Retail leasing demand in the world’s leading retail markets continues to rebound as economic activity recovers in the wake of the COVID-19 pandemic. The Tokyo retail market is no exception, with a resurgence in retailer demand having commenced in H2 2022.
In addition to existing retailers looking to increase their store numbers, several overseas brands have made their first ventures into the Japanese market. As was the case prior to the pandemic, Tokyo continues to be a preferred location for retailers seeking to establish or extend their store presence.
This report compares Tokyo with several of the world’s other major retail markets including New York, London, Paris, Milan, Shanghai, Hong Kong, and Singapore and explores the following factors that make Tokyo, and Japan as a whole, an attractive location for retailers to establish stores.
Tokyo: Rents are reasonable when compared to city GDP Japan: E-commerce ratio as a percentage of total retail sales is low Japan: Inbound tourist numbers and tourist consumption have demonstrated considerable scope for growth
Accelerating Positive Impact in the Real Estate Sector for a Net Zero Future
Companies around the world are stepping up on their efforts to decarbonise their business, and countries are setting national targets to reach net zero under the Paris Agreement. As APAC’s largest real asset manager powered by the New Economy and the third largest listed real estate investment manager globally, ESR Group Limited (“ESR” or “Group”) places top priority on its transition to become a net zero organisation.
Climate Emergency and the Era of Global Boiling
Recent climate events – extreme heatwaves and devastating floods – are occurring globally and this highlights the urgent need for concerted climate action. Instead of focusing on this urgency, some countries are shifting their focus to address energy security as a result of external headwinds such as economic recession, supply chain disruptions, and geopolitical tensions. The disparity between the current climate crisis and inadequate actions has resulted in global greenhouse gas (“GHG”) emissions reaching an all-time high this year. This prompted the United Nations to warn that the era of global warming has ended, and the era of global boiling has arrived. To address the catastrophic impacts of climate change, ESR believes that immediate decarbonisation actions must be taken to transit to a net zero future.
Net Zero in the Real Estate Sector
The built environment is responsible for almost 40% of global energy related GHG emissions and the real estate sector could contribute to a positive impact. Achieving net zero depends on a myriad of factors such as the type of asset class, location, and condition of buildings, with a fit for purpose strategy. In developing a decarbonisation strategy, real estate owners and managers should consider their building portfolios, regulatory requirements, and the market availability of low-carbon technologies and solutions.
At a basic level, real estate companies should reduce their Scope 1 and 2 operational GHG emissions, which are normally associated with energy use from direct and indirect sources (e.g., on-site fuels and grid electricity). Specifically for developers and owners, GHG emissions across their value chain such as embodied carbon should also be considered. This includes tackling other forms of Scope 3 GHG emissions throughout the life cycle of a building (i.e., from design, construction, operation to demolition) and addressing tenants’ energy consumption within the portfolio.
After establishing the boundaries and sources of GHG emissions, companies should set realistic targets which are aligned to global standards such as SBTi , WorldGBC or RE100. However, companies must avoid setting underpromise or ambiguous net zero targets with misleading climate claims. Companies’ targets should be supported by robust performance data which are collected through the data management system to facilitate monitoring and reporting.
ESR’s Decarbonisation Approach
As part of its ESG 2030 Roadmap, ESR is on track to develop and announce its net zero commitment and strategy this year. This encompasses a carbon mitigation hierarchy approach which prioritises GHG emissions avoidance through low-carbon design and construction (i.e., minimise embodied carbon) and achieves energy efficiency through the asset enhancement initiatives and optimisation of operations (i.e., reduce operational carbon). These efforts will be complemented with the adoption of on-site renewable energy from sources such as solar or hydrogen to further reduce emissions. As of first half of 2023, close to 100 MW of rooftop solar power capacity has been installed across the Group’s global portfolio with approximately 39% of its assets being awarded with sustainability building certifications and ratings. Additional highlights include ESR leveraging on the rooftop space of its assets to provide renewable energy certificates for its customers. For more information, please refer to ESR’s ESG Report 2022.
Climate change has no boundaries and affects the current and future generations. The real estate sector could play a significant role in combating the climate change. However, fighting this uphill battle is a collective effort that requires everyone’s commitment, collaboration, and concerted actions. In accelerating a positive impact in the real estate sector, ESR will lead the way forward to a climate resilient future.
Asia Pacific Data Centre Update: H1 2023 (Cushman & Wakefield)
Asia Pacific is continuing to witness aggressive expansion across primary and secondary data centre markets with 9.7GW operational, 3.3GW under construction and 8.5GW in planned stages across the region.
