Spotlight Japan logistics - April 2018 Savills World Research Japan
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Savills World Research
Japan
Spotlight
Japan logistics April 2018
savills.com.jp/researchSpotlight | Japan logistics April 2018
Savills World Research
Japan
Spotlight
Japan logistics April 2018
Spotlight
Japan logistics savills.com.jp/research
“The logistics industry continues to expand along
with the steady growth of e-commerce. Large SUMMARY
supply in Greater Osaka led to a significant
Investors have come out swinging around
divergence with the Greater Tokyo market in the start of 2018, as multiple J-REITs announced
2017; however, supply will rebalance to Tokyo acquisitions in the logistics sector totaling JPY289
billion, already exceeding total sector investment for
in 2018 and beyond. Against this backdrop, a 2017.
divergence of local demand within the Tokyo and
Greater Osaka took centre stage for new
Osaka markets is becoming more pronounced.” supply in 2017, with 1.3 million sq m of completions
compared to Tokyo’s 1.1 million. 2018, however, is
expected to see a major supply shift back to Tokyo.
Introduction Market trends
Japan’s logistics industry is The Greater Tokyo and Osaka markets A 1.2 percentage points (ppts) decrease in
undergoing rapid development and diverged significantly in 2017. Demand vacancy rates in Greater Tokyo in Q4/2017 should
structural change in order to meet for logistics space increased rapidly provide some stability for rent in 1H/2018. While
increasing demand. As modern in the Greater Tokyo area towards a significant increase in new supply may mitigate
logistics facilities continue to sprout the 2017 year end, as vacancy rates the effect, pre-leasing activity for logistics space in
up across the country, developers dropped 1.2ppts during the period Greater Tokyo, particularly for locations inside the
are emphasising convenience and from November 2017 to January 2018 National Route 16 belt, appears smooth.
comfort for employees in their design (Q4/2017). In Osaka, though there
concepts given the acute labour was a slight downtick in vacancy rates
shortage. 2017 also saw a significant After three consecutive quarters of decline, rents
toward the year end, from a peak of in Greater Osaka saw a slight uptick and held steady
strategic rebalancing in the domestic
12.9% in October 2017 (Q3/2017) at Q1/2017 levels. Vacancy rates rose a sharp 6.8ppts
shipping industry, as major firms made
to 12.8% in Q4/2017, vacancy rates year-over-year, but levelled out during Q4/2017. A
unprecedented moves to improve
have increased a startling 6.8ppts cooling of supply in the region should continue to
efficiency and retain talent.
year-on-year (YoY). help rent and vacancy rates recover.
Though investment volumes in the
Overall demand in 2016 and 2017 Though 2016 and 2017 saw record-high demand
logistics sector declined substantially
reached record levels, largely driven for logistics space, the Tokyo and Osaka markets are
in 2017, J-REITs announced JPY289
by third-party logistics (3PL) and experiencing a localised disparity in demand. Tokyo
billion of acquisitions during the
e-commerce firms. While overall central and Osaka inland locations with convenient
December 2017 to February 2018
demand is expected to increase at a access to residential areas have seen increased
period, all of which are set to be
completed in early 2018. Market player similar rate over the next few years, interest, while locations outside of major infrastructure
sentiment has improved over 2H/2017, both major markets are experiencing networks and population centres remain less
with expectations for rent and capital an uneven geographic distribution competitive.
appreciation at their highest level since of tenant interest. In Greater Tokyo,
1H/2016 and 2H/2016, respectively. bayside and inland properties within Investor sentiment indicates a moderate
the National Route 16 belt continue turnaround as the diffusion index of responses to
Despite these positive indicators, to attract tenants, while locations a survey of market players currently sits at +25.9
the current supply glut in Greater outside of population centres with for expectations of capital appreciation, a 2.8
Osaka and large supply in the pipeline less convenient access have seen point increase over the July 2017 survey, while
for Tokyo are cause for concern. less interest. Similarly, inland Greater expectations of further rental growth improved from
Demand for logistics space should be Osaka properties remain relatively -15.9 to -3.7 points.
bolstered by the continuing expansion popular, especially those near
of the shipping industry and junctions of major thoroughfares. This Major logistics firms continue to increase revenue
e-commerce, as well as the stable disparity has led properties in prime and the sector has recently seen significant wage
growth of the Japanese economy locations to have rent and capital growth, which in turn should attract - or at least help
as a whole. However, an increasingly appreciation higher than the overall retain - workers.
