High street rents return to pre-pandemic levels in Ginza, begin to rise in the Shinsaibashi-suji shopping district

1.4pts

Ginza High Street Vacancy Rate **** Q1

+ 2.8%

Ginza High Street Rent **** Q1

Source: *Ministry of Economy, Trade and Industry

**Japan Department Stores Association ***Japanese Cabinet Office ****CBRE

━ Tokyo: The high streetvacancyrate forQ1 2023 fell by 1.4 points q-o-q to 6.2%. The mainreason for thisfallwas due to openingof a pop-up storein a relativelylarge premise. Ginza high streetrents rose by 2.8%q-o-q to JPY 257,600 per tsubo per month, marking a return tothe pre-pandemic levels of Q4 2019. As inthe previousquarter, thedemand from luxury brandsdrove up therents.

━ Osaka: The highstreetvacancyrate forQ1 2023fell by 3.0 points q-o-q to 4.6%. This was due totakeup of several vacancies intheShinsaibashi- suji shopping district,including a space of over 200 tsubo. Shinsaibashi high street rentswere up 7.9%q-o-q to JPY 164,000 per tsubo per month, with accelerateddemand fromdrugstores and duty-free stores for properties intheShinsaibashi- suji shopping district onrecoveringinbound touristdemand.

━ Nagoya: The high streetvacancyrate forQ1 2023 was flat q-o-q at 0.0%. As inthe previous quarter, there were no new vacancies HighstreetrentsintheSakaedistrict ofNagoya remained unchanged from the previous quarter at JPY 71,000 per tsubo per month This quarter, a jewelrybrandwas confirmed asthe new tenant fora propertyon theOtsu-dori high street which hadstruggled for some timetoattractdemand. The contracted rent was seen to be atparwiththe current market level.

Economy

Department store sales up 14.2% y-o-y

National department store sales in the January-March quarter was up by 14 2% y-o-y The growth was driven by double-digit increase in the number of customers visiting stores all through the quarter The successful new-year sales in January (supported by no activity restrictions) contributed to this trend, and sales in February and March were boosted by clothing and other products, as opportunities to go out increased Throughout the period, sales of luxury and duty-free goods also continued to rise

Japan’s consumer confidence index rose by 2 6 points m-o-m in March 2023 to 33.9 points, the first increase in two months and also the largest single-month increase since June 2021. The major factors behind the improvement were the normalization of economic activity and rising wages

Tokyo: Ginza

Demand

Seen From Multiple Retailers For Relatively Large Spaces

Ginza’s high street vacancy rate for Q1 2023 fell by 1 4 points q-o-q to 6 2%, with one relatively large space secured by a pop-up store Another property is also close to completing a deal with a new tenant despite it being in an area which is not necessarily popular among luxury brands

Ginza high street rents were up by 2 8% from the previous quarter, reaching JPY 257 600 per tsubo per month, marking a return to the pre-pandemic levels of Q4 2019. In addition to demand from luxury brands, the period saw a number of contracts signed by fashion brand outlets and showroom-inclusive stores Rents are expected to continue to climb steadily, with CBRE projecting average rents to exceed the pre-pandemic level of Q4 2019 by 0.4% in Q2 2023. With rents projected to rise by 1.9% over the next two years, they should have recovered by the end of that period to just 6.9% short of the peak recorded in Q1 2016.

While demand has been seen from a number of luxury brands, there are very few available properties in desired areas This has led to properties demanding above-average rents, which had previously struggled to find tenants due to excessive floor space, suddenly finding favour with prospective occupants During the quarter, one wristwatch brand with a street-level store in the Ginza area was in search for a second retail location to take advantage of strong sales performance, while a new recycled goods store opened on an available property in the high street area of Chuo-dori Elsewhere, another available property on Harumi-dori has seen demand from multiple luxury brands, with its smaller size of below 50 tsubo making it attractive to potential tenants While proposed rent levels for the property are below the owner’s asking rent, they are at roughly market rates Also this quarter, a separate available property with a narrow frontage was struggling to confirm a tenant even amid significant demand, due to its unappealing layout.