The usual primary markets, Beijing, Hong Kong, Mumbai, Seoul, Shanghai, Sydney and Tokyo, continue to experience growth despite headwinds originating from a lack of land parcels and power availability. As a result, ancillary locations are being evaluated as part of expansion strategies. The moratorium’s cap on Singapore’s IT capacity has led to unmet demand in the market, which has spilt over into nearshore markets such as Johor, which is seeing a huge pipeline under development and commitments to land banks. Similarly, Greater Jakarta’s large pipeline is driven by its central geographic location in South-East Asia and the country’s immense population growth has sustained its appeal to major investors and operators.
Global cloud service providers (CSP) continue to show a marked interest in secondary markets across the region. Hyperscale CSPs have planned presence in the secondary markets of Auckland, Bangkok, Busan, Kuala Lumpur, Osaka, Pune and Taipei. The tendency for colocation operators, developers and investors to follow CSPs into new frontiers with their own data centre deployments will see secondary markets attract new players and witness rapid growth over the next few years.
The Asia Pacific data centre region is experiencing varying speeds of development and so, for the first time, we have introduced our Asia Pacific Data Centre Markets Maturity Index, to track the evolution of a number of notable markets each quarter. This report will delve into 12 notable markets: Tokyo, Mumbai, Sydney, Singapore, Seoul, Johor, Jakarta, Hong Kong, Manila, Bangkok, Auckland, and Ho Chi Minh City.
Trust the wait: India’s real estate investment story (JLL)
Institutional investors have continued to pose faith in the Indian real estate sector despite the global headwinds, including uncertainty over economic growth and geopolitical tensions. The rise in investment inflow is an indication of the growth opportunities as India continues to emerge as a bright spot among international markets.
The country’s property sector has attracted over USD 2.9 bn/USD 2,939 mn worth of investments across 22 deals during H1 2023. The average deal size of investments increased by 17% to USD134 mn compared to USD115 mn, an aggregate of 2022, according to JLL. The investment pattern continues to be robust and is expected to cross USD 5 bn in CY 2023, which has been the annual trend pre-covid and in 2022.
Key highlights of the report:
H1 2023 witnessed significant increase in domestic capital to 44% share of the total investment compared to 18% in 2022
Office sector remained the most favoured sector with a major share of 66%
Residential sector attracted investments of USD 512 mn across nine deals in H1 2023
Warehousing attracted investment of USD 366 mn i.e.,80% higher than H1 2022
USD 2,792 mn of platform commitment announced across 4 deals in H1 2023 to be invested in the next few years
Successful listing of India’s first retail REITs with 81% anchor contribution by major domestic insurance companies, mutual funds, and pension schemes
In recent years, the residential market has consistently embarked on a new chapter of growth, driven by buoyant consumer sentiment, robust property launches, competitive pricing, and a conducive interest rate regime. The strength of the residential market is evident from the robust sales volume recorded in the first half of 2023, with more than 62,000 units sold in each of the two quarters.
Notably, Q2 2023 saw sales of over 64,500 units, representing a 4% quarter-on-quarter growth. Interestingly, residential sales have consistently reached new peaks in each successive quarter over the past year. Aligning with this trend, Q2 2023 surpassed the previous historic high achieved in Q1 2023, making it the highest quarterly sales since 2008.
Key trends in residential market in Q1 2023 and H1 2023:
Backed by quality launches, quarterly sales set new benchmarks
Residential sales surge to a 15-year high in H1 2023
Sales of the premium segment apartments showed an upward trend
New launches remain buoyant in Q2 2023 and H1 2023
Bengaluru, Mumbai, and Pune constituted 62% of the quarterly sales
Robust demand leads to rise in capital values across the top 7 cities in India
Gross leasing activity across the top seven cities of India was recorded at 12.7 mn sq ft in Q2 2023, building on the market traction sustained from the previous quarter and signalling the resilience in India’s office sector. In comparison to H1, gross leasing was also up by 2.5%, showing India’s office markets being clearly insulated from the global headwinds’ impact.
Net absorption is up 4% q-o-q but is typified by occupiers remaining slightly bearish on big expansion plans given the still swirling global headwinds of economic uncertainty. India’s net absorption across the top seven cities broke its declining trend to be at a three-quarter high. While occupiers do remain slightly bearish on expansion activity, India continues to see growth from its domestic firms and global occupiers spreading their wings, albeit at a slightly slower pace.
Space requirements have now stabilized and are showing signs of recovery with deal closures being rolled over and replaced by new requirements, keeping the demand pie intact. While the global headwinds and tech sluggishness would continue to be limiting factors, India’s resilience in the past six months is expected to sustain over the remainder of the year as well. Transaction closures will be relevant to the forecasts of 2023 with any slippages likely to keep 2023 slightly muted but positively impact the years beyond.