uneven distribution of demand will area average, with less competitive
require investors to be more selective properties moving in the opposite
than ever. direction.
savills.com.jp/research 02Spotlight | Japan logistics April 2018
While rent per tsubo in Greater Tokyo GRAPH 1
is largely unchanged compared to the Supply, take-up, and vacancy in Greater Tokyo, 2010
end of 1H/2017, vacancy rates are
down 0.9ppts over Q4/2016 as net
– 2H/2017
absorption exceeded completions in Completions Net absorption 5Y avg completions (2013-2017) Vacancy rate (RHS)
2H/2017. According to Ichigo Real 2,000 10.0%
Estate Service, 553,000 sq m of new
supply was added to the Tokyo market
in 2H/2017. Net absorption spiked to 1,500 7.5%
463,000 sq m in Q4/2017, an increase
Thousand sq m
of more than 100% quarter-on-quarter
Vacancy rate
(QoQ), exceeding new supply by 1,000 5.0%
163,000 sq m.
Despite the year-end boost in demand
500 2.5%
in the Tokyo market, however, asking
rent declined slightly from the Q3/2017
high of JPY4,280, to JPY4,200 per
0 0.0%
tsubo per month as of the end of 2010 2011 2012 2013 2014 2015 2016 2017
Q4, an increase of only 0.7% YoY.
Note: Annual periods from February to January.
Though certain inland properties in Source: Ichigo Real Estate Service, Savills Research and Consultancy
prime locations are seeing smooth
leasing activity, inland areas with a GRAPH 2
high concentration of development Greater Tokyo rent vs. vacancy, Q1/2016 – Q4/2017
have seen less demand overall
than better-located properties. The Average rent (LHS) Average vacancy (RHS)
expectation of a large amount of inland 4,300 5.5%
supply in 2018 is likely to make this 4,250
divergence more pronounced. In the 4,200 5.0%
long-term, infrastructure developments
JPY / tsubo / month
4,150
such as the expansion of the Ken-O
Vacancy rate
4,100 4.5%
Expressway should facilitate demand.
4,050
Large supply weighed heavily on the 4,000 4.0%
Greater Osaka market in 2017, though 3,950
year-end trends indicate a potential
3,900 3.5%
recovery. According to Ichigo Real
3,850
Estate Service, 688,000 sq m of new
supply was added in the August 3,800 3.0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
to October 2017 period (Q3/2017),
2016 2017
exceeding net absorption by 200,000
sq m. Supply cooled substantially Note: Annual periods from February to January.
during Q4/2017, as only 75,000 sq Source: Ichigo Real Estate Service, Savills Research and Consultancy
m of space was added, which was
GRAPH 3
matched by net absorption. Based
on disclosed information, new supply Supply, take-up, and vacancy in Greater Osaka,
in the Greater Osaka market will cool 2010 – 2H/2017
down to some extent after 1H/2018, Completions Net absorption 5Y avg completions (2013-2017) Vacancy rate (RHS)
which should help reduce vacancies 1,375 15.0%
over time.
1,250
1,125 12.5%
Average asking rent YoY dropped
2.9%, to JPY3,350 per tsubo per 1,000
Thousand sq m
10.0%
month, and remained flat QoQ. Rental 875
prices reached a low of JPY3,310
Vacancy rate
750
in Q2/2017, a 4.6% decline over 7.5%
625
Q3/2016; however, rents appear to
500
have levelled off towards the year end, 5.0%
with Q4/2017 seeing a slight increase 375
of 1.2% over Q2/2017. Vacancies also 250 2.5%
appear to have levelled off as of the 125
year end.
0 0.0%
2010 2011 2012 2013 2014 2015 2016 2017
Rental growth in Osaka should Note: Annual periods from February to January.
stabilise over time as the development Source: Ichigo Real Estate Service, Savills Research and Consultancy
savills.com.jp/research 03Spotlight | Japan logistics April 2018
pipeline subsides. In the long term, the short term, however, competitive GRAPH 4
the continuing development of major locations available for development Greater Osaka rent vs. vacancy,
highways such as the Shin-Meishin will remain limited.
