TOKYO -- A rush of new construction is expected to lift distribution center space in the Tokyo area to a record this year, with Japanese and foreign companies investing in new capacity to keep up with the growth of e-commerce.
Trading house Sumitomo Corp. and U.S.-based Prologis are among those investing tens of billions of yen in new logistics property around the Japanese capital.
A total of 1.08 million sq. meters of large-scale distribution center space has opened in the Tokyo area this year, up 7% from 2015, according to real estate services company Jones Lang LaSalle's Japanese office. That is the equivalent of 23 Tokyo Domes. Another 1.11 million sq. meters of space is expected to become available next year.
Large-scale distribution centers measure at least 10,000 sq. meters. Many stand three or more floors.
About 500,000 sq. meters a year is needed just to handle online order fulfillment, Jones Lang LaSalle reckons. Online retailers compete not only on price but on services including same-day delivery.
Amazon Japan's Prime Now service, available since last fall in Tokyo, Osaka and three other Japanese cities, delivers some orders within an hour. Not to be outdone, homegrown rival Rakuten touts delivery times as short as 20 minutes for food and some other items in parts of Tokyo.
Sumitomo has moved to capitalize on demand for logistics facilities by spending a total of 26 billion yen ($248 million) on for-lease distribution centers in Osaka and Narashino, a city near Tokyo. It will open new centers in Yokohama and Osaka next year and in Sagamihara, southwest of Tokyo, in 2018, for a total of 76 billion yen in investments over three years.
After that, plans call for two or three new facilities a year, representing around 30 billion yen in annual investment. All are located near urban centers to facilitate faster deliveries.
Prologis will invest 50 billion yen a year in Japanese logistics properties equipped with efficiency-improving features such as ramps that allow delivery trucks to drive directly to each floor.
The need for labor-saving logistics facilities is great among online retailers. Modern warehouses lend themselves to automation -- an important innovation at a time when workers are in short supply. Japan has few high-efficiency distributions centers, so there is demand for state-of-the-art facilities, a Prologis representative says.
Singapore-based Global Logistic Properties' Japanese arm plans to open one of the country's biggest distributions centers, measuring a total of 320,000 sq. meters, in Nagareyama, northeast of Tokyo, by 2018.
Logistics property also provides an investment vehicle for yield-hungry pension funds and other institutions. A number of logistics-themed real estate investment trusts have listed on the Tokyo Stock Exchange. Among private offerings, Diamond Realty Management, a unit of trading house Mitsubishi Corp., has raised 20 billion yen for a fund with a logistics focus.