Investors hone in on Japan’s logistics market

Japanese consumers have been embracing e-commerce since the COVID pandemic, with e-commerce sales making up 11.8% of total retail sales in Japan in 2021, according to eMarketer data.

Commenting on the market, Yoshiyuki Takano, Head of Travel & Mobility Business at Rakuten Group said that “Japan was not that advanced of a country in terms of internet service. Online share of all consumption was 7% before the pandemic in Japan, which is very low compared with US/Europe. However, the pandemic accelerated the online shift. In Rakuten, e-commerce sites and fin-tech services have performed very well after the pandemic. As for the e-commerce site, its transaction volumes became 1.5 times bigger than pre-Covid.”

Omnichannel shopping has proved popular in the region, particularly amongst luxury shoppers; although many consumers still prefer to shop in person, a McKinsey survey found that around 41% of luxury fashion shoppers will research and purchase across various channels. Cashless payments are also gaining ground, facilitating access to e-commerce purchases. According to Adjust research, fintech charted the highest session growth of all app categories during the first half of 2022. There is also a push from the Japanese government to encourage cashless payments; the government aims for at least 40% of all transactions to be cashless by 2025.

Cross-border e-commerce has continued to grow in popularity. With Japan’s GDP lowering since the COVID pandemic, the yen has depreciated in value. This has led to an increase in international buyers from Japanese e-commerce websites, as Japanese products are now cheaper than they have been in previous years.

As such, Ti data shows that the Japanese e-commerce logistics market is the second largest in the Asia Pacific region. This opportunity has not been lost on investors. In March 2022 Hong Kong-listed ESR Cayman—a warehouse developer backed by investors including Warburg Pincus and Singapore tycoon John Lim—announced plans to build a $1.5bn logistics park in Osaka, Japan in the next few years to tap the growing demand from e-commerce players and logistics companies.

Similarly, GLP announced it would invest $8.7bn in facilities across Japan to capitalise on the recent surge of e-commerce. GLP’s investment will look to modernise and automate Japan’s infrastructure, which is increasingly vulnerable to worker shortages. Yoshiyuki Chosa, president of GLP Japan, stated that “there’s a lot of room to grow” within the Japanese e-commerce logistics market. 

E-commerce giant Amazon has also been investing in its infrastructure in the country; the marketplace opened its largest Japan warehouse in March 2022, with a total size of 100,000 sq m. Amazon stated its facility can also store up to 40% more inventory and can offer a wider selection of products. Amazon hopes that this new facility will enable it to offer a wider range of business opportunities to small and medium-sized retailers who deliver products to customers in Japan using Fulfilment by Amazon. 

Investor interest in the sector remains robust. Logistics real estate supply in both 2022 and 2023 is expected to surpass the record levels seen in 2021, according to Savills. However, the market is facing some serious headwinds; the country’s economic outlook has been downgraded due to upside inflation, weak currencies, and the escalation of sanctions against Russia. In a consolidated market that is also suffering from chronic labour shortages and heightened development costs, it remains to be seen whether the excitement of investors will continue into the next year.  

Source: Transport Intelligence, November 1, 2022

Author: Michael Sinclair