Q2 2024 July 2024
Tokyo Retail Market Summary
Rent growth decelerates but ground-floor rents continue to renew record highs in both Ginza and Omotesando
Economy
The assessment of consumer confidence in June was unchanged at “improvement has stalled,” as the index recovered for the first time in three months with mixed movements by subindices. However, luxury goods sales at department stores in Tokyo continued to register strong growth (+43% y-o-y in May 2024 and +101% compared to February 2019), with sales supported in part by recovering foreign visitor arrivals.
Demand and Supply
Demand for prime retail space continued to come from major international luxury brands in 2Q24. Notable new openings in 2Q24 included Boucheron in Omotesando Hills alongside Omotesando and Jo Malone London and Zenith at the Tokyu Plaza Harajuku-Harakado at the crossing of Omotesando and Meiji-dori
On a corner lot fronting the intersection of the prime street Omotesando and Meiji-dori, Tokyu Plaza Harajuku-Harakado opened in April. With
Sales
Source: METI, JLL, Q2 2024
ground floor retailers including the abovementioned, the retail facility with nine storeys above ground will offer prime retail space of GFA 20,000 sqm.
Alongside the prime street of Ginza Chuo-dori, Ginza 8-chome 9-11, 12 Project (tentative name) is scheduled for construction to start in October 2024. A retail building with 14 storeys above ground will offer prime space of GFA 5,600 sqm upon completion in December 2024.
Prime retail areas are seeing interest increasing from various investor attributes
Asset Performance
Rents in Tokyo’s Prime retail market reached JPY 94,683 per tsubo, per month in 2Q24, increasing 3.4% q-o-q and 16.1% y-o-y. Rent growth decelerated, but ground-floor rents continued to renew record highs in both Ginza and Omotesando, commanding a unit rent of JPY 325,000 and JPY 290,000 per tsubo per month, respectively.
Capital values also continued to grow in 2Q24, increasing 4.3% q-o-q and 19.2% y-o-y. The increase reflected healthy growth in rents, as cap rates remained stable. Notable transactions in the quarter included Union Investment Real Estate’s sale of J6 Front, located alongside Meiji-dori on the fringes of Omotesando and acquired by Toyota Fudosan.
Investment Volume
The retail direct investment volume in the special wards of Tokyo totalled JPY 18.3 billion in 2Q24, decreasing 86.9% q-o-q and 82.1% y-o-y. In 1H24, direct investment totalled JPY 158.0 billion, increasing 258.8% h-o-h and 9.0% y-o-y.
Outlook
In Oxford Economics’ outlook from June 2024, private consumption for 2024 was revised downwards to -0.2%, reflecting recovery from the one-off impact of auto production and the easing of the strain from cost-push inflation in the latter half of the year.
In the leasing market, rents are expected to grow over the next 12 months, albeit at a slower pace, driven by demand from international retailers who were encouraged by the strong sales of luxury goods.
In the investment market, capital value growth is expected to reflect rent growth. In addition, with prime retail market activity expected to recover gradually from a mix of investor attributes, cap rates might be placed under downward pressure and add momentum to capital value growth.
Key Performance Indicators
Occupational market
Source: JLL, Q2 2024
Note 1: Rents refer to Tokyo’s prime retail markets of Ginza and Omotesando
Note 2: Property clock based on rents for prime retail space.
Note 3: Investment volume refers to special wards of Tokyo’s retail direct commercial real estate investment volume.
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