1. Introduction
Osaka’s Shinsaibashi area currently has the highest vacancy rate of all major retail areas in Japan However, Q3 2022 marked the second consecutive quarter in which the vacancy rate has declined, suggesting that recovery may be on the horizon. This report analyses the market environment since the advent of the COVID-19 pandemic of the two major high streets within the Shinsaibashi area, Mido-suji and Shinsaibashi-suji, and predicts future trends. Below are the key points to be borne in mind by any retailers considering opening a new store on either of these two streets.
1. With the supply-demand balance remaining tight, rents in Mido-suji are likely to continue to rise in 2023 Any retailers wishing to open a new store on Mido-suji therefore need to make their intentions very clear to building owners in the area and be prepared for a potentially long period of negotiation in competition with rivals
2. With the area showing some initial signs of recovery, rents on Shinsaibashi- suji should bottom out in H1 2023, and begin to rise from H1 2024 For retailers looking to open a new store on Shinsaibashi-suji, now is the opportune moment to do so, with plentiful vacancies in excellent locations, and a market environment conducive to negotiating lower rents
2
The Shinsaibashi area market environment
Since the advent of the pandemic, the Shinsaibashi area vacancy rate has risen dramatically. According to the most recent data, as of Q3 2022 the area has a vacancy rate of 12 0%, the highest among all major retail areas in Japan, and well above other areas such as Ginza (7 5%) or Omotesando/Harajuku (6 5%) (Figure 1) In line with the rise in the vacancy rate, rents for the Shinsaibashi area have fallen sharply While they recorded a 7 0% q -o-q increase in Q 3 2022 to reach JPY 152,000 per tsubo, this figure is still some 23 2% below the pre-pandemic figure from Q4 2019
Significant differences exist, however, between the area’s two main high streets of Mido-suji and Shinsaibashi- suji Figure 2 and Figure 3 show recent fluctuations in vacancy rates and rent levels, respectively, for the two streets. As Figure 2 shows, the vacancy rate on Mido-suji is actually lower now than it was prior to the pandemic. After climbing as high as 7.8% in Q2 2021, the vacancy rate fell back down to 0.3% in Q 4 2021 after a jewelry brand signed a lease for a store in a relatively large unit, after which vacancy remained largely unchanged In the most recent quarter, Q 3 2022 , the vacancy rate fell by another 0 3 pp q-o-q to 0 0%, meaning there are currently no vacancies at all available for immediate occupancy Rents remained consistently steady at the pre-pandemic rate of JPY 250 ,000 per tsubo until Q 3 2022 , when they recorded a 20% jump to JPY 300,000, the highest level since CBRE surveys began in Q2 2014 In contrast, Shinsaibashi- suji had no vacancies at all prior to the pandemic, with the vacancy rate staying unchanged at 0.0% from the time surveys began in Q4 2017 through until Q3 2019. With the advent of the pandemic, however, the vacancy rate began to steadily climb, reaching its record high of 20.6% in Q1 2022. In Q2 2022 it slid back down to 20.0%, the first drop in the vacancy rate since the effects of COVID-19 began to be felt Several properties were filled during the quarter, with limited new vacancies A further q-o-q drop of 0 2 pp was recorded in Q 3 2022 , lowering the vacancy rate to 19 8% Rents, meanwhile, have continued to steadily fall Until Q4 2019, rents had been at JPY 300,000 per tsubo, even higher than the rents in Mido- suji, driven by strong demand from drugstores on the back of expanding inbound tourist spending They have been falling ever since, however, with a 14 3% q-o-q decline in Q 3 2022 bringing rents on the high street down to JPY 120,000, 60% below pre-pandemic levels, and the lowest recorded since the surveys began in Q 3 2014.
