Savills World Research Japan Spotlight Japan retail May 2018 savills.com.jp/research Spotlight | Japan retail May 2018 Savills World Research Japan Spotlight Japan retail May 2018 Spotlight Japan retail savills.com.jp/research “Positive macro conditions such as growing tourism and a mild uptick in consumer SUMMARY confidence appear to be improving retail rents in some submarkets. Investment interest, Tokyo’s average 1F retail rent has generally remained stable since 2016. notably in Japanese prime retail assets as core assets, remains strong, leading to further cap Non-1F rents continue their steady trend upward. rate compression.” 1F Ginza rents have improved 14.1% YoY, Tokyo submarket rents Ginza 1F rents sat at JPY58,100 possibly due to increasing overseas tourist expenditures and positive luxury product sales. According to a semi-annual survey per tsubo, remaining the highest by Japan Real Estate Institute (JREI) among the surveyed submarkets. 1F rents in Ginza grew 14.1% YoY Consumer confidence is mildly improving and BAC Urban Projects, Tokyo’s while non-1F rents fell 1.0% YoY. 1F with high-income households seeing the largest retail rents have on average held rents in Ginza had been declining improvement. fairly steady since 2016. Non-1F since 1H/2015, concurrent with a rents continue their steady march decrease in average spending per Drugstores and daily goods stores sales upward as 1F rents edged up year- overseas tourist. As discussed later continued to increase in 2017, growing 5.8% YoY. on-year (YoY), although with diverged in this report, the spending decline performance between submarkets. has halted and total shopping Investment volumes in retail have increased to The largest growth was seen in expenditures by overseas tourists JPY771 billion in 2017. Q1/2018 has not seen many Ginza, which could be resulting have been increasing due to the transactions because of limited opportunities, but from consistently strong tourism growing number of visitors. Luxury investment interest appears to remain sound. and improving luxury retail sales. retail sales are also on the rise, which The opening of Ginza Six is also may have contributed to the rental increasing footfall in the submarket. increases. Furthermore, Ginza Six On the other hand, a slowdown of appears to have had a solid first year, fast fashion might have led to store and it is expected to reach its goals, closures in some submarkets. namely 20 million visitors and JPY60 GRAPH 1 GRAPH 2 Tokyo 1F rents, 2008 – 2H/2017 Tokyo non-1F rents, 2008–2H/2017 Ginza 1F Omotesando 1F Shinjuku 1F Shibuya 1F Average asking rent: 1F Ginza Non-1F Omotesando Non-1F 90 Shinjuku Non-1F Shibuya Non-1F Average asking rent: Non-1F 80 45 70 40 60 35 30 50 25 40 20 30 Thousand/ tsubo JPY 15 20 Thousand tsubo JPY / 10 10 5 0 0 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: JREI, BAC Urban Projects, Savills Research & Consultancy Source: JREI, BAC Urban Projects, Savills Research & Consultancy savills.com.jp/research 02 Spotlight | Japan retail May 2018 billion in sales. Considering these YoY to JPY22,200. According to JREI, shopping expenditures by overseas positive factors, the rental growth in reconstruction of existing buildings is tourists increased by JPY214 billion, Q1 could be the beginning of another tightening vacancy, thereby resulting or 15% YoY, to JPY1.6 trillion. While gradual upward trend. in rental increases. Although 1F rents Chinese tourists account for over decreased 29.5% YoY to JPY19,800 50% of the spending, expenditures by 1F rents in Omotesando/Harajuku in Shinsaibashi, an abnormally large tourists from other countries also saw rose 7.7% YoY to JPY48,900 per decline in Q3 affected the 2H average. a rapid increase of JPY119 billion yen tsubo while non-1F rents fell 1.7% In Q4, 1F rents rebounded to around or 19% YoY. Notably, Korean tourist YoY to JPY28,700 per tsubo. While JPY24,000, and top rents along spending increased by about JPY40 apparel stores such as Forever 21 Midosuji and Shinsaibashisuji appear billion, or 40% YoY, due to increased and Harajuku’s iconic Spinns closed, to remain stable. It also appears that visitation. new stores continue to open in the the limited sample size is making area. Tenant movements are rapid as the trend look volatile. Although the The shift in tourist spending from many lease spaces for a short period Mikigakki Shinsaibashi Building is luxury goods to daily necessities such of time for advertising purposes. currently closed for reconstruction, as cosmetics and health products For example, after Urban Research it is scheduled to reopen in autumn