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Spotlight residential: A new demographic wave June 2017

savills.com.jp/research Spotlight | Tokyo residential: A new demographic wave June 2017

Savills World Research Japan

Spotlight Tokyo residential: Spotlight A new demographic wave June 2017 Tokyo residential: A new demographic wave

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“A stream of movement into Tokyo has resulted in constant urban population growth. Emerging SUMMARY trends in income, fertility, and social preferences are driving gradual shifts in the character of  The population of Tokyo’s 23 wards (23W) has increased 13% since the turn of the century. Tokyo’s residential neighbourhoods. These Over half of this increase has come from young trends are creating new dynamics in housing migrants in their 20s, who appear to be favouring supply and demand, resulting in a variety of Tokyo’s western and southern wards. opportunities for investors.”  The population of Tokyo’s central five wards (C5W) has grown 36% over the same period, and Population trends: who area has increased a cumulative income has grown 16% in the past six years. This are the migrants, and 13% since the turn of the century. is driving demand for quality. where are they going? The central five wards have generally Japan’s demographic challenges are outperformed the rest of the city.  Ongoing infrastructure development along well documented. In Tokyo, the net Three of them – Chuo, Chiyoda, and Tokyo Bay is resulting in rapid growth in Tokyo’s natural population increase (births Minato – grew over 50%, though this eastern wards, which nevertheless still see rental is partially due to low initial bases. minus deaths) has held slightly discounts. positive throughout the 21st century. Perhaps more impressive is growth in However, Tokyo and other large cities Koto, where the number of residents  Tokyo’s population figures and birth rate are are enjoying a surge in migration from increased 32% to 498,000, for a total continually beating expectations. Immigration outlying regions. Tokyo’s 23-ward gain of 121,000 people – the highest could further support growth, depending on policy. MAP 1

Major growth drivers and characteristics  Supply and demand analysis indicates that Tokyo’s leasing market is in equilibrium, and supports further gradual rental growth.

 NORTH • Typically sees lowest new supply  Future large-scale supply is heavily focused • Contains Tokyo's second-largest commuter hub (Ikebukuro) and borders the largest (Shinjuku) on the bay area, with many tower condo projects • Popular with students due to university proximity planned in Chuo, Minato, , and Koto.  WEST  EAST • Highest concentration of apts <30 sq m • Infrastructure development along Tokyo Bay • Second-most popular area for young migrants • Highest fertility rates in Tokyo (after South) • Possibility of integrated resort in early 2020s Chiyoda • Trendy neighbourhoods on Chuo Main Line • Most affordable area in Tokyo by sq m Tokyo Station

Shibuya Chuo  CENTRAL (C5W) • WealthiestMinato area, driving demand for luxury • Highest level of both income and income growth • Highest level of population growth in % terms • Heavily developed; new supply limited

 SOUTH • Highest income growth outside of C5W • Contains 3 of the 4 top wards by net migration among youth • Easy access to both Tokyo and Yokohama

Source: Savills Research & Consultancy

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GRAPH 1 Population growth in Tokyo by ward, 2000–2015

Size : 2015 population Colour: % change since 2000

58,406 62%

Source: Tokyo Metropolitan Government, Tableau, Savills Research & Consultancy by-ward increase in the 23W area, GRAPH 2 and close to the current population Net migration by submarket, 2000–2014 of Chuo.

80,000 Recent migrants are All submarkets benefitting from urbanisation young… 70,000 On the whole, these new migrants 60,000 are beginning their prime working 50,000 years. Over 90% of recent migrants are under 30 years old, and almost 40,000 all fall between the ages of 15 to 30,000 64, which the government classifies Net migration, people as working age. Meanwhile, there 20,000 is a consistent net outflow of very 10,000 young children and retirees from the 23W, meaning that urbanisation 0 continuously rebalances Tokyo toward working age. 2000-04 2005-09 2010-14 2000-04 2005-09 2010-14 2000-04 2005-09 2010-14 2000-04 2005-09 2010-14 2000-04 2005-09 2010-14 C5W South West North East

…and they favour the C5W Chiyoda, Chuo, Shinjuku, Minato, Shibuya peripheral wards South , Meguro, Shinagawa, Ota Setagaya, Ota, and Suginami are the West Nerima, Suginami, Nakano largest receiver wards for the young, North Toshima, Bunkyo, Itabashi, Kita likely due to their combination of East Taito, Sumida, Koto, Arakawa, Adachi, Katsushika, Edogawa convenience and affordability. The Source: Tokyo Metropolitan Government, Savills Research & Consultancy

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GRAPH 3 twenty-something cohort appears to Net migration, top ten wards, 2000–2014 be largely priced out of the C5W area – especially Chiyoda, which has only received 2,000 new young migrants 70,000 since 2014 due to its high prices and

60,000 low availability.

