Flexible spaces have been increasing rapidly in the Tokyo market. Flexible spaces are shared offices that are rented to outside users, such as service offices, coworking spaces, and satellite offices. They are named as such because they are intended to be used flexibly. Among flexible spaces, coworking spaces are increasing in Tokyo at particularly high speeds.
It started with “work style reform”
According to Spotting the Opportunities: Flexible Space in Asia Pacific (translated version), a survey report released by JLL Japan in July 2018, the amount of flexible spaces in major 12 cities in Asia-Pacific region achieved a 35.7% annual average growth rate from 2014 to 2017, greatly exceeding those in the U.S. (25.7%) and Europe (21.6%). Growth in the Asia-Pacific region is outstanding, but flexible spaces have achieved over 20% growth in Europe and the United States, as well. Demand is growing all over the world.
Tokyo, one subject of the research in the above report, is no exception. If you take a look at Coworking Spaces Expanding in the Tokyo Office Market, a survey report by JLL Japan, you will see that the floor space of flexible spaces is expanding rapidly in the five wards of central Tokyo (Chiyoda Ward, Chuo Ward, Minato Ward, Shibuya Ward, and Shinjuku Ward). The floor space of flexible spaces in the city has been expanding since 2013, but growth started accelerating in 2017. The area was estimated to be 16,902 m2 in 2017, has nearly doubled to 32,624 m2 in 2018, and it is expected to increase to 62,608 m2 over the next two years. This is more than the total floor space of the Taiyo Life Insurance Company’s Nihonbashi building, an A-grade building completed in Nihonbashi, Tokyo in 2018 whose floor space is a whopping 60,100 m2.
According to the analysis of Yuto Ohigashi of the JLL Japan Research Department, the rapid expansion of flexible spaces in Tokyo is a response to the “work style reform” sought due to declining birth rates. In a society going through population decline, improving labor productivity is an urgent issue. “More and more large companies are thinking about cutting commute times and increasing labor efficiency, which means that there is a demand for flexible spaces where can be used flexibly in terms of location and time,” notes Ohigashi. The fact that floor areas can be changed is particularly appealing. For example, foreign companies tend to adjust human resources flexibly according to the demands of each project, so they want to adjust their office space flexibly based on project size. However, in general lease agreements, the floor area is fixed, regardless of who bears the cost of interior finishing and security deposits. Contrary to this, you can use flexible spaces for a period of just one month. This means you can quickly withdraw if the project falls through. In the case of a lease, you need about six months to cancel.
Average area per location has more than doubled since WeWork landed in Japan
Renting out empty rooms in small and medium-sized buildings as coworking and share offices has been recognized as an effective use of empty space. However, big-box coworking spaces, enhanced shared spaces such as lounges inside downtown A-grade office buildings, are highly convenient, and are now opening up one after another. It can be said that flexible spaces have become essential infrastructure for A-grade offices.
Looking back, the trend of flexible spaces has changed over time. From about 2000 to 2012, service offices accounted for the vast majority of available flexible spaces. By 2017, shared offices and satellite offices managed by corporations such as Mitsui Fudosan and Tokyu Corporation, targeted at company employees were on the rise. In 2018, WeWork, a U.S.-based company that provides coworking spaces, started doing business in Japan and quickly made itself known. WeWork has opened a series of large facilities in Ark Hills South Tower and GINZA SIX, and will be a major tenant of Namba SkyO, a massive complex in Namba, Osaka set to be completed in September this year. Due to these aggressive strategies, the average area per location of flexible spaces in Tokyo has grown from around 1000 m2 to 2258 m2 (as of the end of June 2018).
Domestic large developers also participated
Developers in Japan are also active in the coworking management business. Mitsui Fudosan started WORKSTYLING, multi-location shared offices for corporate employees, in April 2017. The flagship facility covers 2000 m2 floor space and opened in Yaesu, Tokyo in December 2017. Mitsui Fudosan also established BASE Q, a support base for businesses in Tokyo Midtown Hibiya that opened in March 2018. Mori Building opened Park6, a coworking space with the concept of “park” in the Roppongi Hills Mori Tower in December 2017. NTT Urban Development started coworking business LIFORK in one of their buildings in April 2018. Other varieties of companies are also joining in. Tokyu Land Corporation opened Business Airport, Tokyo Tatemono has +OURS, and Nippon Tochi-Tatemono has SENQ (pronounced like “sehnk”). According to Ohigashi, “There are many flexible spaces and shared spaces that support startups and incubators. It suggests, in a sense, that developers themselves support the growth of startups, perhaps because these companies are future candidates for major tenants in their A-grade offices. This is something we call ‘buying rice before the harvest’ On the other hand, you also see railway companies opening satellite offices along their railway lines with the aim of alleviating congestion in the train. Developers build these spaces with specific purposes.” We can see that one word—“coworking”—has very different characteristics.
It is likely that the amount of available coworking spaces will keep expanding. On the other hand, there is concern that the supply will sink existing demand for rentals. In regard to this, Ohigashi expresses his opinion: “There may be some impact on rental demand in the short run. Overseas, it is expected that flexible spaces will expand to up to 30% of the rental market by 2030, but it is difficult to imagine that all flexible space headquarters will change into coworking spaces.”
Flexible spaces contribute to “work style reform” in businesses by allowing people to select their own workplace and environment flexibly. On the other hand, developers can utilize flexible spaces to provide support to startups and to respond to sudden demands for floor space from their tenant companies. There are also cases in which workspace providers sell the access rights to the community networks that connect a space’s users—WeWork is one example. Flexible spaces meet a wide range of usage needs. We can expect to see more of them cropping up, not only in Tokyo but also around the world.