- In Greater Tokyo, high levels of new supply continued to exceed demand, and vacancy rates rose 2.1 percentage points (ppts) year-on-year (YoY) to 4.4%. That said, demand remains firm and vacancies are moderate in Tokyo.
- The Greater Osaka market was slightly more stable than Greater Tokyo, and the balance between supply and demand was tighter, owing to few new completions in 2022. As such, vacancy is still relatively low and only saw an increment of 0.9ppts, reaching 2.4%.
- Rents in Greater Tokyo declined 3.6% half-year-on-half-year (HoH) and 2.4% YoY, and are now at JPY4,510 per tsubo.
- Rents in Greater Osaka increased by 1.4% YoY but saw a contraction of 4.5% HoH, and now stand at JPY4,220 per tsubo.
- Investment levels in 2022 slightly lagged those of the previous year. Although demand was strong among both domestic and international investors, an increase in construction costs and interest rates led some investors to reconsider development and acquisitions in the logistics sector.
- New supply in 2023 is forecast to exceed the significant levels seen in 2022 in both the Greater Tokyo and Greater Osaka markets. This wave of new supply will further intensify competition for tenants. As such, poorly located and older facilities will struggle with vacancies.
- Japan faces chronic labour shortages in the logistics sector, and the cost of labour has risen significantly over the past few years. New regulations on delivery drivers in 2024 are likely to worsen this. Logistics firms operate on tight margins, and this may cap rental growth going forward.
Demand remains firm, but the industry faces many challenges
As the e-commerce industry continues to expand, the demand for logistics services remains strong. However, a combination of substantial upcoming new supply and cost pressures on tenants due to inflation and labour shortages make rental growth increasingly difficult. Interest rate increases also threaten to soften yields, and investors might look to other sectors for opportunities.
Savills Research & Consultancy