Several properties in secondary areas are attracting increased interest from potential occupants by subdividing available units, with one such unit confirming a fashion brand as its new tenant. With high street vacancies declining in number, retailer demand is spreading into secondary areas.

Tokyo: Omotesando/Harajuku

Luxury brand demand concentrated on several new developments

Omotesando and Harajuku’s high street vacancy rate for Q1 2023 was up by 1 1 points q-o-q to 6 7%, mainly due to several relatively large vacancies on the Harajuku side High street rents for Omotesando and Harajuku remained unchanged from the previous quarter, standing at JPY 188,800 per tsubo per month Demand from luxury brands is focused on new developments in superior locations in high street areas, primarily due to the fact that there are almost no existing properties offering units of sufficient size Competition between retailers for units within these developments may lead contracted rents to exceed current market rates in the coming months During the quarter, an available unit on Meiji-dori received multiple tenders before its owner selected a fashion brand looking to move to a superior location The new tenant agreed to pay the owner’s asking rent, which is at the market rate. Retailer demand strengthened for properties in all high street areas, buoyed by an increase in visitor numbers. This interest, however, is largely confined to units of under 100 tsubo, with larger units commanding higher rents still struggling to capture retailer attention.

Also this quarter, an available property in the secondary area of Kotto-dori has drawn interest from multiple interior furniture brands

Tokyo: Shinjuku

Demand seen from showroom-inclusive stores and high-end wristwatch brands for space on Shinjuku-dori

Shinjuku’s high street vacancy rate was flat q-o-q at 6.6%, as there were neither new take-up nor new vacancies during the quarter Shinjuku high street rents remained unchanged for the fifth straight quarter at JPY 170,000 per tsubo per month This quarter, a relatively large property on the high street of Shinjuku-dori started to attract retailer interest after removing its higher floors from the unit for lease, thereby offering only the ground floor storefront. Another large property that had been struggling to find a new tenant has seen a retailer indicate provisional interest in leasing it for a showroom-style store designed to promote new products, depending on terms Although multiple wristwatch retailers are in the market for space on Shinjuku-dori, the smaller spaces of around 50 tsubo that they prefer are essentially nonexistent As a result, some brands are considering purchasing store space rather than leasing In the same area, a new development confirmed as a tenant a retailer without a current street-level presence in Shinjuku, at market-level rents

Although available properties in secondary areas are seeing interest from wristwatch brands as a result of an increase in the presence of younger consumers in the areas, the asking rents which are above market rates have yet to turn any inquiries into contracts

Tokyo: Shibuya

Fashion retailers seek relatively large available spaces

Shibuya’s high street vacancy rate for Q1 2023 fell by 1 0 point q-o-q to 5 9%, as a tenant has been found for a 100 tsubo-sized vacancy for which leasing had been protracted Shibuya high street rents remained unchanged for the second straight quarter at JPY 127,800 per tsubo per month in Q1 2023 During the quarter, a new capsule toy store opened in a location on the Center-gai high street which had previously struggled to find a tenant due to its large floor space The agreed-upon rent level is slightly below that paid by the previous tenant Elsewhere, a recycled goods retailer secured another large property in the high street area of Inokashira-dori, while demand from several luxury brands was observed for a new development in a prime high street location A smaller property with narrow frontage, which had previously struggled to interest tenants, also attracted attention from several pop-up store operators

In secondary areas, long-term vacancies some distance from the station have drawn the interest of retailers including an amusement arcade operator, while a number of cases have also been observed in which existing tenants have re-signed new contracts at slightly higher rent levels.

