Japan Retail MarketView Q3 2023

MarketView | JAPAN RETAIL | Q3 2023

MARKETVIEW | JAPAN RETAIL | Q3 2023

High street rents rise sharply in Kansai; Rents in Shinsaibashi and Kobe now above pre-COVID levels + 6.6% y-o-y Jul. to Sep. Retail Sales*

+ 9.5% y-o-y Jul. to Sep. Department store sales**

ｰ 1.0pts m-o-m

Consumer confidence index*** Sep. 2023

ｰ 3.2pts q-o-q

+ 1.2% q-o-q

Ginza High Street Vacancy Rate **** Q3

Starting 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.

Ginza High Street Rent **** Q3

Source: *Ministry of Economy, Trade and Industry **Japan Department Stores Association ***Japanese Cabinet Office ****CBRE

Figure 1: High street vacancy (upper graph) & prime rent/high street rents (lower graph) in Q3 2023

As the economy continues to re-open, monthly retail sales have now exceeded the level just before the COVID-19 outbreak by more than 10%. The number of overseas visitors to Japan is steadily recovering, with the amount spent by foreign visitors to Japan in Q3 2023 not only exceeding the level of the same period in 2019, just before the onset of the pandemic, but reaching a record high for a single quarter. Along with the recovery in consumer activity, demand for new store openings on the high streets of Japan’s major cities increased over the quarter, led by requirements from drugstores, Japanese apparel bands, cosmetics, food & beverage, and other sectors which had remained static during the pandemic.

15%

With availability becoming scarce in some areas, leasing activity by luxury brands, which has generally maintained steady momentum even in the midst of the pandemic, has slowed. However, as underlying demand remains strong, numerous cases were observed this quarter of rents being raised because of multiple retailers competing for a single unit. High street rents rose q-o-q in Tokyo, Kyoto, Osaka, and Kobe in Q3 2023, exceeding pre-pandemic levels in Shinsaibashi and Kobe for the first time.

500,000

12% 9% 6%

神戸

栄

天神

Tenjin

京都

Sakae

心斎橋

Kobe

渋谷

Kyoto

新宿

Shinsaibashi

JPY/tsubo

表参道・原宿

Shibuya

Ginza

銀座

Shinjuku

0%

Omotesando Harajuku

3%

400,000 300,000 200,000 100,000 0

Prime Rent

High Street Rent

Source: CBRE, Q3 2023.

1

CBRE RESEARCH

© 2023 CBRE, INC.

MarketView | JAPAN RETAIL | Q3 2023

Figure 2: Ginza high street rent (JPY/tsubo)

▶ Forecast

270,000

Availability in prime properties tightens amid strong retailer demand

260,000

Ginza high street vacancy rate for Q3 2023 fell by 3.2 pp q-o-q to 3.5%, as number of vacant spaces were filled while there were limited additional vacancy. Demand from retailers for space in Ginza remained strong in Q3 2023, mainly from the cosmetics, sporting goods and apparel categories. Retail units with the locations and specifications particularly sought after by luxury brands are now becoming scarce. High street rents stood at JPY 260,600 per tsubo per month, up 1.2% q-o-q and 1.0% above Q4 2019, immediately prior to the onset of the pandemic. Given the current tight supply and demand situation, Ginza high street rents are expected to continue to rise and are forecasted to be 2.8% above the current level in one year’s time.

250,000

In Omotesando and Harajuku, the high street vacancy rate in Q3 2023 fell by 1.5 pp q-o-q to 5.7%.

The availability of units in prime locations, which remain keenly sought after by luxury brands, is gradually tightening. This quarter nevertheless saw multiple retailers open stores, including watch brands, men's tailors, foreign leather goods, interior goods, domestic apparel, and cosmetics.

Strong demand for new store openings was also observed from a wide range of businesses including domestic and international apparel and shoe brands, as well as fitness, sporting goods, and food retailers. High street rents for this quarter stood at JPY 198,800 per tsubo per month, up 5.3% q-o-q.