appears to be responsible for closed its Harajuku store, the 2018 and will house Mikigakki stores decreases in shopping expenditure space was used as a pop-up store and GAP. With the opening of the new per person, as unit prices are low. by Jack & Marie, a lifestyle brand Daimaru Shinsaibashi Main Tower in newly launched by automotive parts 2019, as well as the opening of Parco company Autobacs. The Harajuku and W Osaka, a luxury Marriott hotel, GRAPH 3 Takara Estate Building, which housed planned for 2021, the dynamism of 1F rents in retail districts of regional Forever 21 until October 2017, is the area, which is currently dominated cities, 2008 – 2017 currently under renovation. by drugstore openings, might change. Nikkei has recently reported Louis Shinsaibashi 1F Nagoya Sakae 1F Sendai 1F Fukuoka Tenjin 1F In Shinjuku and Shibuya, 1F rents Vuitton’s plan to build a B1/7F retail Sapporo 1F Average asking rent 1F declined 18.8% to JPY35,400 and building by November 2019 on a 35 4.8% to JPY33,500 YoY, respectively. vacant site next to Prada. 30 However, the rental declines can be largely explained by a decrease Although growing e-commerce 25 in survey samples. Vacancy is tight is a threat especially for regional 20 and there appears to be limited retail stores, as discussed in the availability in high-rent areas. Since previous retail report, the impact 15 these areas are popular destinations from e-commerce appears to have 10 among overseas tourists, expanding been limited due to constraints Thousand tsubo JPY / tourism should benefit the submarkets. such as a labour shortage in the 5 According to a 2016 survey by the logistics industry, a relatively older conservative Japanese population, and 0 Tokyo Metropolitan Government, 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H comparatively low credit card usage. In Shinjuku is the most visited ward in 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Japan, retail space per person is about Tokyo while Shibuya is in fourth place: half of that in the U.S. and Japanese Source: JREI, BAC Urban Projects, Savills Research & Consultancy 57% and 44% of inbound tourists regional malls mainly function as coming to Tokyo visit Shinjuku and supermarkets selling fresh food as GRAPH 4 Shibuya, respectively. Although the opposed to department stores in the Overseas tourist shopping expenditure, old GAP site in Shibuya is yet to find a U.S., which also mitigates the impact 2014 – 2017 tenant, Louis Vuitton opened a pop-up from growing e-commerce – which store in April that featured Kim Jones’ has had little influence in the fresh China Other Per Person Fall-Winter 2018 Men’s Precollection food sector so far. Enhancing in-store 500 80,000 on the site, highlighting the area’s 450 experience, especially in regions 70,000 Shopping expenditure per person Shopping per expenditure attractiveness. lacking in entertainment venues, 400 should also help as consumers 60,000 350 Regional cities increasingly value experience over 50,000 Overall, regional 1F rents have not material goods. 300 been performing well. The average 1F 250 40,000 rent across prime districts outside of Inbound tourism 200 30,000 Tokyo sat at JPY19,483 based on the Although a rapid increase of Chinese 150 latest survey, down 8.3% YoY. On the tourist spending due to “bakugai” 20,000 100 other hand, non-1F rents registered (“explosive buying”) abruptly ended billion) Shopping (JPY expenditure 10,000 positive growth of 1.6% YoY to in 2015, expanding tourism continues 50 JPY12,617. to have a large positive impact on 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 the Japanese retail sector as total 2014 2015 2016 2017 At the submarket level, 1F rents in expenditures by overseas tourists Tenjin saw positive growth of 15% are steadily growing. In 2017, total Source: Japan Tourism Agency, Savills Research & Consultancy savills.com.jp/research 03 Spotlight | Japan retail May 2018 Unlike the short-lived shopping sprees GRAPH 5 surrounding certain electronics and Overseas tourists to Tokyo and Osaka, 2006 – 2017 luxury items, however, the popularity of daily necessities is likely to be more sustainable. According to the Ministry Tokyo Osaka 16,000 of Economy, Trade, and Industry (METI), drugstore sales nationwide in 14,000 2017 have grown 5.8% from 2016. 12,000 Food and cosmetics have led the growth, increasing sales by 8.7% 10,000 and 6.8%, respectively. Additionally, 8,000 according to the Japan Department Store Association (JDSA), duty-free Thousand visitors 6,000 sales at department stores have 4,000 soared to JPY270 billion in 2017, a whopping 46% growth YoY.