50,000 Redevelopment-driven growth 40,000 Looking ahead, it is possible that the

30,000 geographical distribution of migrants may evolve with Tokyo’s changing Netmigration, people 20,000 economic landscape. For example, infrastructure and transportation 10,000 development in Koto and Chuo along

0 the man-made islands in Tokyo Bay has supported population growth in those areas. Tokyo’s eastern districts may receive an additional economic Source: Tokyo Metropolitan Government, Savills Research & Consultancy jolt if Odaiba is selected to host a new, large-scale integrated resort (IR) GRAPH 4 development. An Odaiba IR would Net migration by age, 2014–2016 likely draw its employee base from eastern Tokyo, increasing housing demand in the area. 250,000 Other development projects may also 200,000 increase housing demand in select spots around Tokyo. For example, 150,000 Mori Building has been hard at work revitalising the Toranomon area

100,000 since the company broke ground on Toranomon Hills Mori Tower in 2011. Other plans for the area include an 50,000 Netmigration, people entirely new metro station on the Hibiya Line, the first new Tokyo 0 metro station in 30 years. JR East also intends to open a new station -50,000 <20 years old 20-29 30-64 >64 in Shinagawa on the Yamanote Line, which will be the first new Source: Ministry of Internal Affairs, Savills Research & Consultancy stop added to Tokyo’s central loop line in half a century. Infrastructure GRAPH 5 improvements continue around Net inflow by ward of 20-29 year olds, 2014–2016 Shinjuku and Shibuya stations, and Shibuya has rapidly become a business hub for Tokyo’s IT sector. 18,000 Such neighbourhood-specific trends 16,000 should add to housing demand in 14,000 their surrounding areas.

12,000 Population forecasts 10,000 have been revised 8,000 upward No.of migrants 6,000 Urbanisation should continue to drive population growth over the medium 4,000 term. The Tokyo Metropolitan 2,000 Government forecasts continuous

0 population increases in the 23W area through 2030, based on 2015 census figures. This has been revised upward since their estimate based Source: Tokyo Metropolitan Government, Savills Research & Consultancy on the 2010 census. The government

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cites stronger-than-expected GRAPH 6 migration, as well as an uptick in the Tokyo population forecast, 2005–2040F birth rate, as primary drivers for the revision. 2015 census estimate 2010 census estimate Immigration case 15

Increased global Tokyo Prefecture +Immigration case workforce? 14 There is of course significant room +Urbanisation for further deviation from this 13 forecast. One remote but increasingly 12 discussed source of upside potential is a rise in global talent. Japan has 11 historically maintained strict limits on people Million +Immigration case the amount of long-term residents it 10 admits. Only about 3.6% of Tokyo’s 23 Wards +Urbanisation population is foreign-born, though 9 this is up from 2.8% in 2005. This is nevertheless still below the double- 8 2005 2010 2015 2020 2025 2030 2035 2040 digit percentages in many other Source: Tokyo Metropolitan Government, Savills Research & Consultancy major global cities. Though there Immigration case derived from Savills forecast model. is still strong political resistance to open borders, overseas talent GRAPH 7 has increasingly been floated as a Average household size, 1995–2035F potential solution to the country’s long-term demographic issues, Tokyo Prefecture 23W especially for skilled labour. 2.50 2.40 A greater international workforce 2.30 in Tokyo could extend population growth by a decade or more. If the 2.20 share of overseas residents in Tokyo 2.10 gradually increases from 3% to 10% 2.00 from 2020 to 2040, as modelled in Graph 2’s “Immigration case”, the 1.90

urban population could continue to Personsper household 1.80 grow well into the late 2030s and 1.70 have a strong positive impact on housing demand. 1.60 1.50 Household sizes 1995 2000 2005 2010 2015 2020F 2025F 2030F 2035F shrinking… Source: Tokyo Metropolitan Government, Savills Research & Consultancy Other socioeconomic factors are changing the shape of Tokyo’s GRAPH 8 housing market. As in other Share of housing stock by unit size, 2013 developed countries, young <30 sq m 30-69 sq m 70+ sq m Tokyoites are marrying later, and Nakano more are choosing to forego marriage Shinjuku Toshima altogether. The average household Suginami size in Tokyo’s 23 wards has Bunkyo Shibuya consequently fallen from 2.13 in 2000 Ota Shinagawa to 1.93 as of the end of 2016, and Setagaya forecasted to reach 1.82 by 2030. Meguro Itabashi Single-person households in Tokyo Sumida Prefecture have risen from 41% of Chiyoda Kita total households in 2000 to 47% Nerima Taito in 2015, according to government Chuo analysis. Edogawa Koto Minato Arakawa Smaller households are likely to drive Adachi continuing increased demand for Katsushika smaller units, and studios and one- 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% bedroom layouts will likely continue Source: Tokyo Metropolitan Government, Savills Research & Consultancy

