Spotlight Japan retail - October 2018 Savills World Research Japan
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Savills World Research
Japan
Spotlight
Japan retail October 2018
savills.co.jp/researchSpotlight | Japan retail October 2018
Spotlight
Japan retail
“Retail rents are trending upward, supported
by a positive economic climate. Inbound SUMMARY
tourism and improvements in transportation
Tokyo’s average 1F retail rent is trending upward,
infrastructure should be key to the growth of especially in Ginza and Omotesando.
regional markets. Although investment volumes
Regional cities are seeing signs of increasing
have declined, acquisition interest, particularly in rents, supported by inbound tourism.
prime retail, appears to remain sound.”
Pop-up stores are an increasingly popular option
for tenants and landlords.
Tokyo submarket rents among the surveyed submarkets. 1F
According to a semi-annual survey rents in Ginza grew 16.0% half-year-
General merchandise stores (GMSs) are seeing
by Japan Real Estate Institute (JREI) on-half-year (HoH) while non-1F
signs of improvement with major GMS brands trying
and BAC Urban Projects, Tokyo’s rents increased 0.7% HoH. 1F rents
new tactics.
retail 1F rents on average have held in Ginza have been rising for three
fairly steady since 2016 and have consecutive periods and recorded
the highest level since 2009 this Although investment volumes in Q3/2018
begun to improve since 2017. Non-
quarter. Although readers should look declined, expected cap rates continued to compress,
1F rents, which are less susceptible
at the data merely as a guideline due reflecting sound investment interest.
to fluctuations, have been gradually
increasing since 2011, reflecting to the limited sample size, growing
stable market fundamentals and inbound tourism and improving
improving consumer confidence. In luxury demand do appear to be 1F rents in Omotesando/Harajuku
surveyed submarkets, prime rents sustaining rental increases. Cosmetic rose 22.9% HoH to JPY60,100
are generally unchanged. While store and luxury brand tenants continue per tsubo while non-1F rents rose
closures continue, demand for prime to seek spaces in Ginza. Secondary 9.8% HoH to JPY31,500 per tsubo.
retail locations is still strong and is vacancies created by relocations of Supported by sound demand
quickly filling vacant spaces. brand stores to Ginza Six appear from luxury and designer brands,
to have been absorbed, indicating landlords appear to be aggressive
Ginza 1F rents reached JPY67,400 sound demand on Chuo-dori and on rents. While the area’s iconic
per tsubo, remaining the highest Harumi-dori. stores such as Spinns and WEGO
GRAPH 1 GRAPH 2
Tokyo 1F rents, 2008 – 1H/2018 Tokyo non-1F rents, 2008–1H/2018
Ginza 1F Omotesando 1F Shinjuku 1F Shibuya 1F Average asking rent: 1F Ginza Non-1F Omotesando Non-1F
90 Shinjuku Non-1F Shibuya Non-1F
Average asking rent: Non-1F
80 45
40
70
Thousand JPY / tsubo
35
60
Thousand JPY / tsubo
30
50
25
40
20
30
15
20 10
10 5
0 0
1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 18 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 18
Source: JREI, BAC Urban Projects, Savills Research & Consultancy Source: JREI, BAC Urban Projects, Savills Research & Consultancy
savills.co.jp/research 02Spotlight | Japan retail October 2018
closed, new stores continue to open GRAPH 3
on Meiji-dori and Omotesando. Red 1F rents in retail districts of regional cities, 2008 –
Valentino opened its flagship store
along Omotesando in September after
1H/2018
the brand gained exposure in the area Shinsaibashi 1F Nagoya Sakae 1F Sendai 1F
via its pop-up store between October 35
Fukuoka Tenjin 1F Sapporo 1F Average asking rent 1F
2017 and March 2018. Considering
the area’s influence on trends, pop-up 30
store demand is likely to strengthen. Thousand JPY / tsubo
The former Forever 21 site on Meiji- 25
dori is still vacant, however. It might
20
be challenging to find a tenant that is
willing to lease the large space. 15
In Shinjuku, 1F rents declined 10
1.7% HoH to JPY34,800, while
5
those of Shibuya rose 6.3% HoH
to JPY35,600. These areas remain 0
popular among overseas tourists. 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H
According to a 2017 survey by the 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 18
Tokyo Metropolitan Government, Source: JREI, BAC Urban Projects, Savills Research & Consultancy
Shinjuku is the most visited ward
in Tokyo while Shibuya is in fourth
According to the 2018 national land prime locations in major submarkets.
