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- Average 1F rents in Tokyo have remained mostly flat over the past half-year, and the retail sector has overall been thriving with vacant units becoming harder to spot.
- In regional markets, average rents dipped slightly, although most regions, especially those dependent on inbound tourism, have continued to improve
- Investment volumes in the retail sector in 2023 have leapfrogged those of 2022, partly due to the large Seibu and Sogo deal.
- The number of inbound tourists has hit new highs, and many areas have seen an increasing number of stores catering to them. However, some non-prime areas still appear to be suffering.
- Appetite for luxury products amongst both domestic and international consumers remains elevated, and high-end retail is likely to draw increasing amounts of interest.
- Optimism in the market is high and some landlords have thus been eyeing rental increments. However, inflationary pressures have depressed operating margins of tenants, many of whom may not be able to handle higher rents.
- While the retail sector is recovering overall, performance still varies greatly depending on location and tenant.
Market optimism high, but tenants feeling cost pressures
The retail sector has continued improving, especially in areas popular with inbound tourists, and there have been more store openings catering to international visitors. Lukewarm domestic consumption should also improve due to noticeable wage growth. While prime areas are performing very well, some non-prime areas are still struggling, showing some bifurcation in the market. The optimistic market sentiment has led some landlords to eye rental increments, in contrast to tenants who already have had operating margins thinned from rising costs, and this gap in expectations is likely to persist.
Savills Research & Consultancy