*The data covers five areas, including Ginza, Omotesando Harajuku, Shinjuku, and

Kansai: Shinsaibashi

Spike in retail demand to secure inbound demand

Shinsaibashi’s high street vacancy rate for Q1 2023 fell by 3 0 points q-o-q to 4 6% This was mainly due to several vacancies in the Shinsaibashi shoppin arcade, including a space of over 200 tsubo, becoming fully occupied High street rents in the Shinsaibashi district of Osaka were up by 7 9% from the previous quarter to JPY 164,000 per tsubo per month, with increasing demand from drugstores and duty-free stores for properties in the Shinsaibashi-suji shopping district as a result of recovering inbound demand Competition between rival drugstores has led to several cases in which tenders have been submitted which exceed the previous quarter’s market rates

As a result of lowered asking rents, the vacancy rate in the Shinsaibashi-suji shopping district has been falling since Q2 2022. However, this quarter, in particular, has seen a sharp increase in enquiries from retailers targeting the recovering inbound tourists. Tenders have been received for several properties which have stood vacant for some time, lowering the vacancy rate still further. In recent years, some owners of available properties had been willing to lease them at sub-market rates on short term agreements, planning to then raise rents to market levels when the contracts are renewed several years later. Even these properties, however, may now be able to secure tenants at or even above market rates. While demand is seen predominantly from drugstores and duty-free operators, other retailers are also looking for store space, including those with an existing presence in Shinsaibashi who are looking to relocate to larger premises to take advantage of booming sales. Also this quarter, demand was seen on the Mido-suji high street from retailers without a street-level store in the Shinsaibashi area and those looking to relocate from secondary areas in order to improve brand value Elsewhere, the period saw cases in which existing tenants were considering renewing their leases at higher rent levels

In terms of secondary areas such as America-mura, strong demand for store space has been seen from retailers dealing in second-hand clothing or musical instruments This quarter saw several recycled goods stores confirmed as new tenants in available properties.

Kansai: Umeda

New underground entrance to Osaka Station improves convenience

Umeda high street rents rose by 5 2% q-o-q to JPY 101,500 per tsubo per month this quarter, backed by increased demand amid increased visitor numbers Demand for street-level stores has been seen from a wide range of sectors including showroom operators, outdoor and sporting goods retailers, musical instrument stores, and food retailers During the quarter, several larger units of around 100 tsubo managed to secure new tenants by subdividing their space into smaller sections Units on upper floors have drawn the attention of service operators of beauty salons, plastic surgery clinics, shared salons, and rental conference spaces, some of whom are considering paying rents above market rates At the same time, however, there remain some retailers who have been forced to withdraw from their premises in shopping malls or who are considering downsizing as a result of poor sales.

Retailers continue to be confirmed for planned new developments in the Umeda area. In March, a new underground entrance point to JR Osaka Station known as Umekita Area, within the new Grand Green Osaka development on the site of the former freight railyards, opened its doors. The new entrance point provides a direct connection between Osaka Station and Kansai International Airport and has dramatically improved the station’s convenience, fueling hopes for a further increase in visitor numbers to the Umeda area.

Kansai: Kyoto

Retailers keen to secure store space to take advantage of spiking inbound tourist demand

Kyoto’s high street vacancy rate for Q1 2023 was up by 1.2 points q-o-q to 7.8%, mainly due to relatively large vacancy on Shijo-dori Kyoto high street rents for the quarter rose by 12.7% q-o-q to JPY 80,000 per tsubo per month amid a sharp increase in retailer demand to take advantage of the recent spike in inbound tourist spending Newly-signed contracts pushed up the market rates for the quarter The Shijo-dori high street is home to a number of high-end wristwatch brands, one of which decided to relocate within the area to a superior site during the period In addition to wristwatch retailers, Shijo-dori also witnessed demand from other luxury brands, with one prime location on the street secured by a local company for a showroom and showcase store Of a relatively large size, the store is being positioned by the company as its flagship location

During the quarter, a number of retailers with stores in secondary areas were seen looking to either expand their premises or move to superior locations As retailers are generally looking for properties in areas with heavy foot traffic and appropriate floor space for their needs, they are often willing to pay higher rents than currently contracted retailers.

