Gotanda replaces Shibuya as Tokyo's base for IT venture companies

There has been a surge of interest in Tokyo's Gotanda area recently owing to its accumulation of IT venture companies.

November 01, 2019

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In July 2018, six IT ventures based in Gotanda formed the Gotanda Valley Association, and signed a cooperation agreement with Shinagawa City. The organization currently has about 30 companies as members (as of July 2019). Its purpose is to attract businesses to Gotanda, work together to solve issues in the area, and increase the value of the Gotanda brand.

IT venture companies flock to Gotanda

One of the director companies of Gotanda Valley, Yoriso, moved from Takadanobaba to Gotanda in March 2017. The aim of this move was to deepen exchange with other IT venture companies. Yoriso's spokesperson, Ayaka Takada, explains: "IT ventures have a culture of sharing as much knowledge and know-how as possible to accelerate the growth of business."

You will often see young people deepening relationships at so-called "Red Lanterns"—bars frequented by business people. One of the reasons that so much exchange happens between companies here is Gotanda has many bars like these. Takada again: "Because many IT ventures make T-shirts with their company logo on, you can tell at a glance what company someone belongs to even if you meet them at a bar or out on the town. This makes it easier to break the ice." In this way, relationships between individual employees led to relationships between their companies, and this led to the founding of Gotanda Valley.

Gotanda Valley first got started thanks to the heads of advertising hired by the six founding companies, and the advertising study sessions they began running together. At these study sessions, the topic of Gotanda's many IT ventures was brought up, and thoughts turned to how if they created an organization to support these companies, an even more diverse range of activities would become possible. One example of the activities they started as part of the organization's purview is an engineering study session. Another is working together to solve the IT world’s biggest problem: hiring. They held an event called "Engineer's Bar Crawl Office Tour" aimed at young engineers looking for jobs. The participants went on a tour around Gotanda Valley's company offices and bars, and companies were matched up with job seekers. The aim was to increase the efficiency of companies' hiring activities, and their appeal to job seekers.

Three reasons that IT venture companies gather there

Takada lists three reasons that Gotanda has come to attract so many IT venture companies. The keywords are rent, convenient access, and living close to work.

Rent is related to the office market conditions in Shibuya. Shibuya is one of the prime places for IT companies to gather in Tokyo, and is currently seeing a lot of large-scale redevelopment going on all at once. The station area in particular has been a scene of continual development of various A-grade office buildings, such as Shibuya Stream, Shibuya Scramble Square, and Shibuya Fukuras. This has created an impressive new skyline. The increase brought by these office buildings has created tremendous demand for office space in this area, particularly among large IT tech companies such as Google and CyberAgent. Given the high occupancy rate in this area, these developments have further accelerated the upward trend in rent. Unable to keep up with the sharp rise in rent in Shibuya, many IT ventures have moved out to much cheaper Gotanda area. As an example, say an IT startup requires office space of around 50 to 100 square meters (which is the most in-demand amount of space). In Shibuya, the rent would be around 25,000 yen per 3.3 square meters (or one "tsubo," the traditional unit of floor space used for rents in Japan). In Gotanda on the other hand, this would only be about 12,000 yen—less than half the price. In order to concentrate on making investments in the business domain (including the hiring of personnel), venture companies want to keep fixed costs such as rent down as much as possible. Gotanda was the perfect match. In addition, there are many individually-owned office buildings in Gotanda, and the owners will often screen their tenants according to potential. This works well for many venture companies.

Gotanda Station is just two stations from Shinagawa Station on the Yamanote Line, and Shinagawa Station is a stop on the Tokaido Shinkansen. This is a major advantage in terms of convenient access. For example, Yoriso’s core business is arranging funeral services through IT, and their sales agents often need to visit places all over the country. This means that having the best possible access to a Shinkansen station is vital. Gotanda is also connected to the Toei Asakusa Line, with direct access to both Haneda and Narita airports.

With regard to living close to work, the presence of the Tokyu Ikegami Line cannot be ignored. The line is promoting the Seikatsu Meisho Project, which is about revitalizing the community using track-side shopping areas, existing buildings, and other points of interest. The area is being transformed by keeping the rent at a reasonable level while changing the residential areas into ones young people will prefer. Gotanda Station is the terminal station on the Ikegami Line, so many people who work at Gotanda Valley companies live along it. Some of the companies also encourage living close to work through initiatives such as providing housing allowances for people who live in the Gotanda area.

Though also a base for IT, Gotanda is different from Shibuya

Many see Gotanda's accumulation of IT venture companies, remember the Bit Valley boom of early 2000 in Shibuya, and call it the "Next Shibuya." However, though they may be similar in that they attract IT companies, Gotanda and Shibuya have very different characteristics. Shibuya currently stands out for its Japanese mega-ventures, such as CyberAgent, DeNA, GMO Group and mixi. On the other hand, a majority of Gotanda's venture companies have less than 100 employees. Also, while Shibuya's IT companies primarily focus on entertainment (such as smartphone games) and mobile settlement services (such as banking), Gotanda Valley has a large number of companies that offer problem-solving IT services. Gotanda used to be called Sony Village, and has a long history as a manufacturing town. Takada presumes that problem-solving IT ventures have gathered there because of these features.

Does Gotanda need large-scale redevelopment?

The current problem for Gotanda is that there are not enough large-scale office buildings for the IT venture companies' explosive business growth. For companies with 20-30 employees, there are plenty of good-sized offices to be found, but Takada says, "I often hear that finding an office for more than 100 people in Gotanda is difficult. There are also some IT companies that have left Gotanda because they have expanded." Two such companies that "graduated" from Gotanda are Oisix (currently Oisix ra daichi), a company that handles internet sales for organic vegetables, and PLAID, which develops and offers customer experience platforms. These have moved to Osaki and Ginza, respectively.

This issue of running out of space also arose during the Bit Valley boom in Shibuya. There were not enough large-scale office buildings for the expanding IT venture companies, and reflecting on the prolonged flow of companies out to places like Roppongi is what eventually led to the current redevelopment. However, Gotanda is already planning to build a 100-meter-tall multi-purpose building—20 stories above ground and three below, with a total of about 66,000 m2 and a concentration on office space—on the former site of U-Port. Several other rebuilding projects also appear to be going on behind the scenes. With an increase in new construction, Gotanda will be able to retain successful businesses, and the city's potential will increase.

However, it is also highly possible that the redevelopment will ruin the feel of the city that it has built up as a base for IT ventures, and its value as such a place will be lost. Takeshi Akagi of JLL Japan’s Research Department has studied bases for IT startups in various important cities around the world proposes, "In the case of startups with not many employees, the priority is growing the business, and in terms of cutting down on waste such as fixed costs and commuting time, they appreciate low rent and living close to work. However, companies with more than 100 employees face a different problem, including concerns such as improving the company brand and employee satisfaction with regard to the working environment. In order to address these issues, the city must become a much more functional and stimulating office town. In my opinion, Gotanda's thriving diversity combined with low rent is a big advantage when it comes to attracting entrepreneurs, and perhaps it should remain as an incubator for startup companies and assume the important role of supporting long-term development for Tokyo and Japan as a whole."

While it is necessary to install large-scale office buildings to attract even more businesses to the area, Gotanda's appeal could be said to be its role as an "incubator" where entrepreneurs and IT ventures can enjoy healthy growth. Hideki Senbuku of JLL Japan's Marketing Department points out, "The more companies graduate from Gotanda, the more entrepreneurs will long to go there, and the higher the Gotanda brand will rise." Perhaps an artificially-produced office town created by redevelopment will not be the best place for IT ventures to live.