Figure 1: Vacancy rates by area*
12%
10%
8%
6%
4%
2%
12.0% 7.5% 6.5% 0.9% 0%
14% Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022
Shinsaibashi Ginza Omotesando/Harajuku Sakae
Source: CBRE, Q3 2022 *Areas for which vacancy rates were recorded from prior to the pandemic (before Q4 2019) have been selected. * High street and secondary area vacancy rates as defined and calculated by CBRE
Figure 2: Vacancy rates on Mido-suji and Shinsaibashi-suji
20%
15%
10%
5%
9.2%
25% Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022
18.1% 20.6% 20.0% 19.8% 0%
Source: CBRE, Q3 2022
7.8% 0.3% 0.0% 0.1%
Mido-suji Shinsaibashi-suji
Figure 3: Prime rents* on Mido-suji and Shinsaibashi-suji (JPY/tsubo)
300,000 120,000 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Q3 2022
Mido-suji Shinsaibashi-suji
Source: CBRE, Q3 2022
*Upper limit of estimated achievable rents calculated based on a sample survey of the areas (including service fees, and not taking free-rent periods or other incentives into account)
3．Store openings and closings on Mido-suji and Shinsaibashi-suji
There are several reasons why polarization is taking place between Mido-suji and Shinsaibashi-suji CBRE’s analysis of new store openings and closings has uncovered the following factors
– Mido-suji
Figure 4 shows new store openings and closings on Mido-suji by year. As can be seen, 10 stores closed in 2020, with a further eight shuttering in 2021 Half of the 2020 closings involved relocations to the new Shinsaibashi Parco, relocations to other premises within the same area, or relocation as a result of the rebuilding of existing premises Likewise in 2021, half of the store closures were the result of in-area relocation, with only a limited number of tenants withdrawing entirely from the area
When new store openings and closings on Mido-suji are divided by industry (Figure 5), luxury brand openings are the most conspicuous. A broad and spacious road lined with gingko trees and with power lines buried underground, Midosuji is a visually impressive thoroughfare. Furthermore, with many of the buildings lining the street featuring wide frontages, it has long proven attractive as a location for luxury brands’ flagship stores While some of these stores were closed during the pandemic, in every case they conformed to the aforementioned reasons (relocation to Shinsaibashi Parco, to new premises within the area, or as a result of rebuilding), meaning that very few brands were lost from the area While some closures were observed from tenants in sectors other than luxury brands, the majority of them were the result of closures or consolidations of bank branches Comparison of the sector composition for the most recent quarter (Q3 2022) with that of pre-COVID Q4 2019 (Figure 6) shows that luxury brands have increased their presence by 2 6 pp to 47 0%
Already robust prior to the pandemic, demand for store space on Mido-suji from luxury brands remains strong Now, in addition to the solid purchasing power of domestic consumers, inbound tourist demand also looks set to return This should ensure that demand from luxury brands for space on Mido-suji remains solid There are essentially no vacancies on the street at present, with new supply also limited As such, any properties that are put on offer are likely to secure tenants very quickly With the vacancy rate likely to remain very low, competition between luxury brands may well push future rent levels up above the Q3 2022 mark of JPY 300,000 per tsubo
Figure 4:
Figure 5: New store openings and closings on Mido-suji (by industry, one-off special events excluded)
Source: CBRE, Q3 2022 *2022 values are up to Q3 2022 only.
