Tokyo net industrial absorption hit over 2 million sqm in 2023

Demand has breached 2019 levels.

Net absorption in Tokyo’s prime industrial market totalled a solid 289,000 sqm in 4Q23, with sustained demand from 3PLs and online retailers. According to JLL, for full-year 2023, the figure was more than 2,109,000 sqm, surpassing the 2,104,000 sqm recorded in 2019.

Here’s more from JLL:

New supply totalled 428,000 sqm in 4Q23, increasing total stock by 2% q-o-q and 16% y-o-y. Three facilities, including MFLP Zama (GFA 134,000 sqm) and Logicross Sagamihara (GFA 171,000) in the Inland area, entered the market.

The vacancy rate in Greater Tokyo stood at 8.1% for 4Q23, increasing 50 bps q-o-q and 290 bps y-o-y. The vacancy rate in the Bay area fell to 8.0%, decreasing 80 bps q-o-q, while Tokyo Inland rose to 8.1%, increasing 110 bps q-o-q.

Rent growth accelerates in Tokyo Inland

Gross rents in Greater Tokyo averaged JPY 4,605 per tsubo per month in 4Q23, increasing 0.5% q-o-q and 1.4% y-o-y. Rents in the Bay area decreased 0.1% q-o-q, while the Inland area saw an increase of 1.1% q-o-q, reflecting new completions with relatively high rents.

Capital values in Greater Tokyo increased 0.3% q-o-q and 3.6% y-o-y in 4Q23, reflecting stable cap rate and rent growth. A notable sales transaction involved LaSalle Logiport REIT disposing of Logiport Nagareyama B for JPY 13.1 billion. 

Outlook: Cap rates to compress further

According to Oxford Economics, industrial production is expected to rise 3.8% in 2023 and 5.4% in 2024; exports are likely to rise 2.1% in 2023 and 1.0% in 2024, and imports to fall 1.4% in 2023 and rise 1.7% in 2024. Downside risks include a decline in exports due to the global economic slowdown and concerns about the domestic economy’s deterioration due to rising raw material prices. 

Average rents are likely to be on an upward trend as rising land prices and construction costs pressure landlords to raise rents. This should be somewhat offset by downward pressure from major new completions entering the market. Cap rates are expected to compress further with continued investor interest.

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