Japan - September 2021

S P OT L I G H T
Savills Research

Japan Logistics©ESR LTD

Japan Logistics

Rental growth slows but positives remain
Summary• Demand was unable to fully keep
up with the high levels of supply
in the ﬁrst half of 2021 in Greater
Tokyo, and as such vacancy
rates have loosened to 1.3%.
• Greater Osaka’s vacancy rates
have shrunk to 1.9% as theregion experienced positive net
absorption.
• Rents in Greater Tokyo are
now at JPY4,470 per tsubo,
increasing 1.6% year-on-year(YoY).

INTRODUCTION
It has been over a year since the onset of
COVID-19. Nevertheless, amid the struggles
witnessed amongst its peers, the logistics
sector has continued to exude stability. The
rapid growth of e-commerce spurred a greater
demand for logistics facilities to deal with thehigher inventory turnover. Indeed, according
to the Ministry of Economy, Trade andIndustry (METI), the market size of Businessto-Consumer (B2C) e-commerce tangible
goods has increased by more than 20% from2019 to 2020. Rents remain at all-time highs
and vacancy levels are low as a result, despite

the already large supply.
Somewhat tempering this optimism,
however, is the fact that rental growth has
slowed over the past few quarters – perhaps
signalling a potential threshold as to what
tenants are able to pay. Moreover, despite
the expansion of the e-commerce market,
the future growth of the logistic sector’s
proﬁtability may also be hampered by the addedcompetition from new players. At the sametime, some consumers may turn their attention
back to brick-and-mortar retail stores as the
pandemic subsides, further weighing on theGraph 1: Business-to-Consumer (B2C) E-commerce (EC) Market Size for Tangible
Goods, 2013 to 2020

• Greater Osaka has also seen mild
growth, with rents rising 1.3%
YoY to JPY4,040 per tsubo.

Market size of B2C EC tangible goods (LHS)

EC share of all B2C sales (RHS)
9%14,0008%• The data centre sector isbooming and witnessing
multiple large scale
development announcements.
Meanwhile, the logistics sector
has evolved from niche tomainstream and is nearing
maturity.
• Fundamentals remain robust,
but there are some concerns
over upcoming supply levels andsome reversal of the accelerated
growth seen in e-commerce.

7%
10,000SHARE OF EC SALES• Investment volumes into thelogistics sector have slowed
into 2021, although interest in
the sector remains abundantwith multiple new developments
being announced.

MARKET SIZE (JPY BILLION)

12,000

6%
8,000

5%

6,000

4%
3%

4,000
2%
2,000

1%
0%

0
2013

2014

2015

2016

2017

2018

2019

2020

Source METI, Savills Research and Consultancy

Graph 2: Supply, Net Absorption and Vacancy in Greater Tokyo, 2010 to 1H/2021

Completions

Net absorption

3,000

Vacancy rate (RHS)
12.5%

2,500

10.0%

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

VACANCY RATE

THOUSAND SQ M

5Y avg completions (2016-2020)

2.5%

500

0

0.0%

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/2021 is as of July 2021. Only facilities with GFA greater than 10,000 sq m are considered.

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

Japan Logistics

sector. Another caveat includes the upcoming
pipeline of projects, which could destabilise
the current status quo if the glut of supply
weakens both vacancy rates and rental
growth in the sector.

For now, the logistics sector isthriving. It does, however, faceconcerns over its substantial supply
pipeline, as well as a potential reversal
from e-commerce to brick-and-mortar
retail once the pandemic subsides.
Nonetheless, its strong fundamentals
and long-term stable leasing structure
make logistics assets attractive forprospective investors.

MARKET TRENDS
The logistics sector has held steadfast in
Greater Tokyo over the past year. The strong
demand present in the region has allowed
for solid pre-leasing activity with many new
facilities fully occupied upon completion,although some regions in Saitama reportedly
required longer periods of pre-leasing
activity due to its higher concentrationof new developments. However, given
the signiﬁcant levels of supply during theﬁ rst half of the year, new supply outpaced
demand. As a result, while still at low levels,
vacancy increased 0.9 percentage points(ppts) to 1.3%.

