Quick Links
Japan’s logistics sector, long viewed as a barometer of the country’s industrial health, is approaching a structural turning point. Supply, which has run ahead of demand for much of the past six years, is now projected to lag starting in 2027 — a rare reversal in one of the world’s most modernized distribution hubs. For investors tracking Japan logistics real estate, the shift marks a critical moment.
The trigger is not a single factor but a convergence: rising construction costs, supply bottlenecks, a shrinking labor force, and persistently strong tenant appetite for modern multi-tenant logistics facilities (LMT). Add to this Japan’s continued magnetism for cross-border capital, and the next two years are set to redraw the map for the Tokyo warehouse market and beyond.
Construction Backlogs and Rising Costs
The stress is evident upstream. By May 2025, backlogs in non-residential private-sector construction reached JPY 10.4 trillion, a jump of nearly 50% in three years, according to CBRE. Large-scale redevelopment projects in Tokyo, Osaka, and Nagoya have stretched contractors thin. At the same time, manufacturers are ramping up investment in production bases, pushing demand beyond headline redevelopment.
Contractors face not just project overload but also a systemic labor shortage. Japan’s construction workforce is aging rapidly, with limited inflows of younger labor. Ongoing work-style reforms — designed to attract and retain employees — have elongated project timelines, leaving developers to contend with higher bids than originally penciled in when land was acquired.
This mismatch is feeding directly into higher construction costs. Developers are seeing more bids that surpass their acquisition-era estimates, adding risk to speculative development. For Japan logistics real estate, where efficiency and cost alignment are critical, these pressures make new builds increasingly complex.
The Coming Supply Crunch
From 2011 to 2022, rents for LMT facilities in Greater Tokyo rose 12%, reflecting steady demand. But since then, rent growth has moderated, with mild increases confined to the Tokyo Bay and Gaikando areas while the Ken-o-do belt has stagnated. Developers, weighing rising input costs against flat rental trajectories, are scaling back.
The supply pipeline tells the story starkly. CBRE forecasts new LMT supply in Greater Tokyo at 465,000 tsubo in 2025, 525,000 tsubo in 2026, and just 152,000 tsubo in 2027. That final figure marks an 83% plunge from the 2023 peak, and the lowest annual output in 15 years.
For the Tokyo warehouse market, this is a pivotal shift. Developers are becoming more selective, directing capital only to assets and locations where rental growth can be reliably achieved. In effect, the era of abundant new logistics stock in Tokyo is drawing to a close, setting up the imbalance that will drive Japan logistics demand 2027 headlines.
Demand That Refuses to Cool
While supply contracts, demand remains firm. Net absorption hit 509,000 tsubo in 2024, supported by tenants seeking modern, multi-level facilities that cut delivery times and optimize truck access. Logistics hubs that allow shorter delivery distances and offer employee-friendly amenities are now favored.
This shift reflects structural pressures on tenants themselves. Rising fuel prices and labor costs are forcing operators to sharpen efficiency. Tenants are no longer taking any facility that becomes available; they are scrutinizing locations, designs, and working environments. Yet overall appetite is not waning.
CBRE projects net absorption of 363,000 tsubo in 2025, 507,000 tsubo in 2026, and 279,000 tsubo in 2027. Even with a modest dip in 2027, absorption will still exceed new supply, creating a demand surplus of 127,000 tsubo — the largest in nearly a decade.
For analysts monitoring Japan logistics demand 2027, this represents the long-awaited turning point: absorption finally outpacing supply. For the first time since 2021, Greater Tokyo will transition from oversupply to demand-driven conditions.
Tokyo in the Asia Pacific Context
The dynamics in Tokyo are not isolated. Across Asia Pacific, commercial real estate investment climbed 23% year-on-year in 2024, totaling $131.3 billion, according to JLL. Cross-border investment was a standout, hitting $23.8 billion, up 43% from 2023, underscoring global appetite for Asia’s logistics and office assets.
Japan emerged as one of the strongest magnets in this trend. Q4 2024 alone saw $10.7 billion in trades, a 145% year-on-year surge, with logistics and office assets leading flows. This momentum came despite an upward path for interest rates, with investors adopting value-add strategies to mitigate higher debt costs.
For the Tokyo warehouse market, international capital adds another layer of competition. Large portfolio transactions in Japan, Australia, and India are compressing yields, highlighting a regional bid for scale. For Japan logistics real estate, this means the coming supply scarcity could amplify investor competition — and potentially stabilize rents despite construction-led cost pressures.
Occupier Behavior and Strategic Shifts
Tenants’ criteria are evolving quickly. Beyond location efficiency, occupiers now weigh employee well-being heavily. Facilities with on-site amenities and improved working environments are in higher demand, reflecting companies’ need to attract scarce logistics labor.
At the same time, supply chain resilience remains a strategic driver. Tenants are repositioning logistics hubs to reduce exposure to disruptions, whether from geopolitical risk, natural disasters, or transport bottlenecks. This reconfiguration feeds directly into the sustained absorption levels seen in the CBRE forecasts and further strengthens Japan logistics demand 2027.
Investor Takeaways
The convergence of these trends sets the stage for a market where scarcity could become the central theme. Three insights stand out for investors:
- Timing Matters – The sharp supply contraction projected for 2027 positions 2025–26 as the last window of relatively abundant completions. Investors entering during this period may find greater choice before scarcity sets in.
- Quality Will Drive Rent Stability – While headline rents in Greater Tokyo are projected to remain subdued, prime hubs like Tokyo Bay may see firmer pricing. For the Tokyo warehouse market, investors should prioritize submarkets where tenant demand aligns with long-term supply constraints.
- Cross-Border Capital Intensifies Competition – With Japan drawing a record surge of overseas investment in 2024, competition for logistics assets is set to heighten. The gap between domestic and foreign capital strategies could widen, particularly as overseas investors adopt value-add plays to offset debt costs in Japan logistics real estate.
The Broader Risk Picture
Japan’s logistics story does not unfold in a vacuum. Construction costs tied to labor shortages remain a structural risk. Even as rents stabilize, the feasibility of new development hinges on whether cost inflation can be contained. Additionally, macro uncertainties — from U.S. fiscal policy shifts to interest rate cycles — will shape funding conditions for investors across Asia Pacific.
Still, the combination of a shrinking pipeline and sustained absorption creates a supply-demand picture tilted in favor of landlords from 2027 onward. For tenants, the challenge will be securing suitable space in a tightening Tokyo warehouse market. For investors, the scarcity premium may offset subdued rental growth, especially in prime hubs.
Conclusion
Japan’s logistics sector is heading toward a rare market imbalance: demand poised to outstrip supply. The transition, expected by 2027, reflects deep structural forces — from contractor backlogs and labor shortages to evolving tenant needs and cross-border capital inflows.
For a market accustomed to oversupply, this reversal marks a pivotal moment. Developers will need to recalibrate strategies, tenants will compete more fiercely for prime space, and investors will navigate a landscape where scarcity, not surplus, drives opportunity.
Within this landscape, Japan logistics real estate becomes a focal point for both domestic and foreign capital. The Tokyo warehouse market is likely to experience the sharpest competition, while forecasts around Japan logistics demand 2027 suggest an inflection point with lasting effects.
In the broader Asia Pacific context, where commercial real estate investment is accelerating and logistics remains a favored sector, Japan’s supply crunch could emerge as one of the region’s defining stories in the second half of the decade.