Shinjuku high street vacancy rate in Q3 2023 was flat q-o-q at 6.7%. A foreign shoe brand and a watch brand opened stores this quarter, while restaurants, furniture, and domestic sports brands were also seen looking for available premises. Meanwhile, owing to the lack of confirmed rents among new store openings this quarter that would raise the overall market-level, high street rents remained unchanged q-o-q at JPY 170,000 per tsubo per month.

Shibuya high street vacancy rate in Q3 2023 was up 1.2 pp q-o-q at 4.1%, with one new vacancy confirmed at one premise. Meanwhile, the area saw several openings by second-hand stores, restaurants, and mobile shops. One unit secured a tenant for the first time since it was put on the market four years ago. Demand for new store openings was seen from a wide range of sectors, including luxury, food and beverage, cosmetics, sports brands, domestic eyewear brands, and capsule toy shops. High street rents rose 1.3% q-o-q to JPY 129,400 per tsubo per month.

240,000 Q3 2024

Q2 2024

Q1 2024

Q3 2023

Q2 2023

Q1 2023

Q4 2022

Q3 2022

Q2 2022

Q1 2022

Q4 2021

Q3 2021

Q2 2021

Q1 2021

Q4 2020

Q3 2020

Q2 2020

Q1 2020

Q4 2019

Q3 2019

230,000 Q4 2023

Tokyo

Source: CBRE, Q3 2023.

Figure 3: Number of new store openings by location

60 40 20 0

2022 2023 Ginza

2022 2023 Omotesando

Q1

Q4

Q2

Q3

2022 2023 Harajuku

2022 2023 Shinjuku

2022 2023 Shibuya

Source: CBRE Research, company press releases and media reports CBRE, Q3 2023.

Figure 4: Number of new store openings by sector*

60

Other Reuse Showroom Furniture&Goods Drug Store Health&Beauty Outdoors&Sports F&B Luxury Fashion

40

20

0

Q3 2022

Q4 2022

Q1 2023

Q2 2023

Q3 2023

*The data covers five areas, including Ginza, Omotesando, Harajuku, Shinjuku, and Shibuya Source: CBRE Research, company press releases and media reports CBRE, Q3 2023.

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CBRE RESEARCH

© 2023 CBRE, INC.

MarketView | JAPAN RETAIL | Q3 2023

Figure 5: High street vacancy rate & high street rent in Ginza (JPY/tsubo)

Figure 6: High street vacancy rate & high street rent in Omotesando/Harajuku (JPY/tsubo)

9%

270,000

9%

210,000

6%

250,000

6%

190,000

3%

230,000

3%

170,000

210,000

0%

0% Q3 2022 Vacancy Rate

Q4 2022

Q1 2023

Q2 2023

Q3 2023

Vacancy Rate

High Street Rent

Q4 2022

Q1 2023

Q2 2023

Q3 2023

High Street Rent

Source: CBRE, Q3 2023.

Source: CBRE, Q3 2023.

Figure 7: High street vacancy rate & high street rent in Shinjuku (JPY/tsubo)

Figure 8: High street vacancy rate & high street rent in Shibuya (JPY/tsubo)

9%

180,000

9%

130,000

6%

170,000

6%

120,000

3%

160,000

3%

110,000

150,000

0% Q3 2022 High Street Rent Vacancy Rate

Source: CBRE, Q3 2023.

3

150,000 Q3 2022

CBRE RESEARCH

Q4 2022

Q1 2023

Vacancy Rate Rent High Street

Q2 2023

Q3 2023

0%

100,000 Q3 2022 Vacancy Rate

Q4 2022

Q1 2023

Q2 2023

Q3 2023

High Street Rent

Source: CBRE, Q3 2023.

© 2023 CBRE, INC.