Graph 3: Greater Tokyo Rent vs Vacancy, Q1/2016 to Q2/2021

Average vacancy (RHS)

2016

2017

2018

2020

Q1

Q2

Q3

Q4

Q1

Q2

Q3

2019

Q4

Q1

Q2

0%
Q3

3,900
Q4

1%

Q1

4,000

Q2

2%

Q3

4,100

Q4

3%

Q1

4,200

Q2

4%

Q3

4,300

Q4

5%

Q1

4,400

Q2

6%

VACANCY RATE

JPY / TSUBO / MONTH

Average rent (LHS)
4,500

2021

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

Graph 4: Supply, Net Absorption and Vacancy in Greater Osaka, 2010 to 1H/2021
Net absorption

5Y avg completions (2016-2020)

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

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/2021 is as of July 2021. Only facilities with GFA greater than 10,000 sq m are considered.

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Average rents in the Greater Tokyo area
currently stand at JPY4,470 per tsubo – anincrease of 1.6% YoY. Over the year, rental
growth has slowed as tenants appear to havebecome somewhat stretched ﬁnancially.
Nonetheless, rents for newer, better locatedfacilities with advanced equipment can bemuch higher than older counterparts. In
truth, this is to be expected considering thatthese facilities are more likely to be capable ofadapting to the increasingly complex needs oftenants that aim to maximise eﬃciency andoutput. Moreover, potential tenants that havebeneﬁted from the growth in e-commerce
should also have the purchasing power toaﬀord the higher costs of such premium
facilities.
Elsewhere, the logistics sector in Greater
Osaka has also demonstrated its strength inthe ﬁrst half of 2021. In fact, the signiﬁcantlevel of demand for these assets has markedly
outpaced completions, and vacancy rates haveconsequently tightened by 0.6ppts YoY to
1.9%. Like Greater Tokyo, pre-leasing activity
has also been strong with many large facilities
coming onto the market fully occupied.
Rents in Greater Osaka have remained
mostly unchanged over the past few quarters,
although they saw some growth in Q2/2021
and now stand at JPY4,040 per tsubo. Looking
back, unlike its Greater Tokyo counterpartthat has seen ups and downs in rental levels
since 2017, the region has seen rents rise
continuously. Speciﬁcally, it boasts a 19.4%
surge in rents from that period, comparedto the 3.3% gain that Greater Tokyo saw,
demonstrating the impressive growth that theregion has seen.
Future rental growth will be aﬀected by
the strength of the e-commerce sector, whose
tenants have speciﬁc demands regarding
space, amenities, and management systems.
Logistics facilities that are able to meetJapan Logistics

Graph 5: Greater Osaka Rent vs Vacancy, Q1/2016 to Q2/2021

Average rent (LHS)

Average vacancy (RHS)

4,100

14%
12%
10%

3,700

8%
6%

3,500

4%

VACANCY RATE

JPY / TSUBO / MONTH

3,900

3,300
2%
0%

2016

2020

Q1

Q2

Q3

Q4

Q1

Q2

Q3

2019

Q4

Q1

Q2

Q3

2018

Q4

Q1

Q2

Q3

2017

Q4

Q1

Q2

Q3

Q4

Q1

Q2

3,100

2021

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

these needs can naturally charge higher
rents. However, if brick-and-mortar retailmanages to gain greater traction in a postpandemic world, the need for these complex
warehouses may simultaneously slow down,with traditional retail tenants turning to more
aﬀordable facilities that suit their needs andreduce costs. Nonetheless, the long-term
nature of leases in the logistics sector should
keep rents stable for the time being.
INCOMING SUPPLYIn Greater Tokyo, the large amount of new
supply seen in 2020 appears to have carriedon in 1H/2021, with over 1.3 million sq m of
new space introduced to the market. The
largest completion of signiﬁcant scale1 inthe ﬁrst half of 2021 was the Mitsui Fudosan
Logistics Park (MFLP) Funabashi III in
Chiba – completed in June 2021. The facility
has eight ﬂoors and a GFA of over 270,000
sq m, and was the third and ﬁnal instalmentof the MFLP Funabashi town-type facility
development. Indeed, in addition toequipping the facilities with state-of-the-art
technology and systems, Mitsui Fudosan has
gone to lengths to make the area feel like a
town. The facilities are located close to a JR
1 Deﬁ ned as exceeding 100,000 sq m in GFA

Map 1: Upcoming Completions in Greater Tokyo with GFA greater than 100,000 sq m, 2021 to 2024*

GFA (sq m)
100,000
150,000
200,000>250,000
Completion Year
2021
2022
2023
2024

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 July 2021.

