1. Introduction
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 from around 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 one of the preferred locations 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, Seoul, 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
1. Tokyo: Rents are reasonable relative to city GDP
2. Japan: E-commerce ratio as a percentage of total retail sales is low
3. Japan: Inbound tourist numbers and tourist consumption have demonstrated considerable scope for growth
2. Tokyo: Reasonable rents relative to city GDP
In a global context, Tokyo prime rents* 1 are quite reasonable relative to its city GDP In other words, considering the city’s economic scale, including total retail sales volume, it is relatively inexpensive for retailers to rent store space . This means that, in comparison to the world’s other major retail markets, it is easier for retailers to make a profit from brickand-mortar stores. Figure 1 shows 2023 city GDP figures (Oxford Economics estimates) and prime rents in those cities for Q2 2023 New York has the largest city GDP in the world at approximately JPY 126 trillion, with Tokyo in second with JPY 111 trillion, followed by London, Shanghai, and Seoul Meanwhile, London registered the highest prime rents at approximately JPY 1,212 ,000 per tsubo per month, followed by New York at JPY 729 ,000 These two cities are followed by Paris and Milan, with Tokyo’s figure of JPY 400,000 per tsubo placing it in fifth
Tokyo is popular with retailers as a location for Asian or global flagship stores. In June, a leading musical instrument manufacturer from the U.S. opened its first global flagship store in Tokyo’s Harajuku district, while a worldwide fashion brand opened its first Asian flagship store in the same area the following month. With Tokyo continuing to be seen as a fashion and cultural epicenter, more retailers are likely to select the city as a location for flagship stores
3． Japan: Low e-commerce ratio as a percentage of total retail sales
Japan’s e- commerce ratio*2 remains low in comparison to other major markets Section one of this report explained why it is easier for retailers to make a profit from brick-and-mortar stores in Tokyo Another key factor underpinning this assertion is Japan’s low e- commerce ratio. Figure 2 shows 2022 e -commerce ratios (Euromonitor estimates) by country. Of the nations and regions used for comparison in this report, South Korea has the highest e -commerce ratio, at 43.5%, followed by China at 31.4%. The next highest figures are recorded by the UK, the U.S, and Hong Kong, with Japan’s figure of 14 7%*3 trailing Singapore in 7th In addition to the fact that Tokyo rents are relatively cheap when compared to the city’s economic scale (as shown in the previous section of the report), the fact that a relatively high percentage of the city’s consumers still make their purchases at brick-and-mortar stores is another reason that such stores are more easily able to turn profits
Japanese consumers’ preference for making in-store purchases has also been noted in the results of CBRE’s own surveys. Figure 3 is a summary of Japanese consumer habits, based on the results of CBRE’s latest Global Consumer Survey* 4 , conducted in mid- 2022 Figure 3 shows a comparison of in-store purchase ratios (based on self-reporting in the survey) for a variety of different product types across the countries that are being used for the purposes of comparison in this report A majority of Japanese consumers reported that they preferred to buy seven of the 10 product types in brick-and-mortar stores, well above average compared to other major markets worldwide Broken down by product type, Japan ranked first among these nations in terms of the percentage of respondents who indicated they preferred in-store purchases for the categories of “DIY goods” and “children’s clothes and shoes”; second in the categories of “furniture and interior furnishings” and “clothes and shoes”; and third in the categories of “daily essentials” and “jewelry and
Turning to the issue of reasons given by Japanese consumers for their preference for in -store purchases, the most commonly given answers were that in-store purchasing “allows consumers to see products and try them before they buy”, and that it “allows consumers to obtain products without waiting” To be sure, consumers were forced to conduct much of their shopping online during the pandemic, and doing so illustrated the convenience offered by online shopping, including the greater variety of stock available and the ease of making price comparisons Despite this, the survey results show that Japanese consumers place a high value on the in-store experience of seeing and trying products for themselves and the ability to purchase items on the spot While the coming years will likely see the introduction of new technological innovations that will change shopping habits, the preference for real physical experiences displayed by Japanese consumers seems unlikely to shift in the near future.