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to dominate. The average size of a GRAPH 9 for-lease, mid-market unit in the 23 Fertility rates by ward, top ten wards, 2000–2015 wards was 30.1 sq m in Q4/2016, down marginally from 31.9 sq m at the end of 2012. 2015 2000 2.0

Units of 30 sq m or less already make 1.8 up a larger share of housing stock 1.6 in Tokyo’s northern and western 1.4 wards than they do in other areas. Minato and Chiyoda meanwhile 1.2 have much larger unit sizes despite 1.0 being located in the city centre. This 0.8 is likely due to their prevalence of 0.6 luxury neighbourhoods. Births per residents per thousand Births 0.4

This drop in household size, coupled 0.2 with Tokyo’s increasing population, 0.0 has resulted in even greater household growth than population growth. The number of registered households in the 23W area has Source: Tokyo Bureau of Social Welfare and Public Health, Savills Research & Consultancy risen a full 29% since 2000 and may continue to rise for some time even MAP 2 as population growth levels off over Nominal wage growth by ward, FY2010–FY2016 the long term. …and fertility rate increasing Despite this drop in household size, fertility rates have climbed since the year 2000. The 23W area’s average fertility rate was exactly 1.00 births in 2000; this figure hasclimbed back to 1.22 in 2015. According to the World Bank, Japan’s national fertility rate of 1.49 is higher than those of many other developed economies, including Korea (1.21), Hong Kong (1.23), Singapore (1.25), Italy (1.39), and Germany (1.39). The UN forecasts continued increases in Japan’s national fertility rate to at least 1.80 through 2050. This increased fertility rate will help stabilise Tokyo’s population over the long term.

In 2015, Minato and Chuo saw both the highest fertility rates in the 23W area and also the largest increases since 2000 [Graph 9]. The chart is Top 5 wards ∆% otherwise dominated by Tokyo’s Shibuya 20% eastern submarket. It is possible that Chiyoda 19% increased fertility rates could lead to Minato 18% a modest increased in demand for Chuo 14% family-oriented housing. Shinagawa 13% Tokyoites are wealthier, driving demand for quality Source: Ministry of Internal Affairs, Tableau, Savills Research & Consultancy Income levels are also driving changes in housing demand. Real

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TABLE 1 Summary of changing demand factors

Factor Demand impact Likelihood Impact magnitude

Continued net migration of youth Higher demand for economical units in outlying wards Very high High

Decreased persons per household Higher demand for smaller units Very high Low

Wage growth Rental increases, higher demand for unit quality High Moderate

Increased global workforce Higher aggregate demand for high-quality units High Moderate

Integrated Resorts in Odaiba Higher demand in eastern wards Moderate Moderate

Source: Savills Research & Consultancy wages have increased modestly GRAPH 10 and, overall income levels (including Ratio of housing stock to registered households, Tokyo 23W non-wage income) have increased overall. Based on analysis of taxable income per taxpayer, nine of Tokyo’s Housing stock Registered households 6,000,000 23 wards saw double-digit increases 1.14x in average income between 2010 and 2016. 5,000,000

1.13x Wage growth has been noticeably 4,000,000 stronger in Tokyo’s C5W and their immediate neighbours. We would 3,000,000 expect this rise to lead to increased demand for higher quality housing 2,000,000 across the 23W area, especially in the central districts. Rental data also 1,000,000 supports the trend. Growth in the

C5W area has outpaced growth in 0 the periphery, and luxury residential 1993 2013 rents have recovered particularly Source: Tokyo Metropolitan Government, Savills Research & Consultancy well. Supply and demand in GRAPH 11 equilibrium; gradual Housing supply and demand balance in the 23W, 2001–2016 growth should continue

In Tokyo’s central 23 Wards, Accumulated surplus Housing supply Housing demand housing supply trends have largely 160 followed demand since the turn of the century. The stock of physical 140 domiciles tracks very closely with 120 the number of registered households in the city. 100

80 To maintain this ratio, we would expect a long-term equilibrium level 60 of new supply in the 23W area to Domiciles, thousands roughly equal 1.14x demand plus 40 demolitions. 20

Graph 11 demonstrates that new 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 supply outpaced demand during ∆Surplus = Supply – Demand the run up to the financial crisis. Supply = New housing starts New supply fell below household Demand = (1.14 x Household growth) + Estimated net demolitions Source: Tokyo Metropolitan Government, Fujitsu Research Institute, Savills Research & Consultancy