Expressway and the Osaka Urban
Q1/2016 – Q4/2017
Regeneration Loop should have a Pre-leasing activity in the area appears Average rent (LHS) Average vacancy (RHS)
3,500 14.0%
positive impact on the market. smooth so far, particularly for well-
located mid-sized facilities, given the
12.0%
Incoming supply relative ease of securing a workforce. 3,450
Based on public disclosures, over 3.3 According to disclosures made by 10.0%
JPY / tsubo / month
3,400
million sq m of supply will be added to GLP, the firm signed 218,000 sq
Vacancy rate
the Japanese market in 2018 (February m of new leases in Q4/2017. This 8.0%
2018 - January 2019), over 2.3 million also included pre-leasing for inland 3,350
6.0%
sq m of which will be supplied to locations, including the entirety of GLP
the Greater Tokyo market, with over Niiza, a 31,000 sq m multi-tenant (MT) 3,300
4.0%
800,000 sq m set to enter the Greater facility to be located in Saitama, as well
Osaka market. This represents a major as 40,000 sq m of GLP Nagareyama 3,250
2.0%
geographic shift over 2017, which III, an 89,000 sq m MT facility, both of
saw just under 1.1 million sq m added which are slated for completion in early 3,200 0.0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
to the Tokyo market while the Osaka 2019. A 3PL firm has also pre-leased
2016 2017
market had seen nearly 1.3 million 30,000 sq m of GLP Nagareyama I, Note: Annual periods from February to January.
sq m of completions. This rebalance an MT facility which is scheduled for Source: Ichigo Real Estate Service, Savills Research and Consultancy
should come as a welcome reprieve to completion in March.
the Osaka market. GRAPH 5
Osaka also continues to see Six-month-ahead expectations for
In Greater Tokyo, much of the development of large, modern rent and capital appreciation, 2008 –
development will be located inland. facilities located inland near major
Among this large supply, certain thoroughfares.
1H/2018
properties located around the Ken-O Rents Capital values
100
Expressway and further away from Construction has begun on Prologis 80.9
80 78.0
74.3 75.0
major junctions may have difficulty Park Kyotanabe, a 161,000 sq m 66.3
69.2 66.8
securing a workforce. In an effort to Prologis-developed MT facility in 60 53.3
53.3
attract prospective employees, these Kyoto Prefecture which is set to be 40
38.9 50.5 48.8
29.9 34.8 28.7
modern facilities will also provide completed in October 2018. The 29.7 23.1
13.8 28.6
Diffusion index
20 25.6 19.2 27.3 22.6 25.9
amenities such as shuttle buses, cafes, development site is roughly equidistant 8.4 14.1
0 13.0 7.7 6.9
shower rooms, delivery lockers, and, in from Osaka City and Kyoto City and -14.8 -4.8 -6.3 -3.7
some cases, childcare services. is located 300 metres from what will -20
-20.5
-13.1 -15.9
-25.9
be an intersection of the Shin Meishin -37.7
-40 -40.3
Major developments are also underway Expressway and the Second Keihan -42.0
-60
for the early 2020s. Nagareyama, Highway, providing convenient access -63.9
Chiba alone will see just over 1.3 to the Chubu and Chugoku regions. -80
million sq m of logistics space added Prologis announced in December -100
-86.2
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from 2018 to 2022, approximately 1 2017 that it had signed a contract to
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 18
million sq m of which will be supplied lease 15,000 sq m of the facility to a
by Daiwa House projects with the domestic logistics firm. Note: Index is calculated as the number of responses saying rents/values will
increase minus the number of responses saying rents/values will decrease.
remaining amount supplied by Global Source: Ichigo Real Estate Service, Savills Research and Consultancy
Logistics Properties (GLP) projects. Investment trends
Notably, a portion of the land acquired Investor outlook for rent and capital According to data from Real Capital
for development by Daiwa House had appreciation has improved over Analytics, investment volumes in the
been zoned for agricultural use. In an 2H/2017. Ichigo Real Estate Service's logistics sector for 2017 decreased
unprecedented move, the Ministry of survey of market players indicates by JPY196 billion, to JPY241 billion,
Agriculture, Forestry and Fisheries, at a steady improvement in capital a near 45% drop compared to 2016.
