Regional Japanese cities’ 1F retail rents up 8.6% in H1 2024

But non-1F rents declined by 3.3%.

According to a Savills report, average 1F asking rents in regional cities in Japan rose by 5.9% HoH and 8.6% YoY to JPY28,800 per tsubo in 1H/2024. Non-1F rents rebounded slightly by 1.0% HoH but dipped by 3.3% on an annual basis to JPY16,300 per tsubo. The number of inbound tourists has continued to surpass historic records, and these international visitors have played an increasingly important role in regional retail markets. 

“Many tourist hotspots are packed with travellers, and this has greatly encouraged demand for new store openings, and consequently increasing rents. That said, evident disparities still exist between locations, which can be observed in the large differences in rental growth,” the report said.

Here’s more from Savills:

In Osaka’s Shinsaibashi submarket, average asking 1F rents have decreased by 11.2% HoH and 0.8% YoY to JPY35,000 per tsubo. The large decline from the previous half-year appears to be due to a rapid succession of brand openings along Shinsaibashisuji, Dotonbori, and Ebisubashi, with many occupying prime expensive lots, and consequently driving down average listed rents. 

Elsewhere, non-1F rents saw a small uptick of 1.6% HoH, but fell by 7.0% YoY to JPY18,700 per tsubo. Osaka is one of the most popular inbound tourist destinations in Japan, and the vigour from inbound travellers has undoubtedly continued to power the retail sector. Vacant space in prime districts is hard to spot, and rents are expected to remain high. Notable openings include CELINE in Midosuji. That said, demand for space in non-prime locations appears more lukewarm, with many visible vacancies, pointing to some degree of bifurcation.

In Nagoya’s Sakae, asking 1F rents rose by 4.8% HoH and 11.0% YoY to JPY26,300 per tsubo, the highest level seen since 2014. Non-1F rents remained fl at over the past half-year at JPY16,700 per tsubo, a decline of 0.6% YoY. Over the past two quarters, the number of vacancies has decreased, in part due to high demand for space along Otsu-dori, which has also contributed to growing rents. The grand opening of the Chunichi Building in April 2024 has seen about 90 shops open in the B1/7F retail section and is likely to continue attracting more people to the Sakae crossing area. 

Elsewhere, inbound tourists have also contributed to the strong performance of luxury brands and accessories in department stores, with Matsuzakaya Nagoya reporting nearly 10% yearly increase in sales of almost JPY130 billion for FY2023 and looks on track to further surpass this in FY2024. 

In Fukuoka’s Tenjin, average asking 1F rents saw a large increase of 43.8% HoH and 26.0% YoY to JPY31,500 per tsubo, while non-1F rents increased by 3.8% HoH to JPY16,300 per tsubo, down 11.4% on an annual basis. This jump in rents is due to a handful of exceptionally expensive new listings. CHANEL is expected to occupy 350 tsubo of space, spanning three floors in the upcoming completion of the ONE FUKUOKA BUILDING. New luxury brands opening via Tenjin Big Bang and the robust growth in inbound demand have greatly bolstered the optimistic market conditions and outlook. Many mid-level floors appear to be filling up with clinics and other beauty-related services, showing strong demand. 

Elsewhere, the four department stores in Fukuoka City are performing well, with Iwataya Mitsukoshi hitting their highest sales record since 2010. Indeed, inbound tourists have been helping to drive the market, and reportedly spent 88% more in Q1/2024 than in the same period in 2019. Inbound tourists in Fukuoka, of whom 60% are from South Korea, will continue to play a big role in shaping the market. 

Average 1F rents in Sendai saw a decline of 6.0% HoH and 5.3% YoY to JPY26,700 per tsubo, while non-1F rents saw a dip of 3.0% HoH to JPY15,900 per tsubo, albeit remaining 0.6% higher annually. Market conditions in Sendai have been stable, with few changes in rents and vacancy levels overall. Footfall around Sendai station has increased, while areas further away have decreased compared to the same time in 2023. 

This bifurcation between locations close to the station versus shopping streets away from it has continued, with notably more vacancies present in the latter. Nevertheless, building renovations and new developments in the pipeline provide hope for the shopping streets, which could help them see some gradual revitalisation going forward. 

Sapporo’s 1F rents rose 15.6% HoH and 20.1% YoY to JPY24,500 sq m per tsubo, while its non-1F rents saw a milder increment of 3.0% HoH and 5.3% YoY to JPY13,900 per tsubo. The market is performing well with vacancies on a declining trend, although Susukino continues to comprise a large proportion of vacancies. Sapporo’s tourism levels for FY2023 remain 5% below FY2019 levels but have continued to improve from the previous year. 

Furthermore, the rebound from inbound tourists looks to compensate for that, as many new shops catering to such international travellers have appeared in central areas. Going forward, a slew of redevelopment projects will transform the station area beyond 2027, and luxury hotel developments related to the extension of the Hokkaido Shinkansen to Sapporo should generate greater excitement in the area and further propel its retail sector forward.