MarketView | JAPAN RETAIL | Q3 2023

Kansai Rents increase significantly in all areas, with those in Kobe and Shinsaibashi exceeding pre-pandemic levels Shinsaibashi high street vacancy rate in Q3 2023 fell 0.6 pp q-o-q to 2.8%. While number of vacant spaces were filled, there were no additional vacancy during the quarter. Several retailers including a foreign sports brand and a Japanese apparel brand opened new stores. The period saw newly built properties receive multiple enquiries from a range of retailers in categories such as drug stores and second-hand goods. In addition to sports brands, lifestyle brands, accessories, and capsule toy shops, demand was also seen from retailers planning to open pop-up stores during the upcoming Expo. With availability of street-level stores becoming tighter, some landlords are planning to take advantage of the expiration of their existing tenant's contract and replace them with a retailer with higher sales performance. High street rents stood at JPY 204,000 per tsubo per month as of quarter’s end, representing an increase of 5.7% q-o-q and 3.0% higher than the level in the quarter immediately prior to the onset of the pandemic.

In Umeda, several premises received enquiries from food and beverage retailers this quarter.

Demand was also seen from a wide range of sectors including household goods, an insurance agency, and second-hand goods. High street rents stood at JPY 114,000 per tsubo per month, a significant increase of 12.3% compared to the previous quarter. While leasing activity is returning to pre-pandemic levels, thanks in part to an increase in the number of inbound tourists, there is a lack of space to meet demand for new store openings, leading to a rise in market rents.

Kyoto high street vacancy rate in Q3 2023 fell 2.7 pp q-o-q to 5.3%. With availability in existing premises decreasing further over the quarter, demand is now shifting to properties slated for completion in 2024 and 2025. This quarter saw watch brands, retailers focused on inbound demand, apparel, and outdoor stores open new stores. Other demand for new openings came from drug stores, furniture, women's fashion, and accessory shops. High street rents reached JPY 93,000 per tsubo per month, an increase of 9.4% compared to the previous quarter.

Kobe high street vacancy rate in Q3 2023 fell 1.2 pp q-o-q to 4.0%. During the quarter, drug stores, mobile shops, and high-end furniture brands unveiled new stores in Q3 2023. Leasing demand was also witnessed from sectors such as capsule toy shops, casual fashion, and overseas patisseries.

High street rents for the quarter stood at JPY 99,500 per tsubo per month, a significant increase of 23.6% compared to Q2 2023, and 4.7% higher than the level immediately prior to the onset of the pandemic.

Figure 9: High street vacancy rate & high street rent in Shinsaibashi (JPY/tsubo)

15%

205,000

10%

185,000

5%

165,000

0%

145,000 Q3 2022 Vacancy Rate

Q4 2022

Q1 2023

Q2 2023

Q3 2023

High Street Rent

Source: CBRE, Q3 2023.

Figure 10: High street vacancy rate & high street rent in Kyoto (JPY/tsubo)

9%

95,000

6%

85,000

3%

75,000

0%

65,000 Q3 2022 Vacancy Rate

Q4 2022

Q1 2023

Q2 2023

Q3 2023

High Street Rent

Source: CBRE, Q3 2023.

Figure 11: High street vacancy rate & high street rent in Kobe (JPY/tsubo)

9%

105,000

6%

95,000

3%

85,000

0%

75,000 Q3 2022

Vacancy Rate

Q4 2022

High Street Rent

Q1 2023

Q2 2023

Q3 2023

Source: CBRE, Q3 2023.

4

CBRE RESEARCH

© 2023 CBRE, INC.

MarketView | JAPAN RETAIL | Q3 2023

Nagoya: Sakae

Fukuoka: Tenjin

Rents remain unchanged for fourth consecutive quarter despite tightening supply

Demand for store openings seen from wide range of sectors, but rents remain flat

Sakae high street vacancy rate in Q3 2023 recorded fourth consecutive quarter of 0.0%.

Availability remained extremely low, resulting in very few leasing transactions. New openings included a foreign sports brand, while other highlights saw an apparel group lodge an application for a lease in another property. Demand for new store openings was seen from a wide range of sectors, including drug stores, golf manufacturers, watch brands, outdoor stores, food and beverage, accessories, and second-hand goods. One cosmetics brand was seen to be considering opening a store in a property where a different cosmetic brand has decided to close, while a luxury brand was seen to be planning to open a store in a newly developed property. High street rents were unchanged for a fourth consecutive quarter, at JPY 71,000 per tsubo per month. Although demand is high and space is limited, retailers in the area remain conservative regarding their sales and cost assumptions, resulting in a lack of upward momentum to raise market rents.

