How to Profit from Japan’s Retail Market?

03 Apr, 2018 –

Retail Heaven

Japan Investment Property

Japan Retail

According to JETRO (Japan’s governmental external trade agency), Japan boasts the world’s second largest retail market, with a sales value exceeding US $1,3 billion (150 trillion yen).

Being a mature, quality and luxury oriented consumer market, the country has been a natural destination for any and all global brands seeking to establish their presence in Asia for many years, with spectacular results. 35% of Asian tourists from countries such as China, Taiwan, Hong-Kong and South Korea, who are traveling to Japan, cite their main reason for visiting as “shopping”. Local Japanese shoppers are also a force to be reckoned with – often labelled as “obsessed with consumerism culture”, for better and worse.

Key sectors in the country’s retail market are high-end specialty stores, apparel specialty stores, and lifestyle/environmental products – all of which are readily available not only in shopping hot spots such as Tokyo’s Ginza, Omotesando, Shibuya and Shinjuku, but all over the country, in other large metropolitan centres such as Osaka, Nagoya, Fukuoka and Sapporo, to mention only a few.Shopping malls, supermarkets and street shops are bustling with activity during all hours, fashion is a major driving force for men and women alike, and even the two “lost decades” of deflation, which the country has only recently broken out of, did not seem to diminish the Japanese passion for shopping – as a walk down the street down any of these major shopping districts would have demonstrated at any point in time during those years.

 

Current Retail Status

As the graph above, taken from Mitsui Fudosan’s 2016 statistics publication shows, total retail in Japan is generally on the rise, aside from a small slump, due mainly to a sharp drop in Chinese tourist numbers between 2008-2015 (as a result of increased import duties in the mainland).

Two interesting main trends evident from that same graph, are the following –

1.      Supermarket shopping has long surpassed department stores as far as total retail sales numbers are concerned, and is likely to remain so. This trend has further intensified in 2017, as clothing, goods and apparel are sold more and more online – while Supermarkets, selling consumable goods such as foods and beverages, aren’t as susceptible to online competition.

2.      The by far large majority of retail sales in the country, however, aren’t in either department stores (or “Depaato” as they’re known here), nor in Supermarkets – but in “other retail” – namely, street shops, train and subway station shops, outlet malls, and small businesses– and of course, ever increasingly – online.

The Property Investment Perspective

As explained in depth in our annual summary, rents and prices for retail commercial properties have barely budged throughout 2017, in line with general Japanese property market trends – and prime location retail rents have actually decreased in Tokyo, previously the heart of the nation’s shopping culture.

Furthermore, multiple new shopping mall projects announced in Tokyo and beyond have created an expectation for more stock to soon hit the markets, which will naturally further taper the potential for price hikes in rents and purchase prices.

The same report, however, also points to two main macro-economic indicators which are expected to continue and buoy investment in coming years –

a)      an increase in Japanese consumer confidence – now at its highest since the 2014 consumer tax hike (further boosted by the postponement of the next scheduled tax hike to late 2019)

– and –

b)     an increase in retail sales since July 2016 – with increasing tourist numbers – this trend is expected to continue until the 2020 Olympics at the least.

How to Profit from These Trends?

  • While ownership of a shopping center or mall can be an attractive investment, buying and managing such a property is an expensive exercise, and requires a Japanese presence for the purpose of running such a business, with all related aspects. Furthermore, with decreasing rents in prime shopping areas, as more and more customers turn to internet shopping – it may be far more feasible for foreign, remote investors to put their funds into smaller, “street level” commercial retail properties, which can be easily managed via standard rental leases (straight-out rental yield investment, as opposed to business management). These shops are also far cheaper, which provides investors with far better diversity and an option to hedge their investments, as opposed to investing in a single, high priced shopping centre.
  • The huge boom in internet shopping, and its expansion to the inclusion of same or next day service, has led to huge growth in the logistics real estate market (factories, packing houses, warehouses & shipping/delivery hubs) in the suburbs of most of the country’s large metropolitan centers – another sector well worth looking into. And, since this particular market is currently red-hot, with demand far outstripping supply, creative approaches such as acquisition of existing older properties erected on medium to large land-plots, with a view to demolishing and re-construction, is a highly profitable strategy.

(Source – Ziv Nakajima-Magen, Nippon Tradings International”, Pic – Shopping in Japan / “Ivan Walsh“)

 

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