Retail rents in Japan's regional cities up 12.5% in 2H21

This is the highest level seen during the pandemic so far.

In Japan’s regional cities, Savills data reveal that 1F retail rents in the second half of 2021 continued to grow 5.6% HoH and 12.5% YoY to the highest levels seen during the pandemic so far. All markets have seen annual increments in rent. 

Despite these rental increments, the situation in many markets has not changed significantly from half a year ago, with areas dependent on inbound tourism still suffering and experiencing closures. Non-1F rents have seen a milder increment of 2.7% HoH and 1.2% YoY to JPY15,320 per tsubo, although the changes between regions have notable disparities. 

Here’s more from Savills:

In Osaka’s Shinsaibashi, a dichotomy still exists in the market - areas traditionally focused on F&B and tourism like Dotonbori and American Village have noticeably higher vacancies, while luxury-centric areas like Midosuji are performing strong. Overall, like in the previous half-year, the market has once again seen a significant increase in both 1F and non-1F asking rents. 

1F rents increased 9.5% HoH to JPY37,000 per tsubo, while non1F rents increased 10.6% HoH to JPY16,700 per tsubo. While these increments were primarily led by the new availability of prime locations, the number of vacancies has overall remained flat over the past half-year, bringing some relief to the market. Nonetheless, given the grim situation in Shinsaibashi, the recovery of real rents is likely to be much further down the road.

In Sakae, Nagoya, average all-floor rents bounced back 4.2% HoH and 1.2% YoY to JPY17,500 per tsubo. Overall, rents and vacancy levels in Nagoya have not seen significant changes when compared to pre-pandemic times, primarily due to the region’s low dependence on inbound tourism. The new department store Maruei Galleria, built on the site of the old Maruei that closed in 2018, also opened in March 2022, with Muji as its key tenant. 

The opening is expected to attract crowds and help revitalise Hirokoji Street. However, at the same time, the southern side of Sakae is performing poorly, and the relative lack of new redevelopment projects in the area is expected to lead to gradually weaker footfall going forward.

While other markets generally saw rents increase, Fukuoka’s Tenjin was the only one to buck this trend. Average 1F rents decreased 6.9% HoH to JPY22,800 per tsubo, while non1F rents decreased 4.6% HoH to JPY16,600 per tsubo. While Tenjin’s retail market was negatively affected by the pandemic and initially saw a substantial increase in the number of vacant units, vacancies have seen a marked decline over the past year and are almost on par with pre-pandemic levels. 

Tenjin Nishi-dori in particular, known for its line-up of casual international brands has remained popular. Tenjin has also seen a surprisingly small number of F&B closures, although many have likely been kept afloat by government grants as opposed to the prevailing market conditions.

Tenjin Business Center, part of the Tenjin Big Bang Project, opened in late 2021, and in 2022 featured new retail shops like Patagonia. Nevertheless, while more store openings have been observed since late 2021, the demand for multiple-floor units and large units has decreased, and long-term vacancies have become increasingly apparent. Indeed, the location, size, and the number of floors are factors that have become increasingly closely scrutinised and will determine the success of leasing a unit. 

In Sendai, Miyagi, average 1F rents saw a sizable increment of 11.0% HoH and 14.7% YoY to JPY27,300 per tsubo. Indeed, vacancies on the first floor in Sendai have continued to remain high during the pandemic. In contrast, rents on non-1F floors have stayed flat over the past half-year at JPY14,700, and have seen vacancies decrease slightly. 

Sendai’s retail market can broadly be categorised into two areas: Sendai station west exit, and the L-shaped shopping district stretching from Hapina Nakakecho to Mitsukoshi. The area around Sendai station has been undergoing redevelopments and has been attracting more footfall as a result. 

Consequently, the shopping district has seen fewer customers, and remains in more bleak circumstances, especially within the F&B industry. The disparity between the two areas may not disappear even postCOVID, and the shopping district may have to brace for further tough times.

Average 1F rents in Sapporo have also seen a notable increment of 10.1% HoH and 32.7% YoY to JPY20,700 per tsubo. Vacancies are extremely high in this category, and the considerable number of available prime units has skewed average asking rents upward. Indeed, the area’s underground walkways and streets are extensive due to the heavy snow in Sapporo, and there are cases where these underground rents can exceed first floor rents as a result. Meanwhile non-1F rents have seen a 2.5% HoH and 3.4% YoY to JPY12,300 per tsubo. 

Overall, the situation in Sapporo remains dire due to the lack of inbound tourism, especially in the Susukino area. One silver lining for the area is the ongoing redevelopment projects in the area. For instance, the redevelopment of Ikeuchi Gate and Susukino Lafi ler are scheduled to open in the autumn of 2022 and 2023 and could provide a lifeline to retail establishments to the area.