Figure 6: Mido-suji tenant composition by industry (store numbers) Source: CBRE, Q3 2022
– Shinsaibashi-suji
As can be seen in Figure 7, following the advent of the pandemic, there were some 47 store closures in 2020 and a further 37 in 2021. Closings outnumbered new openings in both years, causing the Shinsaibashi- suji vacancy rate to spike Through the first three quarters of 2022 , however, there have been just 14 store closures, suggesting that the situation may be beginning to change
Seen by industry (Figure 8), store closures on Shinsaibashi-suji are dominated by the fashion, food, and drugstore sectors The fashion sector, which had a high turnover rate even prior to the pandemic with a total of 20 closures across the two years from 2018 to 2019, saw this trend accelerate further as a result of the pandemic, resulting in 18 closures in 2020 and another 16 in 2021. The food service industry also saw 12 new store closures in 2020, immediately after the advent of the pandemic. Drugstores, which drove demand in the shopping district prior to COVID-19, logged eight closures in 2020, and a further eight in 2021 This industry was hit especially hard by the almost total disappearance of inbound tourists, which constituted its main customer base Closures covered by the “Other” category in the graph include stores selling accessories and character goods
At the same time, several stores selling reused or second-hand goods have launched since the onset of the pandemic, with four new openings in 2021, and a further two in the first three quarters of 2022 . The majority of these stores purchase and sell second-hand luxury brand items, which is an industry that has flourished during the pandemic . While such stores did exist prior to the pandemic, the government’s stay-at-home requests during the peak of COVID-19 gave more people an opportunity to sort out their unused belongings As brand goods, in particular, retain their value relatively well, the pandemic saw an increase in the number of people offering them for sale The proliferation of socalled “flea market apps” in recent years has lowered the resistance towards buying second-hand goods, particularly among the younger generations, and has also contributed to the increase in the number of such stores Some brands even opened new stores despite already operating multiple stores within the same area While a thriving sector, it generally does not have the ability to pay rents high enough to drive rent increases in the area as a whole
A comparison of sector composition on the street by sector between the most recent quarter (Q3 2022) and pre-COVID Q4 2019 (Figure 9), shows that fashion retailers have increased their presence in the area by 1.7 pp. This is despite the fact that fashion stores have actually declined in number over the period, and is due instead to the significant number of closures by the food service retailers during that time Some fashion retailers, particularly sellers of apparel, closed their stores during the pandemic as the result of closure of several fashion brands or consolidation of stores Food service retailers, meanwhile, were often forced to shorten their operating times or temporarily close their doors altogether due to governmental guidance to prevent the spread of COVID In many cases, this made continuing operation untenable, and led to permanent store closures
Figure 7: New store openings and closings on Shinsaibashi-suji (by year, one-off special events excluded)
Openings Closings
-60 -50 -40 -30 -20 -10 0 10 20 30 2020 2021 2022 Openings Closings Net increase/decrease
Source: CBRE, Q3 2022 *2022 values are up to Q3 2022 only. *Closings include those for in-area relocations and rebuilding.
Figure 8: New store openings and closings on Shinsaibashi-suji (by industry, one-off special events excluded)
Source:
Figure 9: Shinsaibashi-suji tenant composition by industry (store numbers)
Fashion Luxury F&B Outdoors&Sports Health&Beauty Drug Store
Furniture&Goods Showroom Reuse Other
Source: CBRE, Q3 2022
4．Projections for the future of the Shinsaibashi market
The trends identified by CBRE in this report illustrate that Mido-suji and Shinsaibashi-suji exist within completely contrasting market environments. The supply-demand balance is extremely tight in Mido-suji with the vacancy rate having fallen below 1% Driven mainly by strong demand from luxury brands, this situation is likely to continue for some time With rents having begun to rise again from Q3 2022, they should continue trending upward Shinsaibashi-suji, on the other hand, saw its vacancy rate decline in Q 2 2022 for the first time since the advent of the pandemic, a trend which continued into Q 3 2022 , with a further q-o-q drop of 0 2 pp to 19 8% This decline can largely be attributed to the fact that asking rents have finally been lowered to a level that has triggered a response in retailer demand However, relatively large vacancies commanding higher rents are still struggling to attract retailer interest In many cases, property owners would still need to lower rents further in order to draw retailer attention That should then lead to more demand and more take-ups, and only then will rents begin to rise.
