Japan - September 2020

S P OT L I G H T
Savills Research

Japan Logistics©ESR LTD

Japan Logistics

Logistics sector reigns supreme• Despite supply continuing togrow in Greater Tokyo, thanks
to solid pre-leasing activity andsubstantial demand, vacancy
rates have dropped to a historic
low of 0.4%.
• The vacancy rate in Greater
Osaka experienced a slight
uptick following the completionof the huge ESR Amagasaki
Distribution Center. Even so, a
recent stabilisation of market
fundamentals should mean that
this trend is ﬂeeting.

• Rents in Greater Osaka
experienced historical growth ofover 10% YoY, and now surpassthe highs set before the ﬁnancial
crisis.

Graph 1: Supply, Take-up And Vacancy In Greater Tokyo, 2010 to 1H/2020

Completions

Net absorption

5Y avg completions (2015-2019)

Vacancy rate (RHS)

3,000

12.5%

2,500

10.0%

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

500

0.0%

0

• Competition for assets has
become even more ﬁerce,
leading to valuations appearing
more stretched, including in the
J-REIT market.

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 1H/2020 is as of July 2020.

Graph 2: Greater Tokyo Rent Vs Vacancy, Q1/2016 to Q2/2020

Average Rent (LHS)

Average Vacancy (RHS)

4,500

6%

4,300

5%

4,100

4%

3,900

3%

3,700

2%

3,500

1%

3,300

VACANCY RATE

JPY / TSUBO / MONTH• Facilities in subsectors suchas those catering for lastmile delivery services andcold storage capabilities havegarnered further attentionof late. Even so, these remaina small segment within the
broader market.

MARKET TRENDS
Having achieved the milestone of posting thelowest level of vacancy on record in Q1/2020,
the Greater Tokyo market repeated the trickin Q2/2020. Speciﬁcally, the vacancy rate
stands at an even lower 0.4% following a 2.9
percentage points (ppts) tightening year-onyear (YoY).
Pre-leasing activity remains sound, allthings considered, with over 80% of new
facilities fully occupied upon completion in
1H/2020. Demand for existing facilities was
also strong. In fact, whilst the total leasablearea has continued to expand, much of thisVACANCY RATE

• Given the airtight conditions,rental growth in Greater Tokyo
was close to 7% over the year.
Facilities along the bay still
attract the highest rents andthis is unlikely to change going
forward.

INTRODUCTION
Even amid a global pandemic, the logistics
sector appears to be in good shape. Indeed,with demand supported by the proliferationof e-commerce during the outbreak, thesizeable supply expected over the next few
years has done little to deter the market. Yet,whilst some turbulence could emerge over the
short-term as the ﬁ nancial resilience of sometenants starts to be tested, the long-term
prospects of the sector continue to be driven
by the structural changes that e-commerce
presents, and as such, rents should follow suit.

NRA (THOUSAND SQ M)

Summary0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
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

tightening in vacancy can be attributed to thecontinued absorption of supply, which has
been positive every year since 2017 (Graph 1).
This period, for instance, saw net absorption
total almost 1.5 million sq m – the most in any
half-year period in recent history.
Supported by these tight market
conditions, rents grew by 6.8% YoY to
JPY4,400 per tsubo. Whilst they remained
unchanged over the quarter, annual growth
was at the highest level in three years. Whenlooking at the submarkets in more detail, theTokyo Bay area remains the most expensive
by some way. Whilst the scarcity of modern
large-scale facilities plays an important rolein this trend, rents appear to have found alimit, however. Nonetheless, rental prospects
for this submarket remain optimistic.
Elsewhere, locations deﬁned by their accessto the city centre and proximity to transport
links, such as the Gaikan Expressway,
continue to attract demand. Rents have
duly responded, demonstrating solid

The global pandemic has reinforced
the importance of e-commerce
to everyday life, and the logistics
sector has been a prime beneﬁciaryof this trend. As such, market
fundamentals appear sound. Whilst
the uncertainties surrounding
COVID-19 could cause some unrest
going forward, the sector continues
to be underpinned by structuralchanges driven by e-commerce. In
the meantime, valuations are likely tocontinue to be put under pressure.

