Japan Freight and Logistics Market - Growth, Trends, COVID-19 Impact, and Forecasts (2022 - 2027)

Japan Freight and Logistics Market - Growth, Trends, COVID-19 Impact, and Forecasts (2022 - 2027)

The Freight and logistics market in Japan is expected to witness a CAGR of more than 4% through the forecast period.

The logistics sector continues to be a stand-out performer, with rents growing and vacancy remaining low. Record numbers of completions will arrive on the market in 2022 and 2023 – such is the confidence in the sector. However, the windfall effect from the pandemic is approaching an end and margins are set to tighten among logistics firms, threatening the pace of rental growth going forward.

The vacancy rate for Large Multi-Tenant (LMT) logistics facilities in Greater Tokyo fell by 0.3 points q-o-q to 4.4% in Q2 2022, as scant new supply was outstripped by solid net absorption. Tenant demand remained firm, but leasing momentum slowed. Effective rents remained unchanged from the previous quarter at JPY 4,520 per tsubo.The LMT vacancy rate in Greater Osaka remained unchanged from the previous quarter at 2.1%. Effective rents rose by 0.2% q-o-q to JPY 4,120 per tsubo as a total lack of vacancies in central Osaka underpinned strong rent rises in the area.The LMT vacancy rate in Greater Nagoya surged by 8.2 points q-o-q to 12.8%. While this was largely due to the record-breaking new supply of 150,000 tsubo, demand remained steady. Effective rents were unchanged from the previous quarter at JPY 3,590 per tsubo.The LMT vacancy rate in Greater Fukuoka remained at 0.0% in Q2 2022. Pre-leasing progressed well for projects in newly developed areas, and effective rents rose by 1.2% q-o-q to JPY 3,300 per tsubo.

Logistics real estate has maintained its popularity, and cap rates have compressed even further as more capital has been poured into the sector. Leasing markets have also fared well despite the rapidly growing supply over the past few years. However, potential risks have started to emerge as fierce competition for acquisitions continues.

Key Market TrendsRise In E-commerce sector is Driving The Market

increase in internet penetration with strong growth in the infrastructure network. Japan’s developed economy and high urban population are the key factors that make the country attractive to online retailers.

E-commerce retailers enjoy several benefits in Japan, such as tech-savvy consumers and a single language used by consumers all across the country. Along with this, the country has higher online shopping spending in the summers and during this period Japanese firms offer yearly summer bonuses to their employees. According to export.gov, average worker bonuses account for around USD 3,000 and the spending of this bonus amount is primarily focused on leisure, luxury goods, and travel. Cross-border e-commerce is projected to provide Japanese companies with significant market opportunities in China. The factors that will boost the e-commerce trade between China and Japan are the cooperation of e-commerce platform businesses and a Japan-China logistics partnership. Chinese Academy of International Trade and Economic Cooperation (CAITEC) suggested that Japan-China logistics partnerships can assist both the countries in expanding their distribution volumes using chartered flights and establishing cross border electronic logistics warehouses.

Storage Infrastructures Increases as Demand Increases is also Driving the Market

Average asking rents in the Greater Tokyo area have seen the largest increase since early 2020. Rents currently stand at JPY4,620 per tsubo (a Japanese unit of area equal to 35.58 square feet), having increased 4.8% YoY. Some of this rental growth was attributed to the tight supply and high demand in the market. However, this phase of tight supply in the sector is likely to approach an end, consequently slowing the strong rental growth seen at present.

Firstly, the massive supply forecast for 2022 and 2023 will introduce greater competition into the market, and owners will have to price rents reasonably in order to attract tenants. Furthermore, while the pandemic contributed to the boom in e-commerce over the past two years and has greatly helped to boost the demand for logistics facilities, it is uncertain if the same growth can be expected once the pandemic calms down, as some return toward brick-and-mortar stores is likely to occur.

Like Greater Tokyo, Greater Osaka also saw record amount of supply enter the market. However, the demand in Greater Osaka exceeded the new supply, and vacancy rates were compressed even further - shrinking 1.3ppts YoY to 1.5%. Pre-leasing activity has been strong, and many facilities are already fully occupied upon coming to the market.

In Greater Tokyo, a record amount of supply was seen in 2021. The second half of the year added more than 1.7 million sq m of new space into the market, bringing the total supply in the year to over 3.0 million sq m. GLP was a major contributor to this, adding three large logistics facilities with GFAs totalling almost 600,000 sq m.

The largest addition was the GLP ALFALINK Sagamihara I, which had a GFA of 300,000 sq m, and was the first of five buildings planned in Sagamihara under its ALFALINK brand. e, in Aichi, the tentatively named Nagoya Iwatsuka logistics centre planned in 2023 will have a GFA of more than 350,000 sq m to become one of the largest in the region so far. Daiwa House will also introduce three logistics facilities in Aichi between 2022 and 2023: DPL Meiko-Yatomi I & II, and DPL Komaki, which will add a total of more than 450,000 sq m of GFA.

. For instance, in the second half of 2021, Nippon Steel Kowa announced the construction of a new logistics facility with more than 200,000 sq m of GFA (gross floor area) – more than twice as large as its current largest development that was completed in 2021.

Competitive Landscape

The Japanese freight and logistics market is fragmented in nature, with a mix of global and regional players. The market is expected to grow during the forecast period due to several factors such as e-commerce, technology integration, and growing economies. The major companies in the country have adopted various modern technologies, such as warehousing management systems, automation, drone delivery, and the transportation management system, which has enabled better planning and tracking facilities, resulting in increased productivity and increased value proposition. Some of the major Players Include NNR Global Logistics, SAGAWA Global Logistics, Kokusai Express, Deutsche Post DHL Group, and HAVI Logistics & Supply Chain etc.,

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