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growth after the crisis, reducing the GRAPH 12 estimated housing surplus to a more Share of housing starts by submarket, 2000-2015 reasonable level. Supply began to outpace demand again after C5W South West North East the 2011 earthquake, but quickly 100% plateaued at just above 100,000 90% domiciles per year, giving demand a chance to catch up. Overall, the 80% supply-demand balance appears to 70% be in relative equilibrium. 60%

Finally, a study of new housing starts 50% by submarket shows that the share Housing starts 40% of new supply going to each ward 30% has not appreciably changed since 20% the turn of the century. New supply in the C5W area tends to vary with 10% the business cycle, but supply in 0% almost all other areas has remained 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 relatively stable. Source: Tokyo Metropolitan Government, Savills Research & Consultancy

MAP 3 Planned tower condo units in the 23W, 2017 and beyond

Adachi 1.3K Itabashi Kita 1.7K 540 Katsushika 1.8K Toshima 1.9K Bunkyo 578 Taito Nakano 1.1K 622 Shinjuku Suginami 6.4K Edogawa 300 Chiyoda 488 1.7K

Shibuya Chuo 1.7K 14.7K Koto 3.7K Minato Setagaya 9.6K 500

Shinagawa 7.1K

Buildings of 20+ storeys Source: Real Estate Economic Institute, Tableau, Savills Research & Consultancy

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TABLE 2 Planned skyscraper residential buildings, 2017 and beyond

Name Location Storeys Units Completion*

Nishi-Shinjuku Project Shinjuku 65 x 2 3,200 2026

Toranomon-Azabudai Project Minato 65, 63, 53 1,300 2022

The Parkhouse Nishi-Shinjuku Tower 60 Shinjuku 60 976 2017

Kachidoki East District Development Chuo 58, 45, 29 3,120 2027

Tsukishima 3 Project Chuo 58 1,135 TBD

Harumi 5 Project Chuo 56 x 2 2,650 2024

Toyomi 5 Project Chuo 56 x 2 2,150 2025

Atagosan Area Project Minato 56 600 2020

Kachidoki 2 Project Chuo 53 x 2 2,160 TBD

Toyosu 1-1 Development Koto 50 1,200 2021

Oshima 3-1 Project Koto 50 750 2022

Buildings of 50+ storeys *Subject to change. Some projects may partially complete earlier. Source: Real Estate Economic Institute, Savills Research & Consultancy

That being said, a number of new, surrounding Tokyo Bay. Chuo alone Given that much of this supply is high-profile housing developments accounts for 14,700 units, while coming in the form of luxury condos, are on the horizon. The Real Estate most of the remainder is spread developers may need to rely on Economic Institute, a think tank, between Minato, Shinagawa, some overseas buyers to move reports that there are currently Shinjuku, and Koto. The bay area units.  124 condo towers of 20 floors or typically sees a higher concentration greater planned in the 23W area of tower rooms due to the high cost for a total of 55,500 units. Much of of land acquisition. this is coming online in the wards

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OUTLOOK The prospects for the market

As Tokyo proceeds into the mid- Shibuya looks to be undergoing and gradual rental growth. 21st century, certain demand especially rapid change. Large office Though some large projects may trends have become more visible and retail redevelopments are re- temporarily disrupt their immediate in its housing market. establishing it as a major business neighbourhoods, especially along and shopping centre with large Tokyo Bay, we expect this growth A constant flow of young people footfall, and the area is attracting very trend to continue into the future. into the city, especially its high demand from the fast-growing western and southern wards, tech industry. Such a transformation The growing diversity of Tokyo’s has continuously rebalanced is likely to galvanise Shibuya’s neighbourhoods, as well as Tokyo’s population toward already-popular housing market. continuous infrastructure working age. Eastern wards are improvement through 2020 and characterised by more family- A cultural shift toward later marriages beyond, should give residential friendly environments, with more and more independence is causing investors a full suite of options into affordable rents per sq m and a gradual increase in single-person the future. larger unit sizes. The C5W area households, and as such smaller continues to exhibit high rents and unit sizes are growing relatively more quality property. The C5W has popular across the city. Tokyo’s moreover seen the bulk of Tokyo’s population is expected to grow for at income growth over the past half least the next 15 years, though higher decade, which may drive even fertility rates and new immigration more demand for luxury property. could extend this even farther.

Condo prices have reached new Tokyo’s overall supply and demand cyclical highs, which appears to has hovered close to equilibrium be pushing more people toward for several years and looks unlikely leasing, at least until the trend to change in the near future, flips. encouraging steady occupancy

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