Graph 3: Supply, Take-up And Vacancy In Greater Osaka, 2010 to 1H/2020
Net absorption

5Y avg completions (2015-2019)

Vacancy rate (RHS)
16.0%

1,500

12.0%

1,000

8.0%

500

4.0%

0

0.0%

VACANCY RATENRA (THOUSAND SQ M)

Completions
2,000

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 1H/2020 is as of July 2020.

Graph 4: Greater Osaka Rent Vs Vacancy, Q1/2016 to Q2/2020
Average vacancy (RHS)
14%

3,900

12%

3,700

10%

3,500

8%

3,300

6%

3,100

4%

2,900

2%

VACANCY RATE

JPY / TSUBO / MONTH

Average rent (LHS)
4,100

0%

2,700
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2016

2017

2018

2019

2020

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

3

growth recently. This has been particularly
evident in Saitama Prefecture, for instance,
where rents have reportedly surpassed the
JPY4,000 per tsubo mark for the ﬁrst time inover a decade.
Vacancy rates in Greater Osaka haverecovered remarkably since Q3/2017. To
wit, the vacancy rate currently stands at
3.0% – a 10ppts decline over the period anda 1.3ppts contraction YoY. More recently in
1H/2020, despite six of the seven projects
completed being fully occupied, completions
have exceeded net absorption – for the ﬁrst
time since 2017 – and the vacancy rate hasslightly increased as a result. Indeed, thischange is attributed to some vacancy in the
newly completed ESR Amagasaki Distribution
Center. Even so, with leasing activity ongoing
this uptick should be temporary.
Unlike its Greater Tokyo counterpart, rents
in this region have surpassed pre-2009 highs.
Speciﬁcally, they lie at JPY3,990 per tsubo
on the back of a historical 10.2% YoY surge.
What’s more, following nine consecutive
quarters of annual growth, rents in Greater
Osaka are only around 9% below rents inthe capital. The spread was as wide as 22%
only two years ago, further emphasising therecent improvement in market conditions.
The momentum in rental growthobserved in both regions is encouraging.
That said, tenants in the thriving
e-commerce sector represent a part of theoverall pool. Indeed, some tenants in otherconstituent industries such as the appareland manufacturing sectors continue to suﬀer.
Thus, while rents are expected to continue
upward, it is not a foregone conclusion.
Looking further ahead, when determining
rental growth prospects, it is important toconsider how the beneﬁts created by theJapan Logistics

Graph 5: Annual New Supply* In Greater Tokyo By Prefecture, 2018 to 2023F

Saitama

Chiba

Kanagawa

Tokyo

Ibaraki

3.5

GFA (MILLION SQ M)

3.0

2.5

2.0

1.5

1.0

0.5

0.0
2018

2019

2020F

2021F

2022F

2023F

Source Ichigo Real Estate Service, Savills Research and Consultancy*Projects in 2022 and beyond tend to be added 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 August 2020.

structural changes from e-commerce interact
with the ongoing issues caused by a national
labour shortage. Indeed, notwithstanding
the easing concerns over the latter for now,
worries are likely to resurface before long.
INCOMING SUPPLYIn terms of new supply in Greater Tokyo,
1H/2020 appears to have carried on where2019 left oﬀ. Among the many completions,multiple were of signiﬁcant scale (exceeding
100,000 sq m), with the largest of the group
being DPL Sakado. Completed in March thisyear, the huge 4F multi-tenant facility, basedin Saitama Prefecture, has an NRA of over
150,000 sq m and is said to have capacity tohouse up to 24 tenants. For Daiwa House, thedeveloper of this project, 2020 is predicted
to be a packed schedule. They have a totalof six facilities planned, with an aggregate
GFA of almost 500,000 sq m spread acrossGreater Tokyo. Meanwhile, in an attempt tocapitalise on the growth in online shopping,Amazon has also announced the opening of

Map 1: Upcoming Completions in Greater Tokyo with Leasable Area > 100,000 Sq m, 2020 to 2023*% of Total GFA in
Bay Area
Year
2020

26%

2021

19%

2022

31%

2023

52%

Year
2020
2021
2022
2023
GFA (Sq m)
100,000
150,000
200,000
250,000
300,000
325,000