That said, there are two key prerequisites for demand for space in the Shinsaibashi-suji district to be stimulated, and rents to increase:
The first is a resurgence in the number of domestic consumers visiting the area, who contribute significantly to tenants’ sales figures Foot traffic in the Shinsaibashi-suji shopping district is already on the rise (Figure 10) Compared to monthly averages of 3.99 million people in 2020 and 4.26 million people in 2021, the monthly average for the first 11 months of 2022 stands at 5 .01 million, up 18% y-o-y. Of note, November 2022 recorded some 6.39 million visitors, equivalent to 71% of the pre-pandemic November 2019 figure, despite the fact that inbound tourist numbers have yet to fully recover
The second prerequisite is the return of inbound tourist demand, which was the key driving force behind store space demand and inflationary pressure on rent prior to the pandemic Foreign tourist numbers and international flight numbers leaving from and arriving at Kansai International Airport (Figure 11) showed a steady increase from 2012 through until 2019, driven by the establishment of new routes predominantly from Asian cities, and the entry of low-cost carriers. While the strict border measures implemented from 2020 onwards halted the flow of tourists into the country, the gradual reopening of the border since March 2022 has resulted in a steady increase in the number of visitors to the Kansai region October 2022 saw the most significant relaxation yet, with the removal of the upper daily limit on entrants, the allowance of individual travelers, and the abolition of visa requirements for visitors from visa-waiver countries
Expectations are high that inbound tourist numbers will continue to recover steadily in the coming months. Some 471,000 foreign tourists arrived at Kansai International Airport in November 2022 , with a total of 3,273 international flights either landing or taking off While these figures are equivalent to 36% and 28%, respectively, of the data from the same month of 2019, prior to the pandemic, they also represent huge improvements of 229% and 154%, respectively, from the previous month
The Interim Report Regarding Future Aviation Demand for Kansai International Airport, published in August 2022 by Kansai Airports, projects international traveler numbers for the airport to reach 30.31 million by FY 2025 (up 32 .3% from FY 2018), and 32 .41 million by FY 2030 (up 41.5 % from FY 2018) in a standard scenario. Driven by demand for tickets from rapidly developing Asian nations, international visitor numbers are expected to continue to grow
CBRE’s own projections for inbound tourist numbers suggest that visitors to Japan should exceed 60 million by 2030 Future developments in the area include Expo 2025 and the opening of the Naniwasuji Railway Line in 2031, which will improve transportation access to the Shinsaibashi area from Kansai International Airport and the Shin-Osaka and Osaka railway stations
Figure 10: Monthly pedestrian numbers in the Shinsaibashi-suji shopping district and monthly averages by year
Source: Shinsaibashi-suji Shopping Centre Promotion Association, CBRE, November 2022 *Monthly average for the 2020 year excludes the data from January and February, when pandemic restrictions were not in place.
Figure 11: Foreign tourists and international flights leaving from and arriving at Kansai International Airport
people)
(flights)
Source:
Foreign tourist numbers International flight numbers
Airports, CBRE, December 2022
5
Conclusion
As the retail market in the Shinsaibashi area has become increasingly polarized between the main high streets of Midosuji and Shinsaibashi-suji, potential tenants need to adopt strategies tailored to the characteristics of each street
With the supply-demand balance staying tight, strong demand from luxury brands for store space on Mido-suji pushed prime rents up by 20% q-o-q in Q3 2022 As several luxury brands are still keen to establish new stores on the street, rents are likely to rise still further in 2023 Owners of buildings on Mido-suji command a significant advantage over tenants in the negotiation process, and are in a strong position to select the tenants which best match the image they want to cultivate for their properties from a large number of suitors Any retailers wishing to open a new store on Midosuji must therefore make their interest and intentions very clear to building owners in the area even before vacancies appear, and be prepared for a potentially long period of negotiation in competition with rivals
In Shinsaibashi-suji, although the vacancy rate declined for two straight quarters in Q 2 2022 and Q3 2022, rents continue to slide For the time being, owners may need to consider broadening the sectors from which they accept tenants, to include new players such as second-hand goods retailers They may also need to demonstrate flexibility with respect to lease conditions by lowering rents or adjusting lease periods As both domestic consumers and foreign tourists are beginning to return to the Shinsaibashi-suji shopping district, however, CBRE projects rent levels on Shinsaibashi- suji to bottom out in H1 2023, and to begin to rise from H1 2024 This means that, for retailers looking to open a new store on Shinsaibashi- suji, now is the opportune moment to do so, with plentiful vacancies in excellent locations, and a market environment conducive to negotiating tenant-friendly rents.
Appendix
Survey Overview
Survey subject
Mido - suji（Street-level store in the green area shown on the left map, 45 properties） Shinsaibashi- suji（Street-level store in the red area shown on the left map, 168 properties）
Survey method CBRE’s quarterly field work
Note Limited-time openings have not included
Contact
Kumiko Ninomiya Analyst Retail Team kumiko.ninomiya@cbre.com
Hiroshi Okubo Head of Research hiroshi.okubo@cbre.com
Kaoru Kurisu Director
Retail Team Leader kaoru.kurisu@cbre.com