Vacancy remains low in the Greater Tokyo Area at 4.5%, despite large-scale supply
Demand also strong in regional areas as distribution volumes increase for consumer goods and manufacturers
Achievable rents have bottomed out, and are rising nationwide
In the Greater Tokyo Area large multi-tenant logistics property market, five new properties were completed in Q1 2014. Total supply amounted to 108,000 tsubo, a level well above the historical quarterly average (27,000 tsubo), for the third consecutive quarter. The vacancy rate was nevertheless below CBRE's forecast of 7%, rising by only 0.5 points quarter-on-quarter. The supply/demand balance remains tight in the Greater Tokyo Area.
Most new facilities in inland and water front areas completed in Q1 had secured tenants before completion. Spaces still available in new facilities completed in the second half of 2013 are also steadily being filled. As a result, net absorption in Q1 was 96,000 tsubo, a record quarterly figure.
By industry, the most active tenants were third party logistics companies transporting daily food deliveries for grocery stores and supermarkets. Everyday sundries for drugstores and wholesalers were also active, along with apparel companies ramping up distribution centers for online retail.
There has been a rise in the number of tenants agreeing to rent increases at lease renewal, and thus there is greater upward pressure on rents for new leases as well. The fact that the vacancy rate has been kept low, in spite of new supply, has encouraged owners to be somewhat more optimistic about raising rents.
There are few facilities left with large amounts of available space in the ¥3,000 to ¥4,000 per tsubo range, which are favored by 3PL companies. Therefore, achieved rents on new facilities especially in parts of Saitama and Chiba remain high. In the Atsugi/Sagamihara area, achievable rents fell slightly in 2013, a year when there was much new supply. However, rents are now returning to their 2012-end levels as vacancies have steadily been filled.
Although there will be a constant stream of new supply, the amount coming online next year will total around 140,000 tsubo, less than half the supply of last year of 340,000 tsubo. In the Greater Tokyo Area as a whole, new supply is likely to remain tight, with tenants already provisionally found for around half the space in the four facilities to be completed by the end of 2014. Many of the facilities scheduled to begin construction in 2014 will be affected by rising construction costs. This is likely to have an impact on rents, even if lessors absorb some of the impact in design changes. The upward trend in rents is likely to become clearer, especially in areas where supply is tight or rents were originally low.
However, it is unclear whether 3PL companies, which account for the largest amount of demand, will be able to bear higher rents. Other factors could also constrain rents such as the likelihood that facilities close to the Ken-O Expressway will be in competition with projects planned in the years ahead.
"We were surprised by the strength of demand in Q1," says Junichi Taguchi, managing director of CBRE’s Industrial Services Division. "New supply does create demand for logistics centers which require large blocks of space. Although development costs have risen, including land prices and construction costs, we hope to continue to see a stable flow of supply."
Tenant demand is also strong in the Greater Osaka, Chubu, Hiroshima, and Fukuoka regions. The supply and demand balance, even for smaller facilities, is tight, partly due to demand ahead of the consumption tax hike and increasing demand from logistics companies dealing with manufacturers and consumer goods. Demand from apparel companies and online food retailers has quieted somewhat, because there is no existing vacant space. Future developments are eagerly anticipated.
Buoyant demand and higher construction costs are putting upward pressure on rents for large facilities under construction, and tenants are increasingly having to accept some increases.
For further details of market trends and forecasts as well as detailed market data by area, please review the Japan Industrial and Logistics MarketView Q1 2014 which is scheduled for release on April 30.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.