Key retail investment transactions in Tokyo revealed

Investor interest remained robust in the sector.

According to a Savills report, the semi-annual survey conducted by JREI in April 2024 shows that cap rates of prime retail properties have remained relatively stable across Japan. Fukuoka experienced a slight compression of 10 basis points (bps) HoH. 

“Meanwhile, suburban shopping centres performed well, witnessing cap rates compress across Japan. Sapporo recorded the largest tightening at 30bps HoH, followed by Kyoto at 20bps HoH. All other suburban shopping centres in the surveyed cities saw a compression of 10bps HoH. That said, it should be noted that actual market cap rates could be as much as 100bps lower than these surveyed cap rates,” the report added.

Here’s more from Savills:

Investor interest in the retail sector has not wavered. Indeed, the bullish outlook on retail rents has prompted some tenants to acquire their current premises outright from their landlord. Elsewhere, some investors have also focused on value-add strategies to enhance return potential through optimising asset management. 

For instance, Urban United REIT acquired an additional 80% quasi co-ownership of the trust beneficial interest in part of Osaka Bay Tower, a mixed-use office and retail building, for JPY21.1 billion, increasing its total ownership to 55.4%. The additional acquisition aims to enhance operational efficiency, with the buyer highlighting the property’s locational potential, landmark status, and continuous stable occupancy as key factors in the decision. 

Meanwhile, the market has recorded many suburban retail transactions over the past half-year, with domestic players, including J-REITs, having been particularly active. For instance, Japan Metropolitan Fund (JMF) acquired unimo chiharadai, a large retail facility in Chiba City for JPY30 billion in September 2024. 

In another transaction with undisclosed price, Nippon Open Ended REIT, managed by Mitsubishi Jisho Investment Advisors, acquired a 51% ownership interest in a large retail facility, Mark Is Fukuoka Momochi, which has a GFA of 117,400 sq m. An SPC formed by Mitsubishi Estate acquired the remaining 49%. 

In Kanagawa, ito-Yokado Tsunashima was sold for JPY9.0 billion, probably for a new store opening, while JMF acquired another retail facility Cross Mukogaoka for JPY4.8 billion from an unrelated domestic company. 

Elsewhere, Marimo Regional Revitalization REIT acquired Fuji Grand Ube, a retail facility in Yamaguchi for JPY5.5 billion. The higher yields offered by suburban properties, especially if stable, could be an attractive play for many investors. 

According to preliminary data from MSCI, retail transactions in year-to-date Q2/2024 were on par with the same period in the previous year, with volumes of about JPY270 billion. The retail sector is attracting increasing investor interest, and transaction volumes are expected to pick up more towards the end of the year.