorded, especiallyamong foreign investors, in particular those whoare seeking a large exposure to Japan outside
the office sector. However, large new supply has
outpaced strong demand over recent quarters,
which caused a noticeable increase in vacancy

rates, and contributed to supressed rental growthin both Greater Tokyo and Greater Osaka in 2023.
Looking ahead, suppressed rental levels may
linger for some time due to multiple external
factors. Known as the “2024 problem”, upcoming
government regulations effective from April 2024
will restrict delivery drivers’ annual overtime to 960
hours, exacerbating the existing labour shortage.
As such, delivery costs will likely increase, andpotential cargo backlogs might materialise acrossJapan due to this bottleneck. Furthermore, thewidened gap between supply and demand will
likely increase competition for tenants. Given
these industry-wide challenges that will supress
operators’ bottom lines, a phase of adjustments will
likely persist for the time being.
Overall, the logistics sector is forecast tocontinue its robust performance due to thepersistent demand from logistics operators,
bolstered by the growth of the e-commerce sector
in Japan. That said, it will take some time for theexcess supply to be absorbed. Modern facilities
located in prime locations, along with ESG
features remain in demand and are attractive toboth investors and tenants. On the other hand,
sub-optimal facilities might face challenges insecuring tenants and might be forced to consider
reducing rents, indicating that some bifurcation
will persist in the market. While the longterm outlook remains positive, the short-term
outlook is more uncertain with many upcoming
challenges. As such, the logistics sector may face aperiod of adaptation to these new circumstances
for the meantime.

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

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

Savills Research

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 offices 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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7