30 Jun, 2021 – New robust demand for large multi-tenant logistics facilities in Tokyo, Osaka and Nagoya, is breaking all existing records. The world has evolved. Consumers will never go back to the same office, industrial and shopping environments that were taken for granted prior to the pandemic. Online shopping has moved from ‘convenience’ to ‘necessity.’ Since 2008, online shopping and the e-commerce market in Japan has expanded rapidly by an average of over 11% per year, according to CBRE, and has further accelerated due to the pandemic. As a result, more logistics facilities are needed to warehouse and ship those goods, with ever shrinking time-frames demanded between order and supply.
Japan’s e-commerce market is expected to reach US$325.9 billion by the end of 2026, according to Business Wire. With such a rise, warehouses are needed to shorten haulage distances between major metropolises. In addition to demand, the country’s distribution channel is highly developed, and the small size of the country makes shipping and product delivery much more convenient than it is in many other countries – which makes it extremely attractive for foreign investors. JLL, a global real estate services firm, sees an immediate need in areas with higher population counts and density, around regional cities or near transport hubs with higher income households to drive purchasing power. This major asset class in Japan is driving the local real estate market. High occupancy areas mean a higher need for timely deliveries to meet the demands of the rapidly flourishing e-commerce. Less central areas with increasing population will follow not far behind.
Mapletree Investments has acquired prime land in Chikushino, in Fukuoka prefecture, spanning 116,319 square metres and close to major transportation. That’s roughly the size of 15 football fields. It plans to develop two blocks of Grade A four-storey, double-ramp logistics facilities on the site with a combined gross floor area of 231,648 sqm. This is set to be the largest warehouse space in Kyushu upon completion. Construction of the first warehouse will be completed in early 2023, and the second warehouse in 2024. In the past, warehouse facilities did not have the best air-filtration systems or natural lighting. Even air-conditioning might have been questionable. Wong Mun Hoong, Mapletree’s regional chief executive officer for Australia and North Asia, said that Fukuoka is one of the regions in Japan, “where the group has a high conviction for modern logistics facilities.” As these new facilities will set a precedence, we will see if worker wellness and a human-centric approach will be incorporated into the environment. And in terms of efficiency of the logistics operations, both within the warehouse and in distribution networks, what latest technological solutions will be implemented to manage the freight volume; perhaps robots to perform the repetitive and more dangerous tasks. Essential infrastructure While some markets have softened amidst the pandemic, logistics facilities remain robust. The two-fold demand for consumer goods and inventory has heightened the status of logistics facilities as an essential infrastructure. According to CBRE, new demand for large multi-tenant logistics facilities in Japan’s three major metropolitan areas – Tokyo, Osaka and Nagoya – is expected to reach approximately 2km, scheduled for 2021 and 2.9km in 2022, breaking all existing records.
Greater Tokyo area Because the pre-leasing trend continues to accelerate with tenants already confirmed for over 60% of the new floor space available in 2021, the two consecutive years of record-breaking supply is unlikely to overly impact market balance. The robust demand in the Greater Tokyo area and large new supply might slow the pace of rent rise. However, because the vacancy rate is expected to remain historically low, rent should continue to trend upward. CBRE projects rental growth of 1.2% in Q4 2021 and 2.8% in Q4 2022, for an average annual increase of 1.7% over the next two years, bringing rents to USD $13 per sqm by Q4 2022. Two new facilities are slated for completion in the Tokyo Bay area in 2022. As a result, vacancies remaining upon completion are expected to push up the vacancy rate to approximately 4.8%. CBRE expects that the Route 16 area, where the most significant amount of new supply is planned, should see vacant floor space in new properties gradually increase in 2022, leading to a projected vacancy rate of 2.8%. The Ken-o-do area is also likely to be affected by this new supply, resulting in a projected vacancy rate increase of 3.9%. They also project that Gaikando will be an area maintaining an extremely low vacancy rate, just 0.6% by Q4 2022. This area’s location for logistics facilities has advantages of transportation convenience and will be able to more easily secure workforce. Greater Osaka area New supply is expected from 2021 onward. While 1 sq km is slated for completion in 2021, tenants have already been secured for approximately 75% of this floor space. New supply in 2022 is slated for less than 330,000 sqm and the vacancy rate is expected to drop below 2%. An average annual increase of approximately 2% with Q4 2022 rent projected to reach approximately USD $12 per sqm. Nagoya Remarkable growth is anticipated for Nagoya. While only one property of 46,000 sqm is slated for completion in Nagoya in 2021, 2022 will see a rise in supply to over 40% with six properties due for completion with a total of 495,000 sqm. This will prompt an increase in vacancy rates to a projected 12% by Q4 2022. However, because the new supply are large-scale buildings equipped with ramp ways, a rare and highly sought-after feature, the vacancies are expected to be filled. Whether tenants are restructuring their portfolios or looking to expand, these projects are attracting attention and such demand should ensure that effective rents rise by an average of over 1% per year for an estimated $34.43 in Q4 2022.