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Japanese Property Market Quarterly Review, Second Quarter 2017-Tokyo Grade-A Office Rents Rise Again, Investors Increasingly Consider Selling-

Kazumasa Takeuchi 

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3) Retail
Same-store sales of department stores and convenience stores grew by 0.9% and 0.2% y-o-y while those of supermarkets declined by 0.1% y-o-y in the second quarter (Chart-16). Retail sales have been improving as seen by healthy sales of summer clothing and automobiles. In particular, department stores have benefited from strong luxury goods sales stimulated by the healthy equity market and increasing demand from foreign tourists. Regarding foreign tourists, duty-free sales grew by more than 40% y-o-y in May and June. Quarterly consumption by foreign tourists in Japan increased by 13% y-o-y, exceeding one trillion JPY for the first time in the second quarter.

Average retail store rents in Tokyo grew by 10% y-o-y, however, those of ground floors have shown some weakness (Chart-17). For example, GINZA SIX, a large luxury retail mall accommodating 241 tenant stores and aiming 20 million annual customer traffic, opened in April and retail space demand for neighboring sub-streets has faded. 
Chart-16 Retail Same-Store Sales
Chart-17 Tokyo Ground Floor Retail Rents
4) Hotel
The number of foreign visitors grew by 21.1% y-o-y to 7.2 million in the second quarter (Chart-18). The cumulative number of the past 12 months increased to 26 million. Visitors from South Korea increased particularly by 67% y-o-y in a reversal from last year’s decline following the Kumamoto Earthquake. On the other hand, the number of visitors from China has leveled off since February.

The total number of overnight stays in Japan grew by 3.1% y-o-y to 119 million in the second quarter (Chart-19). In addition to overnight stays by foreign tourists increasing by 10.6% y-o-y, those of Japanese tourists also increased for the first time in 6 quarters by 1.6% y-o-y in the second quarter. Hotel occupancy rates have remained as high as those of last year (Chart-20), even with new hotels continuously opening.

New legislation permitting the operation of minpaku, private accommodations serviced to tourists via Airbnb and others, was passed in the National Diet in June. The legislation limits the operating period of minpaku to 180 days per year, requiring operators to notify their municipal governor as well as administrators and brokers to register with MLIT and Japan Tourism Agency, respectively.
Chart-18 Foreign Visitor Arrivals
Chart-19 Total Numbers of Overnight Stays (Y-o-y)/Chart-20 Hotel Occupancy Rates
5) Logistics
The Japanese B-to-C e-commerce market grew by 9.9% y-o-y to 15.1 trillion JPY in 2016, according to METI. In addition, the total number of home deliveries also grew by 7.3% y-o-y to 4.02 billion items in 2016, according to MLIT. Based on this trend, strong demand for large logistics facilities has been growing.

The vacancy rates of large, multi-tenant logistics facilities improved by 1.4% q-o-q to 5.1% in the Tokyo metropolitan area while those in the Osaka metropolitan area deteriorated by 1.0% to 18.4% due to excess of new supply (Chart-21).

The largest-ever supply of logistics facilities is scheduled in the Tokyo and Osaka metropolitan areas in 2018 and 2017, respectively. Recently, securing labor force has been the bottleneck for logistics facility operations. Thus, location and accessibility to public transportation have increasingly become important for logistics facilities. During the upcoming largest supply period, the gap between superior and inferior facilities could become clear through leasing activity and rent movements.
Chart-21 Logistics Supply and Demand in the Tokyo Metropolitan Area

Kazumasa Takeuchi

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