“The Third Office” Becoming Mainstream in Japan

If the main office is defined as “the first office,” the satellite office would be “the second office.” In the spotlight today is “the third office”—flexible spaces.

February 26, 2018

Use of satellite offices on the rise. Japanese developers continue to join the business

More and more companies are making use of satellite offices—“the second office”—in order to achieve the “work style reform” that they encourage. They provide office spaces near residential areas where their employees can telework, away from the main office located in the city center. Those secondary office spaces are called “satellite” offices because they are dotted around the main office like satellites orbiting a planet. With these offices, employees no longer have to commute to the city center. The number of satellite offices is on the rise, influenced by the now-mainstream trend of “work style reform.”

There is also an increasing number of cases of developers and property management companies joining in the business of leasing satellite office spaces. One good example is Tokyu Corporation, which launched its NewWork project in 2016. The company started the project by leasing floor space in buildings owned by other companies, rather than their own properties. From this, we can tell how serious the company is about the project. Similarly, Mitsui Fudosan—a leading company of the industry— launched the WORKSTYLING project to provide multi-site shared offices for corporate clients, in which reached full swing in 2017. Tokyo Tatemono and NTT Urban Development are also newcomers to the business. Both companies are targeting corporate clients. They sign contracts with corporate clients who want to use the facility, and workers belonging to those corporate clients can commune to a satellite office near their home and work as usual.

Some have voiced the concern that the demand for main offices will decline as satellite offices develop, but Sato offers a different opinion. “Indeed, office floor area per employee is on the decline,” he says, “However, to keep people motivated to work, it’s important to enhance the quality of common areas—say, by opening a café in the main office. Therefore, there will not be a significant decline in demand for floor area.” In local cities, the trend of transforming spaces closer to local communities into office spaces is clearly visible. These spaces can function as a place for networking between the community and the company, and there was even a case of one leading IT company whose productivity improved by about 30%.

Booming in the U.S.

While use of satellite offices is becoming mainstream, the type of office space that is expected to see a breakthrough in Japan in the coming years is “the third office.” JLL calls them “flexible spaces,” and serviced offices and coworking spaces fall under this category. “Flexible spaces” are called flexible, explains Toshiro Sato of the JLL Japan Corporate Sales Headquarters, because “Their greatest feature is their flexibility—users can freely choose when to use them and how long to contract, and users are not required to pay any initial investments, including the interior finishing work.” As in the case of the American coworking space WeWork, which is launching full services in Japan in 2018, users can work in an environment as comfortable as a resort hotel or café that are fully equipped with IT services. Facility management that meets the needs of people is pushing up the popularity of flexible spaces.

Flexible spaces are actually the mainstream in the U.S., and have a presence in the office space market that nothing can rival. According to a JLL survey, flexible spaces amounted for 297,656 tsubo as of 2010, then they increased to 723,888 tsubo in 2014, and 1,438,722 tsubo in 2017. (A tsubo is a unit of area approximately 3.3 square meters.) The survey revealed that an amount of floor space equivalent to 30 Marunouchi Buildings has been turned into flexible spaces. “In the U.S., flexible spaces account for about 5% of the country’s building stock, and that number is expected to increase to as much as 30% eventually. Office floor area per employee is declining, and vacant existing floor space will be filled with flexible spaces. In addition, some statistics indicate that office buildings that have introduced flexible spaces have an advantage when it comes to leasing, and are sold at higher prices,” says Sato.

Flexible spaces offer a variety of benefits for companies. One of them is cost-cutting. Spending a lot of money on interior finishing work and signing a long-term lease contract is risky. When the needs a space has to meet are expected to change rapidly, flexible spaces are more advantageous in terms of return on invested capital (ROIC), too. Other reasons to introduce flexible spaces include readiness for workers who want to work in a way that suits their lifestyle and a need for locations where they can work in an agile way in order to expand business. “Global companies that used to recommend working from home are now shifting back to working at an office. They re-recognized the importance of collaboration and communication, and started to provide flexible spaces, instead of allowing employees to work from home,” notes Sato. The ability to meet the diverse needs of diverse companies is what allowed flexible spaces to become a global trend.

2018 to be the “year of flexible spaces” in Japan

We have discussed the situation in the U.S., but will flexible spaces become mainstream in Japan? The answer is yes. As mentioned above, demand should focus on flexible office spaces that are not bound by long-term lease agreements. Especially with new projects, the key to success lies in how quickly you can launch the project, because you cannot compete with other companies if you have to wait a full year for your office, between signing the lease agreement and finishing the interior work. Also, by skipping interior finishing, you can avoid the liability of restoring the premises to original state.

Increasing productivity through work style reform is attracting attention, and demand for highly adaptable flexible spaces will grow more and more in Japan, where the initial cost of developing offices is high. Sato declares, “This year will be the year of flexibles spaces in Japan.”