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
August 2020. The % of GFA calculation includes projects that are <100,000 sq m.

savills.co.jp/research

4Japan Logistics

four new logistics facilities by October 2020
with a total GFA of 350,000 sq m. As a result,the level of supply expected to be added thisyear will likely exceed 2019, with Saitama
Prefecture accounting for the highest
proportion (Graph 5).
When looking at areas of most potential,
bay-side locations continue to top the list.
For instance, according to a bi-annual
survey 1 of industrial market players compiledin August 2020, respondents, when asked thisquestion, saw the most upside in Tokyo Bay,
Kanagawa Bay and Chiba Bay, in that order. It
is no surprise that developers also share thisview and this is evident when looking at theline-up of projects leading up to 2023 (Map
1 in Red).
Even so, an indication of market
instability in Greater Tokyo, if any, is likely
to manifest next year, especially considering
the levels of supply predicted in 2021 andbeyond. In 2021 alone, for instance, nineprojects of signiﬁcant scale have alreadybeen announced, with two of them over
300,000 sq m in GFA. In a pre-COVID-19
world, this marked upswing in supply would
not have been a large concern, with demand
more than able to compensate. Yet, withouta clear idea of a post-COVID-19 world andeconomy, the reaction to this supply over the
next few years remains somewhat murkier.
As such, the health of the market next year
will certainly be a harbinger for what is tocome thereafter, especially considering thatthe spectre of a national labour shortage
continues to linger.
1 This relates to the 26th bi-annual survey of industrial
market players (81 respondents), conducted by Ichigo Real
Estate Service.

In Greater Osaka, whilst the market
instability experienced in 2017 remains
fresh in memory, there is the sense that it isslowly returning to normal. As such, with theunderlying fundamentals in better shape thistime around, the upcoming pipeline should beviewed more favourably. Indeed, completionsin 1H/2020 have already outpaced the wholeof 2019, with much of this attributed to thecompletion of ESR Amagasaki Distribution
Center (discussed further below). As for the
rest of this year, with the main bulk of supply
already completed, it should be relatively
quieter.
Based on projects where the completion
date and the GFA have been conﬁrmed, thelevel of supply anticipated in Greater Osaka
during 2021 will be signiﬁcant. Indeed,
the amount witnessed in 2017 could bematched, or even surpassed, especiallywhen considering that over a quarter of theplanned facilities have GFAs greater than
100,000 sq m, with Prologis Park Inagawa
1 being chief among them. Developed by
Prologis and set to be completed in November
2021, plans call for the huge 6F facility in
Hyogo prefecture to have a GFA of nearly
220,000 sq m. Whilst the marked uptick inprojects is a vote of conﬁdence for the region,
and a sign that market fundamentals havebecome more robust, careful consideration isnecessary to avoid a repeat of 2017.
INVESTMENT TRENDS
Whilst the logistics sector has been one of
the few in-vogue sectors during this global
pandemic, investment ﬂows across theGraph 6: Share of Investment Volumes By Asset Class, 2007 to 1H/2020

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 RCA, Savills Research and Consultancy

5nation in 1H/2020 declined compared tothe same period last year. According to data
provided by Real Capital Analytics (RCA),
inﬂows this time around amounted to justover JPY200 billion – a near 20% YoY drop.
This is unsurprising on two fronts. First, thedecline is credited to the elevated levels ofinvestment that took place last year, rather
than a worsening of investor sentiment
this year. Second, international travel bans
continue to play havoc for overseas investors
hoping to conduct due diligence. That said,
1H/2020 remains on par with the average 1H
investment volume over the past decade.
Still, examples of big-ticket item
transactions were observed in 1H/2020,
including Prologis REIT’s acquisitionof three logistics facilities in Februaryfor JPY59.3 billion. Meanwhile, GLP’s
establishment of a JPY280 billion private
fund specialising in logistics facilities also
signals a strong investment pipeline ahead.
Indeed, the logistics sector should be able
to maintain its appeal for investors over
the remaining months of 2020, especiallyconsidering the contrasting prospects forthe sectors most impacted by COVID-19.
Whilst funds continue to ﬂow into thesector, the aforementioned bi-annual survey
appears to temper some of this optimism, atleast over the next six months (Graph 7). In
the previous questionnaire six months ago,
for example, with the extent of the global
pandemic yet to be fully understood, market
sentiment towards both capital values andrents hit four-year highs. As the crisis hasdeveloped, however, market participants haveunderstandably downgraded their views.
Driven by the economic diﬃculties facing
tenants and the subsequent weakening of
demand, as well as the health of the Japanese
economy in general following the onset of
COVID-19, the prospects for rents saw thegreatest deterioration as shown by the index
falling by almost 20 points to 28.4. As forcapital values, despite a slight drop in market
sentiment, the proportion of respondents
who believe that values will appreciate during
the next six months has marginally risen
this period, with the increased attention the
sector has been receiving from investors citedas the main factor.