the behest of the Nagareyama local appreciation as the diffusion index of However, during the December 2017
government, granted Daiwa House responses currently sits at +25.9, a to February 2018 period, J-REITs
permission to utilise the land for 2.8 point increase over the 1H/2017 announced acquisitions totaling
industrial development. survey while expectations of further JPY289 billion in the logistics sector
rental growth improved from -15.9 to to be completed during 1H/2018,
In the long term, the Nagareyama -3.7. Respondents increasingly cited exceeding the total 2017 transaction
example may indicate that Japan’s the stable growth of the Japanese volume in the sector by JPY48 billion.
national and local governments are economy as the main factor for This reveals that investor appetite
becoming more flexible in the face of stable or increasing capital value. remains strong, even as cap rates
a shifting economy, as the number of Notably, the number of respondents continue a seven-year compression
agricultural workers declines. If other who cited demand driven by trend.
municipalities follow suit, we may e-commerce as the basis for a
continue to see better-located land positive outlook tripled compared to Specifically, in December 2017, CRE,
open up to logistics development. In the prior survey. Inc. announced the listing of the CRE
savills.com.jp/research 04Spotlight | Japan logistics April 2018
Logistics Fund REIT along with the compressed to nearly the same level GRAPH 6
acquisition of four properties for JPY28 in 1H/2016, they have since returned Cap rates for large modern logistics
billion, with both the listing and initial to a 20 bps divergence as of 2H/2017,
acquisitions completed in February. In resuming a five-year trend.
facilities, 1H/2005 – 2H/2017
January 2018, Mitsubishi Fudousan Tokyo - Bayside Tokyo - Inland Osaka - Inland
Logistics Park REIT announced the Pivotal year for logistics 7.5%
acquisition of three properties in industry
Nagoya and Greater Tokyo for around The domestic e-commerce market 7.0%
JPY20 billion. continues to expand revenue. Major
firms such as Amazon and Rakuten 6.5%
February 2018 alone saw over JPY227 have consistently increased annual
billion of investment. Industrial & sales in Japan since 2013, with the 6.0%
Infrastructure Fund and Daiwa House latter increasing sales in its domestic
REIT announced the acquisition of e-commerce segment by over 25% 5.5%
27 logistics properties in Greater YoY for FY2017. Further, small
Tokyo, Greater Osaka, Fukuoka, and to medium-sized companies are
5.0%
other regions, while Nippon Prologis increasingly moving into online sales,
REIT announced the acquisition of including peer-to-peer flea-market
4.5%
five properties in Greater Tokyo. GLP applications, such as Mercari, which
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J-REIT also announced the purchase have recently become popularised 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
of two properties in Okayama along in Japan. The increasing demand
Source: JREI, Savills Research and Consultancy
with interests in equipment located at for shipping services accompanying
13 properties throughout Japan. this expansion has presented new GRAPH 7
challenges and opportunities to the
Indeed, investor demand for existing logistics industry.
Share of investment volumes by asset
properties is strong. However, class, 2007 – 2017
developers may want to offload certain Though domestic shipping companies Logistics Office Residential Retail Hospitality Other
properties in consideration of the stand to benefit greatly from this 100%
development pipeline. demand, an increasingly competitive 90%
labour market – along with a new
80%
Based on the most recent bi-annual emphasis on single-package home
investor survey conducted by the deliveries – has expanded operating 70%
Japan Real Estate Institute (JREI), costs and pushed firms to further
60%
cap rates for inland property in Tokyo streamline the delivery process. 2017
and Osaka have, after stabilising in saw significant strategic shifts in the 50%
2016, resumed their tightening trends sector as increases in wages and 40%
while rates for bayside property shipping rates, as well as successful
30%
in Tokyo continued their four-year capital raising, among major logistics
compression. From their post- players has set the tone for the 20%
crisis peak, cap rates in Tokyo and industry moving forward. 10%
Osaka have tightened over 150 basis
0%
points (bps) and now register at 4.8% Yamato Transport, which handles 47% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
(inland) and 4.6% (bayside) in Tokyo of domestic parcel deliveries, kept its Note: Annual periods from January – December.
and 5.3% in Osaka (inland). Though promise to raise wages for shipping Source: RCA, Savills Research and Consultancy
Tokyo bayside and inland cap rates workers. In some competitive areas,
the firm has listed positions offering
TABLE 1 JPY2,000 per hour – an increase of
Selected investments, announced Oct 2017 – Mar JPY500, or 33% – over the prior year.