Prefer
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Singapore
Hong
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4
Japan: Inbound tourist numbers and tourist consumption have demonstrated considerable scope for growth
Both the number of inbound tourists to Japan and their spending are recovering rapidly Figure 4 shows inbound tourist numbers for each country or region in 2019 (prior to the pandemic), together with the growth rate of that figure in the five years since 2014. France saw the greatest number of foreign tourists in 2019 , at 218 million, followed by the U.S. at 165 million. Of the nations and regions used for comparison in this report, the next highest figures were recorded by China, Italy, Hong Kong, and the UK, before Japan, in seventh place with 32 million. When the growth in tourist numbers between 2014 and 2019 is examined, however, Japan is significantly ahead, with an increase over that period of 137 7% This is 111 4 pp above the average growth over the period of 26 3% While tourist numbers are still relatively low in raw terms in comparison to other major markets, Japan’s tourism industry is growing at a rapid rate The greatest single reason for this rapid growth had been the influx of Chinese tourists Increasing from 2 41 million in 2014 by 298 2% to reach 9 60 million by 2019, Chinese tourists by that point accounted for approximately 30% of all visitors to Japan
Figure 5 shows inbound tourist spending in each country or region in 2019 (prior to the pandemic), together with the growth rate of that figure since 2014 Tourists to the U S spent the largest total amount of money in 2019, at approximately JPY 21 6 trillion, ahead of tourists to France, at JPY 6 9 trillion These leaders were then followed by the UK and Italy, with Japan in fifth place among the selected group at approximately JPY 5 trillion*5 Once again, however, Japan is well ahead in terms of the growth rate in total spending between 2014 and 2019 , at a figure of 121 9% This is 114 0 pp above the average growth across the period of 7 9% As was the case with tourist numbers, the dramatic growth in spending by tourists to Japan is largely due to the presence of Chinese tourists Annual spending by Chinese tourists visiting Japan grew from JPY 558 3 billion in 2014 to 1,770 4 billion in 2019 This represents a growth rate over that period of 317.1%, with Chinese tourists accounting for just under 40% of all inbound tourist spending in the country in 2019.
Prior to the pandemic, retailers opened a significant number of new stores in Tokyo for the specific purpose of capturing inbound tourist spending, primarily from Chinese visitors While drugstores and duty-free stores led the way, operators from other sectors, such as cosmetics, sporting goods brands, and luxury brands were also active While stores targeting inbound tourist spending are beginning to reappear, the number of Chinese visitors to Japan has yet to reach prepandemic levels as of the end of July 2023, largely because the Chinese government has not yet permitted the resumption of group tours (Note: the Chinese government subsequently permitted the group tours on 10th August) . According to a survey conducted by ENJOY JAPAN in March 2023*6 , some 76.4% of Chinese respondents selected Japan as the most desirable destination to visit. Among those selecting Japan, 53.3% selected “shopping” as the primary purpose of their visit, again topping the list Having already been responsible for the surge in inbound tourist demand prior to the pandemic, Chinese tourists appear likely to drive the inbound tourist market once again
*5 While the figure released by Japan’s Ministry of Land, Infrastructure, Transport and Tourism is JPY 4.8135 trillion, this report uses the data released by the United Nations World Tourism Organization (UNWTO) in order to facilitate fair comparisons with the world’s other major markets. This data was originally released in US dollars, and has been converted to Japanese yen based on the latest exchange rates.
*6 https://enjoy-japan.jp/column/inbound/chinese-overseastravel-investigation/ (Number of valid responses: 1,140)
Figure 5: Inbound tourist spending in 2019 and rate of change since 2014
This report analyses the attractions of the Tokyo retail market, specifically focusing on the three factors below
1. Tokyo: Rents are reasonable relative to city GDP
2. Japan: E-commerce ratio as a percentage of total retail sales is low
3. Japan: Inbound tourist numbers and tourist consumption have demonstrated considerable scope for growth
The main factor which is likely to bolster Tokyo’s appeal as an attractive market for retailers in the coming years is continued growth in inbound tourist numbers and spending Despite the disruption caused by the COVID-19 pandemic, the Japanese government remains committed to its earlier stated objective of reaching the 60 million mark in annual foreign visitors by 2030 To that end, the then-Director of the Japan Tourism Agency went on record in 2021, pledging not only to continue promoting the country as a tourist destination, but also to focus on establishing infrastructure, including barrier-free design, to accommodate foreign tourists Furthermore, as well as setting the target of 60 million tourists annually, the government has also set a target for annual tourist spending of JPY 15 trillion (actual spending as of 2019 was JPY 5 trillion). In 2019, 47 .24% of all foreign tourists to Japan visited Tokyo. Should the same ratio continue to hold until 2030 , some 28 million of the projected 60 million foreign tourists will visit Tokyo, with spending expected to reach JPY 7 trillion in Tokyo, out of a total of JPY 15 trillion These expectations for the future underpin CBRE’s projection of a steady increase in retailer demand for floor space in Tokyo in the coming years This may also lead to a rise in Tokyo prime rents, which are currently seen as very reasonable, pushing up rent levels for the Tokyo retail market as a whole
Kaoru Kurisu Director Retail Team Leader kaoru.kurisu@cbre.com Hiroshi Okubo Head of Research hiroshi.okubo@cbre.com