Japan Logistics

GRAPH 7: Six-month-ahead Expectations For Rent And Capital Appreciation, 2008
to 2020
Rents

Capital values

100

DIFFUSION INDEX

60

38.9
29.9

0
13.0 -20.5 -14.8

-42.0
-60

6.9

-25.9

-37.7

-40

-4.8

28.6

14.1

7.7

8.4

48.8
38.0 43.2
27.3
25.3 45.1
23.1
21.0
37.0
28.7
28.4
25.9
22.6
19.2
18.7
5.0
-3.7
-6.3
-13.1 -15.9

50.5 48.8

34.8

25.6

29.7

20 13.8

74.3 75.0
66.8
53.3

66.3
53.3

69.2

40

-20

80.9

78.0

80

-40.3
-63.9

-80
-86.2

2008 2009 2010

2012

2013

2014

2015

2017

2018

1H

2H

1H

2H

1H

2H

1H

2016

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2011

2H

1H

2H

1H

2H

1H

2H

1H

2H

-100
2019 2020

Source Ichigo Real Estate Service, Savills Research and Consultancy

Table 1: Selected Investments, Announced February 2020 to July 2020

PROPERTY NAME

TRANSACTIONVALUE (JPY MIL)APPRAISALDIRECT CAP
RATE

BUYER

SELLER

Prologis Logisitics
Portfolio(3 Facilities)

59,3004.3% to 4.6%

Nippon Prologis
REIT

Various SPCs of
Prologis

Daiwa House
Logisitics Portfolio(4 Facilities)

55,000n/aBlackstone Group

Daiwa House
Industry

Logistics Portfolio(4 Facilities)

38,4003.7% to 4.3%

GLP J-REIT

Various

DPL Nagareyama I

32,600

4.3%

Daiwa HouseREIT

Nagareyama Kyodo
Kaihatsu (subsidiaryof Daiwa House
Industry)

CRE Logisitics
Portfolio(3 Facilities)

17,9104.4% to 5.4%

CRE Logistics
REIT

CRE

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

Table 2: Largest Logistics Facilities In Greater Osaka, As Of August 2020

FACILITY NAME

DEVELOPER

PREFECTURE

YEAR

GFA
(SQ M)ESR Amagasaki
Distribution Center

ESR

Hyogo

2020

390,000

Logiport Amagasaki

LaSalle Investment
Management

Hyogo

2009

259,000

MFLP Ibaraki

Mitsui Fudosan

Osaka

2017

242,000

Redwood Fujiidera
Distribution Center

ESR

Osaka

2017

178,000

GLP Suita

GLP

Osaka

2017

165,000

Prologis Park Ibaraki

Nippon Prologis REIT
(Prologis)

