Google is relocating from Roppongi to Shibuya, while Amazon.com is renting a new office building in Meguro to get more space, and coworking space operator WeWork is launching in Japan in 2018 in full swing. Many building owners are looking forward to having big-name international companies set up offices in their buildings so that their buildings’ brand value will increase.
New large-scale buildings are targeting foreign companies
In Japan, the working-age population is dwindling thanks to a declining birth rate and aging population. The alarm has been raised that the demand for office space will decline as well. One way to create new demand for office space is to invite overseas businesses to come set up bases in Japan. More and more are expecting this strategy to be effective. The Tokyo 2020 Olympics are a big event and a center of global attention. Though the Olympics themselves will not directly spark demand for office space, they will be a perfect “trade fair” to show to the world that Tokyo is a great environment for business, easy and comfortable to work in. Today, large-scale redevelopment projects are taking place one after another all over the central Tokyo. Their aim is to attract companies from abroad, and actually the new office buildings have succeeded in having global companies set up offices there.
Lehman Brothers collapse slowed foreign companies
Having foreign companies expand their business to Japan is of crucial importance, and could shift the Japanese economy. That’s why the Japanese government set up international strategic special zones, and has encouraged foreign businesses to set up bases in these areas with tax incentives and by other means. Tokyo’s Special Zone for Asian Headquarters includes six areas—Central Tokyo and the waterfront area, Shinjuku Station and the surrounding area, Shibuya and the surrounding area, Shinagawa and Tamachi stations and the surrounding areas, the former site of Haneda Airport, Ikebukuro and surrounding area, and invites foreign companies to set up business in these areas.
Nonetheless, it is not necessarily true that these approaches are working well. Hideki Senbuku of the JLL Japan Markets Department Office Leasing Division, which has supported many foreign companies in setting up bases in Japan, offers his opinion. “Foreign companies haven’t hit their stride yet.” We saw a large number of foreign companies streaming into Japan over the years 2000 to 2003. The Japanese economy showed signs of recovery from the burst of the economic bubble around that time, and many finance companies and IT companies based abroad expanded their business in Japan seeking business opportunities. They drove up office rents. Finance companies stopped opening offices in Japan, and now, the majority of businesses still coming to Japan are IT companies. Still, there aren’t many. However, Senbuku insists, “Ever since it was finalized that Tokyo is hosting the 2020 Olympics, the country’s economy is picking up, and foreign companies are showing positive responses. The success of the Olympics holds the key to attracting more foreign businesses.”
Japanese landlords’ expectations for inviting foreign tenants
While foreign companies are still slow to act, landlords in Japan are not shy about their eagerness to welcome them. It is true that JLL Japan is receiving more and more inquiries from landlords in Japan. However, Senbuku notes, expressing his opinion, “Indeed, more landlords expect JLL to invite global companies to set up an office in Japan and introduce these companies to their properties. However, at the end of the day, it is the companies that decide where to open an office. The most important thing is whether the building meets the needs of the companies.” He says that we can clearly see foreign companies’ unique “tastes” in their offices. Then, what kind of an office catches an eye of a global company? Although Senbuku says it “depends on the client’s ideas,” he listed three points that foreign companies have in common.
The first is location. Location is vital for nearly all leased office spaces, but global companies prefer Minato and Chiyoda Wards the most. Tech companies, in particular, love Shibuya Ward. There isn’t much demand for buildings in areas other than these three areas. According to Senbuku, this is because “Chiyoda and Minato Wards, in particular, are home to more excellent office buildings of higher grades than other areas. Moreover, Minato Ward’s biggest advantage is that there are a plenty of homes in that area that are appealing to foreigners. There are international schools, and clinics with multilingual support. The government’s services for foreign residents are better than other areas, too. The area meets the needs of foreign workers who prefer having their workplaces near their homes.”
The second point is common spaces. Foreign companies love office buildings with plenty common space, not just office space—for example restaurants, conference facilities, and lounges—and buildings whose premises are filled with greenery, too.
The third is accessibility to stations. Ideally, the building is directly connected to a station, but, according to Senbuku, “A property doesn’t need to be directly connected to a station. Having an atmosphere that excites workers in the pathways that workers take from the station to the premises, and from the entrance hall to the workspace is also a key to attracting popularity.”
Meanwhile, cutting-edge specs of A-grade offices in Tokyo—ceiling height, OA floor, AC, electricity capacity, measures for BCPs, and the like—and the safety including security are already some of the most advanced in the world, and there is no sizeable difference between properties in these aspects. It has become difficult to differentiate one building from another by specs alone, and it is expected that location and the quality of common facilities will set a building apart.
Trying to close the gap in business practices
Each country has different business practices, and this difference may give landlords a hard time when signing a lease. However, situations will vary greatly depending on companies. For example, if a foreign company appoints a foreigner staff member who has lived and worked for many years in Japan or a Japanese as CEO of its subsidiary in Japan, then it is highly likely that the company understands Japanese business practices in regard to real estate leasing. However, JLL Japan often deals with overseas businesses that are not familiar with Japan. For such companies, we provide lectures on Japanese business practices in regard to real estate leasing, and, in some cases, introduce them to lawyers, or assist in translating the lease agreement. By providing these services, we support owners of buildings in Japan who have little experience in dealing with foreign companies. Therefore, we are able to prevent any trouble that may be caused by the differences in business practices from popping up in the steps leading up to the signing of the lease and strike a deal smoothly.
“Among Japanese landlords, there’re two extremes in approaches to leasing properties to a foreign company. Forward-looking developers are welcoming foreign tenants, but more conservative landlords and others are still shying away. Currently, there’re only a handful of landlords that are welcoming foreign companies as tenants, and they are attracting all the demand,” says Senbuku. In terms growth, tech startups have the potential to make big breakthroughs and go from chump to champ. Foreign companies may be more active as 2020—the year of Tokyo Olympics—approaches.