Figure 12: High street vacancy rate & high street rent in Sakae

Figure 13: High street vacancy rate & high street rent in Tenjin

6%

75,000

6%

60,000

4%

70,000

4%

55,000

2%

65,000

2%

50,000

60,000

0%

0% Q3 2022

Q4 2022

High Street Rent Vacancy Rate

Source: CBRE, Q3 2023.

5

Tenjin high street vacancy rate in Q3 2023 was unchanged q-o-q at 2.5%. Tenjin saw new openings by eyewear brands, mobile shops, capsule toy shops, and cafes. Leasing demand was seen from a variety of sectors including cosmetics, second-hand, domestic and overseas apparel brands, and watch brands. CBRE also observed cases of fashion brands considering relocating from shopping centres and/or department stores to street-level stores. Although rents on Tenjin’s high street increased in both Q1 2023 and Q2 2023 and have now risen 19.4% from the bottom of the market seen at the height of the pandemic, they remained unchanged this quarter at JPY 55,500 per tsubo per month.

CBRE RESEARCH

Q1 2023

Vacancy Rate High Street Rent

Q2 2023

Q3 2023

45,000 Q3 2022 Vacancy HighRate Street Rent

Q4 2022

Q1 2023

Q2 2023

Q3 2023

High Street Rent Vacancy Rate

Source: CBRE, Q3 2023.

© 2023 CBRE, INC.

MarketView | JAPAN RETAIL | Q3 2023

Figure 14: Vacancy Rate

Figure 15: High Street Rent (JPY / Tsubo / Month)

Q3 2022 Q4 2022 Q1 2023 Q2 2023 Q3 2023

Q4 2022

Q1 2023

Q2 2023

Q3 2023

Ginza

241,500

250,700

257,600

257,600

260,600

Omotesando/Harajuku

183,800

188,800

188,800

188,800

198,800

Shinjuku

170,000

170,000

170,000

170,000

170,000

Shibuya

127,800

127,800

127,800

127,800

129,400

Shinsaibashi

152,000

152,000

164,000

193,000

204,000

Umeda

94,500

96,500

101,500

101,500

114,000

Kyoto

68,500

71,000

80,000

85,000

93,000

Kobe

80,000

80,000

80,500

80,500

99,500

Ginza

7.7%

7.6%

6.2%

6.7%

3.5%

Omotesando/Harajuku

4.9%

5.6%

6.7%

7.2%

5.7%

Shinjuku

6.6%

6.6%

6.6%

6.7%

6.7%

Shibuya

3.5%

6.9%

5.9%

2.9%

4.1%

Shinsaibashi

14.0%

7.6%

4.6%

3.4%

2.8%

Kyoto

6.8%

6.6%

7.8%

8.0%

5.3%

Kobe

7.5%

6.0%

5.2%

5.2%

4.0%

Nagoya

Sakae

0.4%

0.0%

0.0%

0.0%

0.0%

Nagoya

Sakae

70,000

71,000

71,000

71,000

71,000

Fukuoka

Tenjin

4.5%

2.5%

3.0%

2.5%

2.5%

Fukuoka

Tenjin

46,500

46,500

47,500

55,500

55,500

Q3 2022

Q4 2022

Q1 2023

Q2 2023

Q3 2023

Ginza

400,000

400,000

400,000

400,000

400,000

Omotesando/Harajuku

350,000

350,000

350,000

350,000

350,000

Shinjuku

300,000

300,000

300,000

300,000

300,000

Shibuya

300,000

300,000

300,000

300,000

300,000

Shinsaibashi

300,000

300,000

300,000

350,000

350,000

Umeda

130,000

130,000

130,000

130,000

180,000

Kyoto

100,000

100,000

110,000

120,000

135,000

Kobe

150,000

150,000

150,000

150,000

200,000

Nagoya

Sakae

100,000

100,000

100,000

100,000

100,000

Fukuoka

Tenjin

100,000

100,000

100,000

100,000

100,000

Tokyo

Kansai

Tokyo

Kansai

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.

