Tokyo industrial records sub-1% vacancy rates for sixth consecutive quarter

Greater Tokyo reported a vacancy rate of 0.9% in Q1. 

The logistics sector’s economic indicators were patchy entering 1Q21, according to JLL. In February, the industrial production index decreased 2.1% m-o-m, decreasing for the first time in two months. 

Exports decreased for the first time in three months and imports increased for the first time in 22 months, reflecting the impact of COVID-19. The second state of emergency had limited impact on the logistics sector.

JLL reveals net absorption totalled 235,000 sqm in 1Q21, with sustained strong demand from 3PLs and e-commerce despite a slowdown from the previous quarter due to limited supply.

Here’s more from JLL:

New supply totalled 345,000 sqm in 1Q21, increasing total stock 2% q-o-q and 12% y-o-y. Five facilities entered the Inland area, including DPL Okegawa (GFA 89,000 sqm), D Project Hiratsuka (GFA 65,000 sqm) and GLP Yachiyo 3 (GFA 60,000 sqm).

The vacancy rate in Greater Tokyo stood at 0.9% for 1Q21, increasing 70 bps q-o-q and 20 bps y-o-y. The vacancy rate in the Bay Area remained flat at 0.0%, while Tokyo Inland rose to 1.4%, increasing 110 bps q-o-q, driven by new completions entering the market.

Rent growth accelerates in both Tokyo Bay and Tokyo Inland

Gross rents in Greater Tokyo averaged JPY 4,388 per tsubo per month in 1Q21, increasing 0.7% q-o-q and 0.7% y-o-y. Growth was driven by new completions which asked for higher rents. Rents in the Bay Area increased 0.8% q-o-q and 0.9% q-o-q in Tokyo Inland.

Capital values in Greater Tokyo increased 3.3% q-o-q and 6.3% y-o-y in 1Q21, reflecting cap rate compression and moderate rent growth. A notable sales transaction involved Nippon Prologis REIT acquiring Prologis Park Chiba 2 for JPY 15.0 billion or at an NOI cap rate of 4.5%.

Outlook: Capital values to grow, reflecting cap rate compression

According to Oxford Economics, trade-oriented indicators are expected to be uneven in 2021. Industrial production is expected to fall 2.3%, while exports and imports are likely to rise 11.7% and 4.3%, respectively. The economy is expected to pick up as socioeconomic activities resume on the back of the support policies and recovery of overseas economies.

The vacancy rate is expected to remain almost stable as robust demand is expected to absorb the record new supply due to come on stream in 2021 and 2022. As such, rents will likely remain stable. Capital values are expected to grow as cap rates may compress further amid continued investor interest.

Note: Tokyo Industrial refers to the Greater Tokyo prime logistics market.