Cushman & Wakefield Releases Retail Market Report for Q2 2025

Overview of the Q2 2025 Retail Market

Cushman & Wakefield (C&W), a leading global real estate services firm headquartered in Chicago, has released an insightful report on the retail market for the second quarter of 2025. This report sheds light on the evolving landscape of retail, particularly focusing on the impact of foreign tourist consumption trends and rental price dynamics in prime areas.

Economic Landscape: Decline in High-Value Consumption by Foreign Tourists

In Q2 2025, Japan is expected to experience a slight contraction with a projected annualized decline in real GDP of -0.4%. This comes despite an uptick in service exports, as inventory investments and related factors have dwindled. The core Consumer Price Index (CPI) has stabilized at around +3.3%, slightly down from its peak in January, reflecting ongoing inflationary pressures. The average real income for working households dipped by 0.8% compared to the previous year, contributing to a modest decrease in nationwide retail sales.

In examining sales by category, drugstores recorded the most significant growth at 6.6%, mainly due to their focus on essential items. Conversely, department stores suffered a substantial decline of 6.8%. This drop can mainly be attributed to a staggering 36.5% plummet in duty-free sales, which has been exacerbated by a stronger yen—appreciating approximately 7% against the dollar during the same period. Notably, high-value item demand from foreign tourists, especially from China whose visitors accounted for nearly 40% of inbound shopping expenditures, declined drastically, showing a 30% reduction year-on-year.

Rental Market Dynamics: Stability Amidst Rising Prices

Within the second quarter, rental prices in prime retail locations remained flat, yet signs of an increasing upper limit on rental rates have emerged. With limited opportunities for new store openings, growth in rental prices has been constrained by the reduction in demand for high-value item consumption by luxury brands. However, certain international retailers are continuing to pursue higher rents to maintain or enhance brand recognition, with many of these negotiations occurring in yet-to-be-constructed properties.

Interestingly, tenants focused on Z-generation consumers, particularly diverse brands from Korea, have begun to show strong demand in prime area outskirts, leading to a rise in rental rates in these locations as they set up shop in trendy districts like Harajuku.

Outlook on Rental Trends and Market Future

As we advance through 2025, the exchange rate between the dollar and yen is expected to remain influenced by the divergence in U.S. and Japanese interest rates, leading to an approximation of a 4% depreciation of the yen from the average rates observed in Q2. Additionally, concerns regarding natural disasters in East Asia have dampened visitor numbers from these areas, resulting in a slower growth rate in inbound tourism compared to the previous year.

Despite the challenges, the limited opportunities for prime street openings mean that rental increases may continue as new developments complete. Several redevelopment projects in major cities, including Nagoya's distinguished Sakae district, are on the horizon, promising to further expand prime retail areas and provide fresh opportunities for prospective tenants.

Overall, the report presents a nuanced view of the current state of the retail market as it adapts to changing consumer behaviors and global economic conditions, highlighting both challenges and opportunities for growth.

About Cushman & Wakefield

Cushman & Wakefield (C&W) is a global leader in commercial real estate services, publicly traded on the New York Stock Exchange. With around 52,000 employees across 400 offices in approximately 60 countries, C&W offers a range of services including facility management, transaction advisory, appraisal, tenant representation, leasing, and project management. For 2024, the company anticipates revenues of $9.4 billion, underscoring its commitment to excellence in the industry. To learn more, visit their official website at https://www.cushmanwakefield.com.