Source: CBRE, Q3 2023.

Source: CBRE, Q3 2023.

Figure 16: Area Traffic Volume (Q3 2023)

Figure 17: Prime Rent (JPY / Tsubo / Month)

Ginza

Tokyo

Omotesando/Harajuku Shinjuku Shibuya Shinsaibashi

Kansai

Kyoto Kobe

Nagoya

Sakae

Fukuoka

Tenjin

Q-o-Q

Y-o-Y

－15%

－13%

－13%

－19%

－8%

－11%

－11%

－10%

－3%

－12%

－6%

－10%

－11%

CBRE RESEARCH

Tokyo

－16% －12%

Kansai

－18%

－12%

－10%

Source: Giken Shoji International “KDDI Location Analyzer*” CBRE, Q3 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.

6

Q3 2022

Source: CBRE, Q3 2023.

© 2023 CBRE, INC.

MarketView | JAPAN RETAIL | Q3 2023

Terms and Definitions

Vacancy Rate Subject Area Prime rent/ High Street Rent Area Traffic Volume Term

Survey method

Quarterly

Tokyo

Kanazawa

• Vacancy rate cover all units for lease, including those on the ground floor in the high street areas assigned by CBRE • Tokyo - Ginza :149 properties, Omotesando/Harajuku: 240properties, Shinjuku: 61 properties, Shibuya: 66 properties • Kansai - Shinsaibashi: 184 properties, Kyoto: 178 properties, Kobe: 105 properties • Nagoya - Sakae: 53 properties • Fukuoka - Tenjin: 202 properties

Meiji Yasuda Seimei Building 2-1-1 Marunouchi, Chiyoda-ku, Tokyo

Aube II Building 5-177 Kuratsuki, Kanazawa-shi, Ishikawa

• Ground floor retail space for lease located in retail markets in the high street areas assigned by CBRE with floor area of approx. 200 square meters.

Grand Front Osaka 4-20, Ofuka-cho, Kita-ku, Osaka-shi, Osaka

• The retail market areas assigned by CBRE Q1) End of March Q2) End of June Q3) End of September Q4) End of December

Vacancy Rate

• Physically available for tenants at the time of survey

Prime rent

• Based on sample survey of the subject area, including CAM, and excluding any incentive such as free rent • Rents for prime areas within the main retail districts in major cities

High Street Rent

• Average of the upper rents and lower rents based on sample survey of the subject area, including CAM, and excluding any incentive such as free rent

Area Traffic Volume

Contacts

Hiroshi Okubo Head of Research

Osaka

• y-o-y and q-o-q % changes of traffic volume in the subject area

Sapporo Nihon Seimei Sapporo Building 4-1-1 Kitasanjonishi, Chuo-ku, Sapporo-shi, Hokkaido

Sendai Sendai Mark One 1-2-3 Chuo, Aoba-ku, Sendai-shi, Miyagi

Nagoya Miyuki Building 3-20-27 Nishiki, Naka-ku, Nagoya-shi, Aichi

Hiroshima Shishinyo Building 3-17 Fukuromachi, Naka-ku, Hiroshima-shi, Hiroshima

Fukuoka Fukuoka Center Building 2-2-1 Hakata-Ekimae, Hakata-ku, Fukuoka-shi, Fukuoka

Yokohama Yokohama ST Building 1-11-15 Kitasaiwai, Nishi-ku, Yokohama-shi, Kanagawa

hiroshi.okubo@cbre.com

© Copyright 2023. All rights reserved. This report has been prepared in good faith, based on CBRE’s current anecdotal and evidence based views of the commercial real estate market. Although CBRE believes its views reflect market conditions on the date of this presentation, they are subject to significant uncertainties and contingencies, many of which are beyond CBRE’s control. In addition, many of CBRE’s views are opinion and/or projections based on CBRE’s subjective analyses of current market circumstances. Other firms may have different opinions, projections and analyses, and actual market conditions in the future may cause CBRE’s current views to later be incorrect. CBRE has no obligation to update its views herein if its opinions, projections, analyses or market circumstances later change.

7

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