Tokyo's industrial net absorption in 2020 almost on par with 2019 totals

Net absorption reached 2.2 million square meters.

Logistics sector economic indicators were uneven entering 4Q20. In October, the industrial production index increased by 4.0% m-o-m, increasing for the fifth-consecutive month and showed signs of picking up. Exports decreased for the 23rd-consecutive month and imports decreased for the 18th-consecutive month, reflecting the dire impact of COVID-19.

According to JLL, net absorption totalled 460,000 sqm in 4Q20, with sustained strong demand from the e-commerce sector. For full-year 2020, the figure was more than 2,239,000 sqm, almost in line with the 2,381,000 sqm recorded in 2019.

Overall vacancy continues to hover at a historical low level

New supply totalled 475,000 sqm in 4Q20, increasing total stock by 3% q-o-q and 18% y-o-y. Six facilities entered the Inland area including Goodman Business Park – East Gate (GFA 135,000 sqm) and ESR Toda DC (GFA 87,000 sqm).

The vacancy rate in Greater Tokyo stood at 0.2% for 4Q20, increasing 10 bps q-o-q and decreasing 70 bps y-o-y. The vacancy rate in the Bay Area remained flat at 0.0%, while Tokyo Inland rose to 0.3%, increasing 20 bps q-o-q, reflecting the vacant space at new supply.

Rent growth accelerates in both Tokyo Bay and Tokyo Inland

Gross rents in Greater Tokyo averaged JPY 4,357 per tsubo per month in 4Q20, increasing 0.4% q-o-q and 0.9% y-o-y. Growth was driven by new completions which asked for higher rents. Rents in the Bay Area and Inland increased by 0.6% q-o-q.

Capital values in Greater Tokyo increased 3.0% q-o-q and 3.8% y-o-y in 4Q20, reflecting cap rate compression and moderate rent growth. A notable sales transaction involved Itochu Advance Logistics Investment acquiring I Missions Park Tokyo Adachi for JPY 10.9 billion or at an NOI cap rate of 4.2%.

Outlook: Cap rates to compress further

According to Oxford Economics, trade-oriented indicators are expected to recover in 2021. Industrial production is expected to rise by 5.3%, while exports and imports are likely to rise 9.9% and 2.2%, respectively. Yet, risks include the impact from a slowdown in overseas economies due to COVID-19, and the impact from the declaration of a second state-of-emergency on socio-economic activities.

Vacancy is expected to remain almost flat despite record new supply and support from rent growth, as new supply is expected to stimulate new demand. Cap rates are expected to compress further with continued investor interest.