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- Average 1F rental growth in Tokyo has decreased in 2H/2020, with Omotesando seeing a notable decline. The market may see further correction as rents remain somewhat inflated by the increase in the number of prime-location listings that have come onto the market during the pandemic.
- Regional rental performance was similar to that of Tokyo, with rents seeing a drop from the previous half year.
- Transaction volumes in 2020 were around half of 2019 levels. However, we expect to see more transactions this year stemming from increased corporate real estate disposals.
- The polarisation between the winners and losers is increasing. Prime assets remain popular in both transaction and leasing, whereas retail assets selling consumer discretionary goods have been greatly damaged.
- Pandemic-induced changes in demographic and consumer lifestyles make suburban retail with solid revenues more attractive.
- The number of mixed-use buildings is likely to increase as these assets are able to meet the evolving and diversified demand of end-users.
- The slow pace of vaccinations suggests that these paradigm shifts observed in the retail sector are likely to linger.
- The increasing success within the logistics space may encourage speculative investors to target well-located general merchandise stores (GMS) in the hope of repurposing under zoning changes. These assets are located in advantageous areas for logistic facility development due to their high accessibility to customers and workers.
Greater polarisation emerging
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The pandemic has caused rents to correct and led to a further polarisation between winners and losers. Prime assets remain sought after, however, and demographic and lifestyle changes appear to have strengthened the investment appeal of suburban outlets with strong revenue streams. Looking ahead, we are likely to see more mixed-use developments to meet the more diversified demand of end users. Given the slow pace of vaccinations, these changes to traditional shopping patterns are likely to linger.
Savills Research & Consultancy