Industrial rents in Greater Tokyo up 1.6% to around US$40 per tsubo

Rental growth has slowed as tenants become financially stretched.

A recent report by Savills says the strong demand present in Greater Tokyo 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 concentration of new developments. 

However, Savills says given the significant levels of supply during the first 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%. 

Here’s more from Savills:

Average rents in the Greater Tokyo area currently stand at JPY4,470 per tsubo – an increase of 1.6% YoY. Over the year, rental growth has slowed as tenants appear to have become somewhat stretched financially. Nonetheless, rents for newer, better located facilities with advanced equipment can be much higher than older counterparts. 

In truth, this is to be expected considering that these facilities are more likely to be capable of adapting to the increasingly complex needs of tenants that aim to maximise efficiency and output. Moreover, potential tenants that have benefited from the growth in e-commerce should also have the purchasing power to afford the higher costs of such premium facilities. 

Elsewhere, the logistics sector in Greater Osaka has also demonstrated its strength in the first half of 2021. In fact, the significant level of demand for these assets has markedly outpaced completions, and vacancy rates have consequently 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 counterpart that 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, compared to the 3.3% gain that Greater Tokyo saw, demonstrating the impressive growth that the region 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 these needs can naturally charge higher rents. 

However, if brick-and-mortar retail manages 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 and reduce costs. Nonetheless, the long-term nature of leases in the logistics sector should keep rents stable for the time being.