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

Japan Logistics

expressways, making it easier for the market toabsorb these high levels of supply.
In Greater Osaka, the pace of new
developments being added in 1H/2021 hasalready outstripped that of the previous year,with the amount of GFA added in the ﬁrst halfof 2021 already at 75% of the total supply added
in 2020. A few new developments with GFAs of
more than 100,000 sq m completed this year
include the Logista LogiCross Ibaraki-Saito(Building A) and the LOGIFRONT Amagasaki
II. The latter is a Built-To-Suit (BTS) facility
that is reported to have customised airconditioning systems and storage space toﬁt the tenant’s needs. It is worth noting thatmany other developments along the bay

station and have large shopping malls andother amenities nearby. These considerations
will undoubtedly make it easier for such large
developments to attract workers in a sector
where labour is scarce.
There are multiple large-scale projects
in the pipeline for Greater Tokyo. Twodevelopments that are planned to becompleted later in 2021 will both have GFAs
greater than 300,000 sq m. Furthermore,
2022 and 2023 are projected to have morethan 20 developments with GFAs greaterthan 100,000 sq m each. However, most ofthese developments appear to be well spreadout over diﬀerent areas and are taking placein convenient locations such as along majorcompleted this year are reported to be BTS
facilities that will likely have longer leaseterms, showing that demand in the region
should remain fairly strong in the mid-term.
Greater Osaka is forecast to have record
levels of supply in 2021, even surpassing thesum of supply seen in 2019 and 2020. For
instance, Prologis Park Inagawa 1 and 2, bothscheduled to be completed in the latter halfof 2021, are two of the largest facilities to bebuilt in the region and will have a total GFA
of 370,000 sq m between them. Locatedin Inagawa Town, Hyogo – a convenient
commute from Osaka and Kobe – the facility
is expected to be able to attract labour
needed for its operation with its proximity
to residential communities. Further down
the line, a new development in 2025 is GLP
ALFALINK Ibaraki, which will add 320,000
sq m of GFA to the market.

Graph 6: Annual New Supply* in Japan by Region, 2018 to 2023F

Greater Tokyo

Greater Osaka

Other

5.5
5.0

GFA (MILLION SQ M)

4.5
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 is as of 31 July 2021.

Graph 7: Share of Investment Volumes by Asset Class, 2007 to 1H/2021
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

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INVESTMENT TRENDS
The global pandemic has yet to subside,
extending the situation and problems seen
last year into 2021. Investments in Japan havebeen slow, and according to data aggregatedby Real Capital Analytics (RCA) theinvestment volumes in 1H/2021 are about 39%
less than those seen in 1H/2020. The logistics
sector has not been excluded from thistrend, with investment volumes falling about
43% in the same period. It should be noted,
however, that the data is preliminary and thatinvestment volumes are likely to increase as
more transaction details are conﬁrmed. At
the same time, the prolonged pandemic andmultiple state of emergencies in 2021 may
have delayed some deals and plans for on-site
due diligence, explaining the overall slow paceof transaction volumes in 2021. Nevertheless,as discussed in the previous section, abundant
capital is ﬂowing into developments of newlogistics facilities both in Greater Tokyo andGreater Osaka, reﬂective of continuingly
strong interest in this sector. Investments may
start picking up toward the end of the year if
the pandemic is suppressed with the increased
pace of vaccinations.
The logistics sector has been looked on
favourably by many domestic companies. For
example, JR West Real Estate & Development
has started to develop its ﬁrst logistics facility
in Hyogo prefecture this year, and reportedlyplans to actively develop more going forward.
Furthermore, 2021 also saw the start ofmultiple mid-to-large sized logistics facilities
developments by Daiwa House, Mitsubishi
Estate and Nomura Real Estate.
A few big-ticket J-REIT transactions wereobserved in 1H/2021. GLP J-REIT has once
again made a large acquisition, adding four
logistics facilities into its portfolio in Julyfor JPY49.3 billion. This comes half a year
after acquiring seven logistics facilities for
JPY98.2 billion. Other notable transactions
include LaSalle Logiport REIT’s acquisition