Yamato has also announced that
2018 they will convert all 3,000 temporary
Transaction truck drivers into permanent staff,
Property Appraisal
name
value
cap rate
Buyer Seller in addition to 2,000 other contract
(JPY million) workers at logistics facilities and in
Prologis Park Nippon Prologis administrative positions. The firm
21,300 4.7% Hotaka SPC
Yoshimi REIT listed “reforming working styles”
DPL Fukuoka Daiwa House as one of the three main pillars of
13,300 4.8% Daiwa House REIT
Kasuya Industry Co., Ltd. its medium-term management plan
LogiSquare CRE Logistics Fund announced in September 2017.
13,060 4.8% CRE, Inc.
Urawamisono REIT
To cope with increased costs,
GLP Soja I 12,800 5.3% GLP Soja Logistics SPC Yamato also followed through with
plans to raise shipping rates 15% on
Landport Nomura Real Estate Nomura Real Estate
9,230 4.4% business customers with even higher
Hachioji II Master Fund Development
rate increases on major corporate
Source: Company disclosures, Savills Research and Consultancy clients. According to the Nikkei, as
savills.com.jp/research 05Spotlight | Japan logistics April 2018
of January 31, 2018, Yamato has
retained 60% of such corporate
customers, including its largest client
by far: Amazon Japan. After three
OUTLOOK
consecutive quarters of losses,
the firm posted a profit of JPY29.5
The prospects for the market
billion for the three months ended
December 31, 2017, a 22% increase Market player sentiment for a record amount of supply enter the
increases in rental prices, while market. Generating demand during this
over the prior-year period. As it
still relatively low, are the highest period will be critical.
appears the firm has successfully
they have been since January
transferred its costs to customers,
2016. Expectations for increases With easy access to labour becoming
capital markets responded positively.
in logistics property value have a key priority for tenants, we will likely
Year to date, shares of Yamato have
improved over 2017, though see a divergence in leasing between
risen from JPY2,300 to JPY2,669
positive sentiment is still well new inland properties located around
as of March 30, outperforming the below 2015 levels. Japan’s the Ken-O Expressway and more
Nikkei 225 index by 25%. macroeconomic prospects competitive inner properties, while
support near-term growth in the small to mid-sized MT and built-to-suit
Indeed, despite persistent sector-wide industry, while the expansion of (built to meet the needs of a specific
challenges, the industry continues e-commerce, peer-to-peer sales tenant) facilities show stronger overall
to attract significant investment. SG platforms and the shipping industry leasing activity than large MT facilities.
Holdings, Japan's second biggest provides a long-term foundation for This divergence should reflect investor
home-parcel company by market demand in the logistics sector. appetite and cap rate movement.
share, held a successful IPO in
December 2017. The largest IPO of the Large supply continues to weigh Cap rates of prime properties will
year, shares of the firm were offered for down the Greater Osaka market likely continue their compression as
JPY1,620 on December 13, 2017 and in particular, though average rent more investors enter the market, and
were trading at JPY2,325 as of March and vacancy rates stabilised competition for existing properties
30, 2018, outperforming the Nikkei during 2H/2017. Supply in the in key locations should remain tight.
225 by 50% over the same period. Osaka market should cool down Extensive J-REIT acquisition activity in
According to Nikkei news, gaining somewhat in 2018 and beyond. early 2018 may imply that developers
further legitimacy to attract talent was A sharp decrease in vacancy want to unload some of their portfolio
one of the major goals of listing the rates in Greater Tokyo towards as the current market approaches
company. SG Holdings has forecasted the end of 2017 should help keep a peak within the influx of supply.
a net profit of JPY33 billion for the year rental prices steady, although a large Investment opportunities will expand
ended March 2018, up 16% from the amount of supply will come into the greatly over the next couple of years,
prior year. The firm is also expected market in 2018 and 2019. though there will be clear winners and
to merge Sagawa Express Co., Ltd., losers. This may in fact be a welcome
its shipping arm, with Hitachi Transport Indeed, public disclosures indicate chance for the selective investor to
System in 2019. that the next two years will see expand interests or enter the market.
Please contact us for further information
Savills Japan Savills Research
Christian Mancini Tetsuya Kaneko Simon Smith
CEO, Asia Pacific Director, Head of Research Senior Director
(Ex Greater China) & Consultancy, Japan Asia Pacific
+81 3 6777 5150 +81 3 6777 5192 +852 2842 4573
cmancini@savills.co.jp tkaneko@savills.co.jp ssmith@savills.com.hk
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