Greater Tokyo Logistics Rents Expected to Rise

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According to a new report by CBRE, demand for logistics facilities in the Greater Tokyo area remains strong from both occupiers and investors, primarily on the back of the recovery in the wider economy and expectations of further growth in the e-commerce sector. Given this, CBRE expects that rents will rise between 2% and 4% over the next two years, depending on location.
 
Demand is particularly strong in the Tokyo Bay area where, thanks in part to limited new supply, vacancy rates have continued to remain low. CBRE expects that the vacancy rate will further decrease from 3% as of Q4 2014 to just above 1% over the next two years. Although rents have recently risen relatively slowly, being the most expensive of the four areas, the pace of increase is expected to accelerate over the next two years, rising by 3.8%.
 
The Gaikando area is surrounded by the ringed Tokyo Gaikan Expressway (excluding the Tokyo Bay Area). In 2014, the vacancy rate rose sharply due to a large volume of new completions.
 
However, demand remained solid thanks to the area's proximity to central Tokyo, and by the end of 2014 the vacancy rate had fallen to 2%, and is likely to fall further to 1% as we head into 2016. Rental growth over the last two years has been restrained by the quantity of supply in the inland part of the area, where rents are lower. Over the next two years however, rents are forecasted to rise by 4.0%.
 
In the Route 16 area, which lies outside the Tokyo Gaikan Expressway and inside the Route 16 loop road, a large number of facilities were completed during the post-2008 economic slowdown. The number of properties grew rapidly, multiplying by a factor of 2.8 in the space of two years, pushing up the vacancy rate to 30%. However, this area also experienced the greatest increase in demand for high-spec logistics facilities following the Tohoku earthquake, and the vacancy rate fell to just 2.8% in 2012. The area was home to 60% of the total logistics facilities in the Greater Tokyo LMT market as of Q4 2014. CBRE expects this area's vacancy rate to be between 3% and 4% and rents to rise by about 2.3% over the next couple of years on the back of stable demand.
 
The Ken-O-do area lies outside Route 16 along the Metropolitan Intercity Expressway, commonly known as the "Ken-O Expressway". This is an area still in its infancy, with new logistics supply only having taken off in 2014. As this is the largest area among the four covered by the report, there is wide variation in occupancy rates between properties. With a limited amount of stock, the vacancy rate fluctuations tend to directly correlate with the amount of new supply. The supply/demand balance could loosen in 2016 and the vacancy rate is expected to rise to 15%, as the volume of new supply scheduled for the area is significant. With that said, rents are forecasted to rise by 2.2% in the next two years, as they are currently recording steady growth on the back of tight supply in existing properties.