Japan Logistics

of Logiport Osaka Bay for JPY40.0 billion
and ESR’s acquisition of Redwood Nanko
Distribution Centre 1 for JPY29.5 billion. In
addition, looking at international investors,
M&G Real Estate has reportedly paid US$217.0
million for a 25% stake in the fund that owns
the ESR Ichikawa Distribution Centre.
Conﬁdence in the logistics sector remains
strong. According to the 28th bi-annual survey
market sentiment conducted by Ichigo Real
Estate Service, more than half of respondents
expect capital values and rents of facilities toincrease. However, it should be noted that they
were slightly less optimistic than half a year
ago, suggesting that some areas of the market
might see growth decelerate.
The logistics sector has seen more time inthe spotlight especially since the pandemic,
and it has evolved from being consideredniche and has become part of the mainstream,
leading to lower core and core-plus returns.
Meanwhile, many investors are especiallykeen on the development of data centres inJapan to seek for more opportunistic returns,
although this is already becoming increasinglycompetitive. In this respect, Goldman Sachs
plans to increase property investments inJapan to around JPY250 billion a year fromthe current range of JPY100 to JPY150 billion,
with a focus on logistic hubs and data centres.
A NEW HORIZON FOR DATACENTRESWith the logistics sector seemingly nearing
maturity in terms of new concepts andmarket entrants, the data centre sector
has gained increasing interest amidst the
pandemic. In particular, the market has
seen a myriad of investments as demandsoars, mainly for hyperscale data centres
that cloud-based technologies require. As
a result, overall capacity is expected to risesigniﬁcantly and Tokyo is likely to become agigawatt market by 2025.
For instance, in July, Mitsui & Co.
announced plans to invest JPY300 billion

GRAPH 8: Six-month-ahead Expectations for Rent and Capital Appreciation, 2008
to 2H/2021
Rents

Capital values

100
80

DIFFUSION INDEX

60
40
20
0
-20
-40

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

-60
-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

-100
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Source Ichigo Real Estate Service, Savills Research and Consultancy

Table 1: Selected Investments, announced March 2021 to August 2021

PROPERTY NAME

TRANSACTIONVALUE (JPY BIL)

APPRAISALDIRECT CAP
RATE

BUYER

SELLERGLP Logistics
Portfolio(4 Facilities)

49.3

3.8% to 4.1%

GLP J-REIT

SNZ Properties GK.
Undisclosed seller

Logiport Osaka Bay

40.0

3.9%

LaSalle LogiportREIT

SPC of LaSalle
Investment
Management

Redwood Nanko
Distribution Centre 1

29.5

-

ESR

SPC of Angelo
Gordon and ESR

Mitsubishi
Logistics Portfolio(3 Facilities)

21.3

4.0% to 4.4%

Mitsubishi Estate
Logistics REIT

SPC of Mitsubishi
EstateIIF IT Solution
Center Portfolio(2 Facilities)

