- Average 1F rents in Tokyo increased in 1H/2023, while vacancy has contracted across most submarkets, driven largely by demand from inbound tourists and a growing willingness from locals to patronise brick-and-mortar stores again.
- In regional markets, average 1F rents have remained flat, although they are still at peak levels, indicating that demand remains sound.
- Investment volumes in Q3/2023 already mirrored those of the same period in 2022 even before factoring in the colossal Seibu and Sogo transaction, and the overall momentum looks strong.
- The luxury sector continues to perform well and used luxury stores have similarly grown in popularity.
- Businesses catering to inbound tourism and the food and beverage (F&B) industry struggled during the pandemic but are re-emerging, contributing to the sector’s overall strength.
- The pandemic has undeniably altered behaviours and perceptions, particularly with its contribution towards the rise of e-commerce. As such, the retail industry has been shifting further towards prioritising in-person experiences and optimising floor usage.
- The retail market continues to recover, supported by the overall economic recovery and the resurgence of inbound tourism. However, challenges such as labour shortages and rising costs are putting pressure on store operations and may dampen the positive sentiment.
Retail continues to recover, but persistent challenges warrant a cautious view
Japan’s retail sector is experiencing a notable resurgence, with areas that typically cater more towards inbound tourists seeing greater interest among potential tenants for new store openings. Despite the recovery, factors such as rising material and energy costs, on top of labour shortages, may continue to present hurdles for retail operators. As such, while the overall momentum in the sector looks favourable, observers may need to keep an eye on rental levels moving forward.
Savills Research & Consultancy