Osaka

2016

161,000

Redwood Nankou
Distribution Center

ESR

Osaka

2018

158,000

Source Ichigo Real Estate Service, Savills Research and Consultancy

savills.co.jp/research

6

NEW OPPORTUNITIES ON THE
HORIZON
Given its sheer scale, the ESR Amagasaki
Distribution Center is hard to ignore.
Completed in June this year and costingaround JPY90 billion, the mammoth facility,
located in Hyogo Prefecture, has a GFA ofalmost 390,000 sq m (Table 2). As such, it
is now the largest logistics facility in Japan.
Despite its size, the property’s location– alongside a major expressway, national
ports, international airports and withinreach to Osaka’s CBD – has attracted strong
demand, with around 70% leased. Indeed,this indicates that demand for high-quality
facilities such as this appears sound, evenduring these diﬃcult times.
Developers are not the only ones being
active, however. Investors are also becoming
lured by the potential returns to be madefrom the logistics sector, creating ﬁerce
competition for assets. As well as the usual
suspects, namely the J-REITs, deep-pocketed
private equity ﬁrms have also entered
the fray. Blackstone Group’s JPY55 billion
acquisition of Daiwa House Industry’s
logistics portfolio in July, for instance, is casein point. Elsewhere, there is an expectationthat sale and leaseback arrangements willfurther popularise with retailers such as Fast
Retailing and Aeon. Apparel and supermarket
companies, such as these, have been late tointegrate e-commerce into their businessstrategies and are now playing catch up.
With plans to expand their online presence,
they may subsequently choose to oﬄoad
some logistics facilities to increase capitaleﬃciency.
Yet, for those unable to get direct exposure
to the sector, the J-REIT market has also
proved fruitful. Speciﬁcally, over the year
ending August 2020, logistics focused
J-REITs returned close to 25% compared
to a fall of 15% for the TSE J-REIT index.
Year-to-date, meanwhile, the spread between
these two stands at around 35%. Ultimately,
therefore, valuations have started to appear
more stretched.
Amid this heightened competition, somedevelopers have turned to other subsectorsthat may further take advantage of therise in e-commerce. For example, as partof its “Prologis Urban” series, Prologis
has announced three new fulﬁlment
centres within Tokyo City that cater tothe growing last-mile delivery market. All
three projects are expected to be completed
by 2021 and the largest is the 26,000 sq m
GFA facility in Shinagawa. Moreover, thisﬂedgling trend could gain further traction
as locations currently occupied by sectors
under signiﬁcant stress, like retail, maycede space for such facilities going forward.
In truth, however, the scale of this nascentsector remains insigniﬁcant compared toJapan Logistics

GRAPH 8: J-REIT Annual Performance, September 2019 to August 2020

J-REIT Logistics Index

TSE REIT Index

140

INDEX (02/09/19 = 100)

130
120
110
100
90
80
70
60
50

Source J-REIT Disclosures, Japanese Exchange Group, Savills Research & Consultancy*The J-REIT Logistics index is equally weighted between the eight main logistics focused J-REITs. The
SOSiLA Logistics REIT has been excluded due to insuffi cient data.

the broader market and, as such, investors
in general are unlikely to be enticed until itreaches critical mass.
Meanwhile, facilities that satisfy the needfor cold storage have also seen more demand,
especially in concert with the rise in online
grocery shopping. That said, this subsector
is likely to remain niche for now given thediﬃculties facing investors when exiting
positions. Speciﬁcally, REITs, who would
often be the ﬁrst port of call at such a time,
are likely to ﬁnd the high capex required forthese types of facilities unappealing.

competition for logistics assets has
unsurprisingly become ﬁerce. At the sametime, for those unable to access direct
investments, the equity capital markets haveprovided some opportunities. Whilst all thisattention towards the sector is welcome, it
has also led to valuations becoming morestretched.
Broadly speaking, though the logistics
sector has fared well thus far, it isunlikely to make it through the pandemic
completely unscathed. Despite the optimism
surrounding the solid pre-leasing activity
for the upcoming pipeline of signiﬁcant
supply, COVID-19 continues to weighon some tenants, especially those inhard-hit industries such as apparel andmanufacturing, as well as overall economic
conditions. That said, the prospects for thesector for the rest of the year are unlikely
to change. Instead, the true impact of
COVID-19 on the logistics sector may
emerge next year.

OUTLOOK
Despite being in the midst of a global
pandemic, the logistics sector is in an
envious position. Buoyed by the increasing
importance of e-commerce in daily life,
the wind is very much in the sector’ssails. Indeed, 2020 has essentially been acontinuation of the year before, with bothrental growth and vacancy rates continuing
to move in a positive direction.
In an economic environment starvedof yield, more and more players with deep
pockets have entered the market. Thus,

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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