Goodman Group, the world’s second-biggest industrial property manager by market value, plans to increase rents in Japan by about 5 percent amid rising land and construction costs.
Prices of land sites used for distribution centers and the cost of construction, which has climbed by as much as 20 percent, are making development more expensive, said Goodman Japan Ltd. CEO Paul McGarry.
Even as demand for modern warehouses and investor interest remain strong, the supply of such facilities will be limited, he said.
The logistics property market in Tokyo is rebounding from record-high vacancy rates three years ago amid increasing demand for modern storage. The city is Asia’s second-most active warehouse market after Hong Kong, with $1.6 billion of transactions in the past year.
“What we have seen in the last six months is a sharp increase in land prices for logistics,” McGarry said, declining to provide an estimate of how much prices have risen. “There will be less supply moving forward just because the numbers don’t add up.”
The plan to increase rents comes as the administration of Prime Minister Shinzo Abe accelerates efforts to boost the economy, including measures to revive the property industry, which has been struggling since the asset bubble imploded two decades ago. The government has a target to increase assets owned by real estate investment trusts by 40 percent by 2020.
The capitalization rate, a measure of investment yield, for office buildings in Tokyo declined to 6.4 percent in February from 6.7 percent a month earlier, according to Real Capital Analytics. A drop in the cap rate, which is a property’s net income divided by the purchase price, usually signals an increase in real estate prices.
The warehouse vacancy rate in the Tokyo metropolitan area fell to 3.7 percent in the fourth quarter from 5.2 percent a year earlier, CBRE Group Inc. said. The rate has been in decline from a peak of 20 percent in September 2009.