place: 56% and 43% of tourists visit
value survey (Chika Koji), the highest Physical stores still generate the
Shinjuku and Shibuya, respectively.
land price in Osaka was recorded at most retail sales, and many retailers
On Shinjuku-dori, Gucci and Apple
CROESUS Shinsaibashi, located in a acknowledge the importance of store
opened stores in April. Shibuya’s
popular tourist area, overtaking Grand experience to nurture brand loyalty.
station-front area is undergoing
Front Osaka near Umeda Station. There are cases where retailers who
enormous redevelopment, and
This change illustrates the importance started online have opened physical
the opening of Shibuya Stream in
of capturing inbound demand. stores as well. While some retailers
September marks the first phase
According to JREI, inbound demand give up larger spaces to be able to
of Tokyu’s ambitious plan. Away
from the station, Xebio, a sporting is also sound in areas such as Sakae afford prime locations, there is also
goods shop, opened on the former (Nagoya) and Tenjin (Fukuoka). In demand for expanded space from
GAP site. While Koen-dori sees Fukuoka, while the highest land price those who wish to host events and
sound demand, relatively large was recorded in Tenjin, the strongest feature promotion areas. Landlords
spaces in the Jinnan area appear growth was recorded between Hakata need to understand shifting needs
to be struggling after Parco, which Station and Canal City Hakata, which and find tenants who see the most
attracted large footfalls, closed for may be explained by the area’s better potential in the space. The following
reconstruction. accessibility by large transit bus are some examples of relatively new
compared to Tenjin’s narrow roads. In trends in the retail market.
Regional cities Nagoya, ongoing development at the
In regional cities, inbound tourism station front should sustain the area’s Pop-up stores are gaining traction
is a primary driving force for retail growth. as landlords seek to fill temporary
markets. As discussed in our vacancy with short-term tenants or
recently published “Japan inbound Regional 1F rents on average enhance store experience with fresh
retail” report, capital is flowing increased 18.4% HoH to JPY23,067, offerings. This is also a beneficial
into regions as many stakeholders while non-1F rents rose 1.6% HoH arrangement for some tenants who
are now betting on continued to JPY13,483. Shinsaibashi and wish to gain exposure in highly
inbound tourism growth. According Sakae increased 1F rents by 26.3% visible, footfall-heavy areas. For
to the Japan Department Stores and 19.8% HoH, respectively, while example, in April and May, Volvo
Association, duty-free sales set a 1F rents in Tenjin decreased 11.7% opened its first pop-up store in
new high at JPY31.6 billion in May, HoH. After accounting for period-to- Japan, displaying its new SUV model
indicating that tourists’ shopping period fluctuations, rental trends have and XC series at Roppongi Hills.
appetite remains strong. Up through been generally stable in key regional Between May and July, Zara, which is
early 2016, “bakugai” (“explosive cities. However, the line between accelerating the integration of online
buying”) was largely fuelled by winners and losers is expected to and offline shopping, also opened
semi-professional shoppers who become more clearly defined, as a pop-up showroom in Roppongi:
purchased goods in bulk for clients even station-front department stores shoppers were able to try on clothes
back home. Considering that this have been closed. in store and order items online for on-
practice was virtually eradicated site collection afterwards. The pop-
by customs duties imposed by Emerging trends up store platform is also expanding,
the Chinese government, current Despite concerns about as exemplified by the website
demand appears to be driven by e-commerce, demand for physical Shopcounter by Counterworks. The
actual consumers. retail spaces is sound, especially in website lists spaces available for
savills.co.jp/research 03Spotlight | Japan retail October 2018
short-term use, and Counterworks business is still losing money, it competition from different store
now collaborates with companies reduced losses by JPY1.8 billion, types, such as convenience stores,
such as Aeon Retail, Mitsui Fudosan, from JPY6.3 billion in Q1/FY2017 drug stores, and e-commerce, some
Mitsubishi Real Estate, and Tokyu (March – May 2017), to JPY4.5 billion GMSs could outperform others by
Fudosan. in Q1/FY2018. Ito-Yokado, a unit of offering specialised products and
Seven & i Holdings, also increased services.
