Tokyo's big 2003 office space problem - a glut
Reviewed By Hitoshi URABE
"Tokyo's big 2003 office space problem - a glut"
(by Kwan Weng Kin) Straits Times
It started as a casual conversational item about two years ago when people began to realize there would be quite a number of new large buildings completed in 2003 in various regions of Tokyo, and a notable supply of office space would be provided into the market that could be too much.
The beginning was the sale of chunks of land, in 1998, which were used to be owned by Japan National Railroad, a government corporation that had been split and transformed into private companies. It was a part of the original plan to sell them to repay a portion of the huge debt incurred by the old JNR, and it was also considered that the real estate market, depressed at the time, would surely recover in five years' time, by 2003, when the planned buildings on the land would be completed.
Out of the 2.18 million square meters of office space expected to be supplied next year, close to half is provided by the buildings built on land that used be of JNR's, in Shinagawa, Shiodome, and Iidabashi areas in Tokyo. Adding to that a number of large development project in Roppongi and other areas also scheduled to be completed in 2003 would make up for two-thirds of the 2.18 million square meters. Therefore, the surge in supply, three times that of previous and following years, is a result of large development projects being completed simultaneously.
Although it has been explained that the supply in 2003 is larger than that of 1994 on a year-to-year basis, it is considerably less than the bubble years if a span of a few years is considered. Even still, in the depressed market, it is feared that the oversupply could trigger price deterioration.
Since the increase of office space is caused by large developments, there are some interesting characteristics. There are more than 40 buildings with office space of more than 10 thousand square meters, which means there would be gigantic buildings rather than a large number of small ones. Another is that out of 2.18 million, 760 thousand square meters are for own use by large corporations, for them to consolidate offices scattered about in various parts of Tokyo and elsewhere. Accordingly, the glut is not considered to be a problem by the owners of these new buildings, but by the owners of old, often small, inefficient, and outdated buildings that could not accommodate the equipments to support modern office operations.
Another factor that needs to be considered is the trend of concentration of businesses into Tokyo from other parts of the country. Those seeking opportunities to move their offices to Tokyo may step in and grab the opportunity of declining rent in those second tier buildings.
Although everyone seems to agree that office rent would soften next year, the views toward effects of it are mixed. While there are those who are worried of lower office rent dragging down the prices of real estate across the board even further, there are others who foresee the lower rent only within the office space market and even that is minimal as the decrease is dissipated and in effect borne by the whole country. There are even suggestions that the necessary renovations to be performed for the old buildings could actually stimulate the real estate market and even the building industry.
The article also refers to the '2010 problem' which would be caused by the decrease of workforce, by 5 percent during the decade from 2000. The 'problem', however, is not a concern unique to the office-space market. Even if it were to realize, it would only a part of, or a symptom of, the issue of decreasing population and the aging of core generation Japan is already facing, which needs to be tackled from political, social, and economic aspects, if the country is to prosper into the next decade and beyond.