Rising input prices and the growing shadow of the Omicron variant likely to extend supply chain disruptions globally
Global supply chain disruptions, in combination with doubling oil prices (up 99% y-o-y)1, shortage of shipping container supply, and more frequent severe weather conditions have continued to cause larger cargo price hikes mostly through international ocean freight and air freight. Looking ahead, we remain cautious on tightening social movement restrictions. Japan’s international border has remained closed since November. However, Japan has started to see a wave of rising infection cases measured as the percentage of daily new infections nationwide. The latest indicator has increased to 0.004%2 albeit this is much lower than Australia (0.30%), the U.S. (0.21%) and the U.K. (0.26%). The current wave of infections is projected to peak no earlier than May 2022, suggesting that a period of supply chain disruption is likely to persist at least until 1H 2022.
Increasing logistics space demand from e-commerce players
Japan’s e-commerce market continues to grow, albeit at a lower rate than peer economies3 such as Australia (9.4%), the U.S. (14.0%), China (24.9%) and South Korea (25.9%). Japan’s e-commerce sales4 grew 21.71% y-o-y to reach an 8.1% penetration ratio. Leading product categories, with sales reaching more than JPY2 trillion, suggest a somewhat maturing industry landscape with high penetration rates, including home electronics (37.5%) and household goods and furniture (26.0%). However, the large consumption base in food and beverage, at just 3.3% penetration, is yet to adopt new online purchase options over visiting neighborhood grocery stores. Looking ahead, we expect the overall logistics space demand from the e-commerce sector will continue to drive the market, either through an existing platform expansion or via more frequent new entries of specialized online retailers (e.g., Oisix Ra Daichi).
Proximity to large consumer bases continues to lift rent in select locations offering greater convenience
Vacancy rates remain below 2.0% across most locations. The Greater Tokyo Area saw vacancy increasing to around 2.0% from 0.5%, or the bottom, in early 2021, although the Greater Osaka Area recorded the lowest vacancy since 2017 at mid-1.0%. Through new supply, modern logistics facilities in proximity to large consumer bases have continued to benefit from rental improvements. In the Greater Tokyo Area, rents in the Tokyo Bay Area rose by 4.2% y-o-y to reach JPY7,500, with Kanagawa Inland area rising 2.2% y-o-y to JPY4,600. Similarly, in Greater Osaka Area, average rent rose by 0.8% y-o-y, led by rent growth in Osaka Inland by 2.3% y-o-y to JPY4,500. New supply during 2H 2021 congregated around the Route 16 area, including DPL Nagareyama IV and GLP ALFALINK Nagareyama 8, occupied by high numbers of EC-related tenants. The Nagareyama area is set to see a concentration of multi-tenant logistics facilities through the scheduled delivery of five buildings with a total GFA of 174,000 tsubo (575,209 sqm) over the next two years. However, given the city’s structural advantages, benefitting from population growth sufficient to address the acute labor shortage, a younger demographic profile, and convenient location to access the large consumer base in Tokyo CBDs, we expect temporary upticks in Nagareyama’s (Route 16) vacancy to be absorbed, leading to a vacancy tracking below 5.0% in the Greater Tokyo Area over the next two years.
1 West Texas Intermediate (WTI) crude oil prices External Link
2 Our World in Data in the first week ended on January 8,2021
3 UNCTAD External Link 2020
4 Ministry of Economy, Trade and Industry
5 C&W quarterly survey target is based on Large Multi-tenant Logistics Facilities at around GFA 15,000 tsubo.