Additionally, co-working offices could profits from JPY0.7 billion in Q1/
fill up some spaces in conveniently FY2017 to JPY2.4 billion Q1/FY2018. New projects
located department stores and Nihonbashi Takashimaya S.C.
shopping centres. For instance, Aeon focused on sales of its own opened in September 2018. The
Kintetsu Department Store Yokkaichi Topvalu brand and succeeded in B5/27F building features over 100
in Mie is currently undergoing raising sales per person. The firm stores from B1 through 7F with a
renovation and will feature a also plans to establish separate strong focus on food and beverage.
serviced office operated by Synth companies for each product category The concept of the new tower was
once it is opened in November. such as food, apparel, and home developed with residents in the
The department store is located products and deepen its expertise Nihonbashi area in mind and offers
within Yokkaichi Station, about 60 in each area. On the other hand, open walkable areas on both ground
minutes away from Nagoya Station, Ito-Yokado decided to lease out and above-ground levels.
and appears to target small local underperforming apparel and home
companies and teleworkers. In the product sales spaces to tenants with In its 15th anniversary year, Roppongi
U.S., Macerich, a major retail owner stronger draws. Hills opened Premium Dining Floor
and operator, is collaborating with and Grand Food Hall. Premium
industries to bring shared office Closures of underperforming stores Dining Floor features top-quality
spaces into shopping centres. In may also create opportunities for restaurants, including Michelin-
Japan, shopping malls are growing surviving GMSs. According to the starred restaurants, and provides
more community-oriented by National Supermarket Association visitors the opportunity to experience
featuring nurseries and community of Japan, the number of GMSs has the world of the chef through
events. Offering work spaces might decreased between 2014 and 2018. dialogues, presentations, and plate
be a natural extension of that trend. The majority of downsizings were
exhibitions. Grand Food Hall first
observed in the Kanto region, which
opened in Ashiya in Hyogo, and this
General merchandise significantly increased population-
venue in Roppongi is the second
store per-store ratios in some prefectures.
location.
General merchandise store (GMS) For instance, Tokyo experienced the
brands such as Aeon and Ito-Yokado largest amount of store closures:
In Osaka, a joint venture led by
are working on restructuring their combined with population increases
Mitsubishi Estate was selected
business models and appear to due to urbanisation, the population
as the developer of the Umekita
be seeing some positive results. In per GSM ratio in the prefecture has
Phase 2 project, which is slated for
Q1/FY2018 (March – May 2018), increased by over 25% between
completion in 2024. The development
Aeon recorded a profit of JPY40 December 2013 and September
billion, its highest ever, largely site is a former retail depot located
2018. Although this trend does not
due to improvement in its GMS next to Osaka Station. Mixed-use
guarantee larger market shares for
performance. Although Aeon’s GMS facilities including rail centres, hotels,
surviving GMSs due to heightened
offices, and residential units will
be built over 46,000 sq m of land.
GRAPH 4 Although Shinsaibashi is currently the
Number of GMSs and population-per-GMS ratios in top shopping destination for tourists
Kanto, Dec 2013 vs Sep 2018 in Osaka, the balance could shift
towards the Umeda area after the
Dec-13 Sep-18 Population/GMS change development.
180 30%
160 Investment trends
25%
In Q3/2018, year-to-date investment
140
in retail property stood at JPY292
120 20% billion, a 43% decline from the
Pop/GMS change
Number of GMS
same period in 2017, according to
100
15% preliminary data from Real Capital
80 Analytics (RCA). The decline
is largely due to relatively few
60 10%
transactions by overseas investors,
40 especially against a strong 2017.
5%
Specifically, Blackstone’s Croesus
20
Retail Trust buyout and Norges
0 0% Bank’s acquisitions accounted
Tokyo Kanagawa Chiba Saitama Gunma Ibaraki Tochigi
for over JPY200 billion of 2017
Source: National Supermarket Association of Japan, Savills Research & Consultancy investment.
savills.co.jp/research 04Spotlight | Japan retail October 2018
GRAPH 5 A semi-annual survey by JREI
Retail property investment volume by buyer type, revealed that expected cap rates
for prime retail property in Ginza
2007 – Q3/2018 and Omotesando sat at 3.5% and
Overseas Equity & Institutional Listed Companies & REITs Private Unknown Other 3.6%, respectively, in April 2018, a
1.4
tightening of 10 basis points from
six months prior. The expected cap
1.2
rate for suburban shopping centres
1.0
in the Tokyo area is 5.5%, gradually
widening the spread over that of
prime retail in Ginza from 1.8% in
Trillion yen
0.8
October 2015 to 2.0% in April 2018.
