Tokyo Logistics Vacancy Rate Rises, Demand Remains Strong

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According to a new report by CBRE Group, during Q2 2016, new supply of large multi-tenant (LMT) logistics properties in the Greater Tokyo area totaled 135,000 tsubo across seven new facilities, a volume record second to Q4 2015.

Although the vacancy rate increased by 0.6 percentage points q-o-q to 8.9%, primarily as a result of new supply over 100,000 tsubo entering the market for the third consecutive quarter, demand in the Greater Tokyo area remained solid, with four out of the seven new facilities reaching completion with full occupancy. Leases signed this quarter also signified high levels of demand, with major tenants in the apparel and general merchandise sectors completing deals. As a result, net absorption in Q2 2016 was 110,000 tsubo, a new quarterly record.

The vacancy rate was unchanged in the Tokyo Bay area. The Gaikando area vacancy rate rose to 7.4% because of space unlet in a newly completed property. Vacancy in the Route 16 area was relatively stable despite a wave of new supply, with the rate declining from 8.8% in Q1 2016 to 7.8% in Q2 2016. In the Ken-O-do area, which is further away from central Tokyo, the vacancy rate rose again q-o-q to 19.7%.

"Several large tenants have relocated or opened new facilities in Q2 2016, taking up around 10,000 tsubo each," commented Maro Kobayashi, head of CBRE's Industrial Services group. "Meanwhile, due to the large number of new properties, some facilities in the Route 16 and Ken-O-do areas are seeing some weakness in rent."

Greater Osaka Area
 
In the Greater Osaka Area, the vacancy rate declined from 3.4% in Q1 2016 to 1.9% in Q2 2016. One property that was completed this quarter entered the market fully occupied and several units in existing properties were also let, thanks to strong demand from e-commerce companies. E-commerce companies are continuing to increase their investment in the logistics sector in the Greater Osaka area.

"Although over 200,000 tsubo of new supply is expected in inland areas, the actual number of properties is limited," commented Kenji Kitamura, senior director of CBRE's Osaka Industrial Services group. "As such, tenants looking for large spaces are increasingly keen to secure properties as early as possible."

Greater Nagoya Area

In the Greater Nagoya area, while a series of LMT property completions are scheduled after the following year, some have already started to sign up tenants. It is a new phenomenon for landlords to begin letting properties at such an early stage, reflecting the robust demand for large logistics facilities.