The bid to privatise Croesus Retail Trust that was announced last week could spark further interest among local investors in Japan's retail sector.
Phillip Securities Research (Singapore) noted in a June 29 report that the recovering economy - with consumption and tourism on the rise ahead of the 2020 Tokyo Olympics - is underpinning prospects and likely played a part in private equity firm Blackstone's buyout offer for Croesus, which has 11 malls.
Retail rents have also been gradually rising, especially in the prime retail spaces of Tokyo and Osaka, after previous quarters of soft growth.
Retail is an actively traded asset class in Japan, said Cushman & Wakefield research manager Timothy Gregersen, noting that transaction activity has averaged 135 billion yen (S$1.7 billion) a quarter since early 2015.
Rents are expected to remain high in prime areas, with CBRE noting in a first-quarter summary that Tokyo prime rents have been flat quarter on quarter for seven consecutive quarters, at about $137 per sq ft a month.
In comparison, CBRE pegged prime Orchard Road retail rents at about $32 per sq ft a month in the same period.
Retail rents are tracked by street shops in Tokyo but measured by malls in Singapore.
JLL research manager Naoko Iwanaga told The Straits Times: "We consider the recent slowdown of prime retail rents as cyclical, and not as a reflection of less spending by tourists."
JLL Japan remarked in its first-quarter market summary that "with rents approaching the previous peak level, growth should moderate further".
Crucially, rents have not yet peaked, Mr Gregersen said. "There are some areas, such as Ginza, that do look a bit top-heavy but, conversely, there isn't much catalyst for a drop either, so the expectation is that they will stay where they are."
Mr Tetsuya Kaneko, director and head of research and consultancy at Savills, said: "Changes in consumer spending patterns and growing inbound tourism should give investors interesting opportunities.
"While the domestic retail sector is likely to slowly decrease, due to both shrinking population and growing e-commerce, tourism-related retail is expected to grow continuously."
Tourist arrivals in Japan have been growing over the past five years and hit 24 million last year, up from 19.7 million in 2015, according to the Japan National Tourism Organisation.
These visitors spent a record 3.75 trillion yen, up from 3.48 trillion yen the year before. Visitors from mainland China made up about 26.5 per cent of last year's travellers.
Despite weak growth in domestic private spending - Japan's retail sales in May were up just 2 per cent from a year before and, in fact, fell month on month by 1.6 per cent from April - the industry is pinning its hopes on changing spending habits and the increasing clout of foreign shoppers.
Take leading shopping centre developer Aeon Mall, where revenue was 269.8 billion yen for the 12 months to Feb 28, up 17.4 per cent on a year earlier.
The firm noted that it would explore "acquiring new customer segments and uncovering potential consumer demand" in the domestic Japanese market.
This could reflect the growing attractiveness of pharmacies and other mass outlets over the luxury items that have traditionally been a mainstay of shopping in Japan.
Nikkei Asian Review reported in March that pharmacy chains are overtaking department stores in sales, raking in 6.49 trillion yen in the 2016 financial year against department stores' 5.97 trillion yen. More than 40 per cent of those pharmacy sales came from cosmetics and daily goods.
Mr Gregersen said that while Tokyo's political and economic stature make it a focal point for retailers and new investors, "diversification would be the primary benefit" regional hubs such as Osaka and Nagoya offer.
Mr Kaneko said: "Thanks to burgeoning tourism, especially for Osaka, the Osaka retail sector is best positioned to capture growth."