Key trends in office segment in Q2 2023
Net absorption recovers to 7.95 mn sq ft; highest in three quarters
Quarterly supply at 10.5 mn sq ft; up by 5.3% q-o-q
Tech continues to lead quarterly occupier activity; flex consolidates its growth and is in second spot
2022 Environmental, Social and Governance (ESG) Report (Cushman & Wakefield)
Cushman & Wakefield’s ESG Report covers our global impact during 2022, select highlights from 2023 and targets for the years to come as we work toward shaping a more sustainable, inclusive future for commercial real estate.
As Singapore exits the pandemic and business activity returns to normal, corporate occupiers are placing more emphasis on employee productivity and on increasing office utilisation. With workplace transformation underway, there is strong demand to adapt and “build a better office” to meet the fast-evolving needs of employees and senior management. Additionally, occupiers should be actively identifying new opportunities and strategies to future-proof their portfolios.
CBRE’s 2023 Singapore Office Occupier Sentiment Survey features insights from occupiers across various industries such as financial services, technology, media, telecoms and professional services etc.
Key findings include:
Singapore’s median utilisation rate stands at 64% and this is expected to increase further over the next 6 to 12 months.
Leasing sentiment remains cautious in near term with more opting for lease renewals and re-negotiations but 45% expect to grow their corporate portfolios over next 3 years.
Strong demand for green buildings but amount of green premium remains low. 67% would be willing to pay a premium of less than 5%.
Staff-to-desk sharing ratios set to increase as more companies adopt flexible seating and hybrid working. 67% plan to increase desk sharing ratios over the next 2 years.
In Q1 2023, the industrial rental and price indices continued their tenth consecutive quarter of growth. The rental index rose by 2.8% QOQ, accelerating from 2.1% QOQ in the previous quarter, and marking the strongest quarterly growth since Q3 2013. Similarly, industrial prices rose by 1.5% QOQ, slowing slightly from the 1.7% QOQ registered last quarter.
With a remaining supply of 10.3 mil sq ft in 2023, and an average of 10.9 mil sq ft from present till 2025, higher supply will continue to moderate rental and price growth but may also provide more options for occupiers.
Industrial indicators remain soft, with continuous contractions recorded in manufacturing output, NODX and PMI.
Trade tensions have resulted in industry players looking to fortify supply chains, with some looking to set up shop in Singapore, which will continue to prop up industrial demand.
Asia Pacific Real Estate Market Outlook Mid-Year Review (CBRE)
CBRE’s 2023 Asia Pacific Real Estate Market Outlook Mid-Year Review reviews the predictions we made at the beginning of 2023, and reveals our outlook for the rest of the year.
Our original forecasts from January were largely correct, although the subdued impact of mainland China’s re-opening has led us to push back predictions for the expected timing of the recovery by 6 to 12 months. While leasing momentum in occupier markets is strengthening, the investment volume is unlikely to recover before H1 2024.
This report explores the key trends and forecasts that will shape Asia Pacific’s commercial real estate market for the rest of the year and beyond.
Economy Core inflation along with a stronger than expected employment market have reduced the likelihood of a hard landing in the U.S., with CBRE expecting mild negative growth to occur in Q4 2023 and Q1 2024. With the upward interest rate cycle having been prolonged, rates are likely to stay high for longer.
Investment Asia Pacific commercial real estate investment volume is unlikely to recover before H1 2024 due to insufficient yield expansion and the higher cost of finance. Japan will remain attractive to investors on the back of low interest rates and positive carry, and hence will continue to outperform. Investment sentiment elsewhere is expected to improve once the cost of borrowing starts to come down. Korea, which was the first market to implement interest rate hikes in the current cycle, is now witnessing an increase in investment activity now that the cost of finance has begun to fall.
Office While CBRE’s market forecast has been largely accurate, the recovery of office space demand has lagged office-based employment growth. Office occupiers retain a prudent attitude towards portfolio planning amid the challenging macroeconomic environment. Although flight to quality and a focus on green buildings remain key trends, expansionary sentiment has been subdued.
Logistics Although logistics demand continues to gradually moderate from pandemic-era highs, regional rents displayed resilience in H1 2023, with performance bifurcating between tightly supplied markets, such as Singapore (prime) and the Pacific, and oversupplied locations. Rental growth in markets with a supply shortage will nevertheless lose momentum as demand tapers off.
Retail The tight job market and resumption of international tourism underpinned strong consumer spending in H1 2023, boosting expansionary sentiment among retail occupiers.
Hotels However, the slow return of mainland Chinese tourists continues to weigh on the recovery; a trend that is also impacting hotels, with the recent rise in room rates now showing signs of plateauing.
Kemmu Kawai joined Longevity Partners Japan in September 2022 as the Country Director. Based in Tokyo, he oversees all operations and activities in Japan, the Asia-Pacific region and beyond. He brings him more than 16 years of experience in finance where he specialised in real estate and credit investments. Before joining Longevity Partners, he served as a Portfolio Manager at Norinchukin Bank and as Investment Manager at Center Point Development.