Kansai: Kobe

Solid demand seen from retailers new to the area

Kobe’s high street vacancy rate for Q1 2023 fell by 0 8 points q-o-q to 5 2% This was mainly due several vacancies of less than 50 tsubo being fully occupied, mainly in Sannomiya Center-gai Kobe high street rents for the quarter rose by 0 6% q-o-q to JPY 80,500 per tsubo per month During the quarter, an available property on the Nakamachi-dori high street in the Former Foreign Settlement area started to attract interest from several retailers after being subdivided into smaller units While offered rates are below those paid by the current lessee, they are roughly at the going market rate Another property in the same area also drew interest this quarter after failing to garner attention for much of last year At the same time, however, a number of stores on the Center-gai high street are considering closing their doors due to poor sales Reasons for the poor sales figures are seen to be such factors as inappropriate floor space size, or discrepancies between brand image and consumers’ image of the shopping street. With pedestrian numbers in Center-gai on the rise, however, it should not take long for landlords to secure new tenants.

Also this quarter, a fashion brand with a store in a secondary area was seen to be considering relocating to the high street and was looking for a property on a street with heavy foot traffic

Nagoya: Sakae

Several retailers interested in properties which previously faced weak demand

Sakae’s high street vacancy rate for Q1 2023 was flat q-o-q at 0 0% As in a previous quarter, no new vacancies occurred Sakae high street rents remained unchanged from the previous quarter at JPY 71 000 per tsubo per month This quarter, a jewelry brand was confirmed as the new tenant for a property on the Otsu-dori high street which had struggled for some time to attract demand Although well-located, the property had been rejected by retailers due to its unusual layout, but nevertheless attracted a number of offers this quarter, with the agreed-upon rent at current market levels Another relatively large property on the same street has drawn interest from a retailer without a current street-level presence in the Sakae area While the offered rent is below that paid by the current lessee, it is at the going market rate Elsewhere in Q1 2023, an automobile showroom opened at a property on the high street area of Hirokoji-dori

Also this quarter, an available property in the secondary area of Isemachi-dori drew interest from an interior furniture brand and multiple fashion brands, although some interested parties decided to narrow their search to properties purely on Otsu-dori. Another property on Isemachi-dori has been secured as the premises for a new fashion brand store, marking its first street-level presence in the Chubu region.

Fukuoka: Tenjin

Small premises remain scarce and in high demand

Tenjin’s high street vacancy rate for Q1 2023 was up by 0 5 points q-o-q to 3 0% Several vacancies occurred in Tenjin Nishi-Dori, with limited number of take-ups High street rents in the Tenjin district of Fukuoka rose by 2 2% from the previous quarter to JPY 47 500 per tsubo per month in Q1 2023, with an increase in the number of younger shoppers in the area pushing up rents During the quarter, an available property on the Tenjin Nishi-dori high street attracted at least five tenders from fashion and cosmetics brands The rarity of its floor space of under 50 tsubo, combined with the fact that it is a ground floor-only unit, has made the property keenly sought after by retailers Prospective tenants have agreed to pay the owner’s asking rent, which is at market rates Elsewhere, a store specializing in second-hand clothing and other goods was confirmed as the new tenant of another available property on Tenjin Nishi-dori. Some recycled goods stores were seen looking for locations for a second store in the area to capitalise on positive sales numbers. Several drugstore brands are also searching for new locations to take advantage of inbound foreign tourist demand Some are seeking smaller units of around 40 tsubo, while others are looking for larger properties of up to 150 tsubo.

Also this quarter, a relatively large property in a secondary area generated interest from several retailers after being subdivided into smaller units and should soon confirm a tenant at roughly the same marketaverage rent levels as those paid by the current tenant.

Starting previous quarter (Q3 2022), vacancy rate surveys will no longer be restricted to ground floor properties for which tenant demand is highest, but will instead cover all units for lease, including those on the ground floor.

CBRE, Q1 2023. Figure 18: Area Traffic Volume (Q1 2023)

Source: Giken Shoji International “KDDI Location Analyzer*” CBRE Q1 2023.

* Aggregation of “au” smartphone users with individual consent, processed so that individuals cannot be identified.

* The numbers may have changed for the past data due to accuracy improvements of KDDI Location Analyzer data