13.0

4.5% to 7.2%

Undisclosed

Industrial &Infrastructure
Fund Investment
Corporation REIT

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

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

6

into developing and acquiring data centres
in Japan. It will initially develop three data
centres with Colt DCS, which currently
manages 50 megawatts (MW) of facilities
in Japan, with the aim of increasing its
capacity to 140 MW after this joint venture.
Meanwhile, Princeton Digital Group alsoannounced an investment into a 100-MW
hyperscale data centre in June, while lastyear, AirTrunk started the construction of
a 300-MW data centre in Inzai, Chiba – anarea known as the Ginza of data centres inJapan. With these investments, IDC Japan
expects that the size of the Japanese data
centre market will exceed JPY2 trillion in
2024 from JPY1.5 trillion in 2020.
In truth, the absence of a dominantdomestic player presents Japan as an ideal
market for international hyperscale cloud
platform providers from both the U.S. andChina to break into. Another considerationis Japan’s strategic location as a connection
and distribution hub for submarine cablesfrom the west coast in the U.S. that extend
to the Asia Paciﬁc region. Furthermore,data communication volumes in Japan havedoubled between 2017 and 2020, further
bolstered by the increased implementationof digital transformation (DX) during the
pandemic, and this is likely to have intensiﬁed
the demand for data centres. Even once thepandemic is under control, it is doubtful that
this trend will lose momentum as cloudbased technologies have become increasingly
essential in society, by boosting productivity
with advanced computing capacity, as well as
providing streaming for popular games. All
major cloud players having their own gamestreaming brands or platforms is case in point.
The recent wave of investments has comeon the back of increased support from thegovernment. Building data centres requires
government planning and assistance fornational security measures and electrical
grid improvements, given the impact thatthey have on the technological and security
infrastructure of a country. In addition,submarine internet cables need to be
strategically linked to the rest of the world
to make the country into a data hub. Overall,
the Japanese government has encouraged
domestic and international data centre
investments in order to strengthen its digital
infrastructure – something that it is currently
lagging behind other major nations.
There are other investment opportunities
in Japan. Osaka, for example, is expected to
become a major player over next few years,
given its international business ties and thesubmarine data lines that run into the area.
There are also opportunities for ESG investors,
as Japan targets carbon neutrality by 2050. For
FY2021, the country aims to subsidise 50% of
the building costs of projects that introduce
new zero-carbon data centres or upgradeJapan Logistics

existing facilities to be more eco-friendly, withinitiatives totalling JPY757 billion. These incentives
are attractive as global cloud platform providers areproactively prioritising carbon-free electricity. With
this in mind, hyperscale data centres look set toattract further investment going forward, much likeduring the nascent stage of the logistics facilities
almost two decades ago.
OUTLOOK
Fundamentally speaking, the logistics sector
remains as strong as it was last year. Demand has
eﬀortlessly kept up with the ample supply entering
the market, and the fact that there are numerous
domestic and international players vying for assets
demonstrates the sector’s persisting popularity.
Nonetheless, rental growth in both Greater
Tokyo and Greater Osaka has plateaued to someextent. Indeed, whilst the logistics sector caters

to tenants that have beneﬁted from the pandemic,
such as those involved in e-commerce, there may
be a limit to the premiums associated with prime
assets. Meanwhile, with less fortunate tenants inthe traditional retail and others that have been
the hardest hit by the pandemic unlikely to be able
to aﬀord the elevated level of rents, this presents
a potential roadblock for growth in the logistics
sector at large, and developers of new facilities will
have to be increasingly prudent in selecting tenants
and understanding the capacity of their respective
industries.
Admittedly, with the attention diverted awayfrom industries suﬀering under the pandemic,
like hospitality and retail, the increased interest
shown in the logistics sector may have caused it
to become slightly overheated. This exuberance,
for instance, can be seen by the many new small
and inexperienced players that have entered themarket, bringing with them facilities that are likely
to be less competitive. Moreover, the appreciating
land prices of suitable locations would imply that
rents are likely to remain high, and it is unclear if
facilities with these elevated rents attached will be
ﬁlled as smoothly going forward. Another thing tocontend with is the reversal from the logistics sector
into retail post-COVID. That said, the rise in newvariants is likely to delay this process somewhat.
Despite the potential risks, the fundamentalsof the logistics sector remain strong overall. In
particular, investors should ﬁnd some solace inthe fact that the sector possesses stable long-termleases, with contracts typically ﬁve years or longer.
Meanwhile, rental movements have generally beenstable – an essential pillar to the strength of theindustry. As a result, the sector is likely to continue
attracting institutional capital with increased
allocations as it becomes a mainstream asset class.

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

Simon Smith
Regional Head of Research& Consultancy, Asia Paciﬁc+852 2842 4573
ssmith@savills.com.hk

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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