0.6 Analysis of appraisal direct cap rates
for properties transacted by J-REITs
0.4 in recent years generally validates
surveyed expected cap rates. In
0.2 prime locations, however, a buyer
may need to be willing to accept cap
0.0 rates in the mid 2% range in order to
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q3/2018
be a winning bidder.
Source: RCA, Savills Research & Consultancy
Some J-REITs are reshuffling their
GRAPH 6
portfolios by divesting properties.
Appraisal direct cap rate of transacted retail United Urban Investment decided
properties, 2016 – Sep 2018* to sell Himonya Shopping Centre
for JPY27.5 billion at a direct cap
Urban retail Suburban retail
16
rate of 5.1% in May. The disposition
followed a large-scale renovation
14 in 2016 and increased rental levels.
Aeon REIT replaced Aeon Mall
12
Kumamoto, which was seeing an
Number of transactions
10 unrealised loss, with Aeon Mall
Kyoto Gojo. Although it is not within
8
the surveyed period, Japan Retail
6 Fund acquired G-Bldg. Minami
Aoyama 03 for JPY12.2 million at a
4
direct cap rate of 3.0% in October.
2
0
2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
Direct cap rate
Source: Japan REIT DB, Savills Research & Consultancy
* Among transactions in the data available from Japan REIT DB as of October 2018, we have included the ones
whose appraisal valuation dates were after January 2016.
TABLE 2
Selected retail transactions, announced Q2/2018—Q3/2018
GFA Price
Announced Property Location Direct cap rate Buyer
(sq m) (JPY billion)
May 2018 Himonya Shopping Centre Meguro, Tokyo 27,000 27.5 5.1% Undisclosed
Kamimashiki,
Jun 2018 AEON Mall Kumamoto 101,000 14.5 6.0% Undisclosed
Kumamoto
Jul 2018 North Tenjin Chuo, Fukuoka 22,000 14.0 NA Fukuoka Standard Sekiyu
Jun 2018 AEON Mall Kyoto Gojo Kyoto, Kyoto 87,000 13.3 4.9% AEON REIT
Hulic Shimaura-Sakaue
Jun 2018 Itabashi, Tokyo 14,000 7.6 4.6% Hulic REIT
(retail portion)
Source: RCA, Nikkei RE, Savills Research & Consultancy
savills.co.jp/research 05Spotlight | Japan retail October 2018
OUTLOOK
The prospects for the market
In Tokyo, retail rents are trending opportunistic investment targets employing strategies to provide more
upwards, reflecting an improving near transportation hubs, albeit even specialised products and services.
economic climate and growth in station-front areas may suffer in some Ongoing consolidation of stores may
inbound tourism. Although some markets. be reducing competition. Having
submarkets have experienced said that, the business environment
store closures, strong demand is To capture new types of demand, surrounding GMSs presents
filling vacancies in prime areas. landlords are turning to pop-up challenges.
Additionally, key regional cities are stores. While many use pop-up
beginning to see signs of rental stores just to fill temporary vacancies, Although investment volumes in
growth. Inbound tourism and some properties have set dedicated Q3/2018 declined from the same
improvements in transportation spaces for use by short-term tenants. period in 2017, investment interest,
infrastructure should be important Although it is still uncommon, co- particularly in Japan’s prime urban
for regional markets in particular. working spaces in neighbourhood retail assets, appears sound. With
malls and department stores could be the stable performance of underlying
Some markets are more likely to a new trend if interest in flexible work assets, investors could reap
benefit from growing tourism than environments increases. handsome returns if they can improve
others. In regional cities where properties’ competitiveness through
inbound influence is limited, overall After years of disappointing renovations and changing tenant
market sizes should dwindle but performance, GMSs saw a silver lining mixes.
demand could consolidate around with major GMS brands improving
city cores. This might create profitability. GMS brands are
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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