Trends in Japan

Smaller, Cheaper Rentals an Attractive Choice

JANUARY 17, 1997

High-rise buildings are home to mini-offices in Shinjuku, Kasumigaseki, and other business districts in Tokyo.

Shared Services, Facilities Keep Costs Down
Large buildings in the business districts of downtown Tokyo are increasingly being partially converted into a number of small rental offices, each occupying perhaps 20 square meters in one corner of a single floor. These "mini-offices" are characterized by their shared use of reception and secretarial services, conference rooms, and areas to meet with clients. Telephone calls to the companies are answered by secretaries and routed to the individual offices. Boasting low rent and expenses, mini-offices are easily within reach of venture businesses and foreign companies making inroads in Japan that want a base of operations in Tokyo. The mini-office business is booming.

Well-appointed reception facilities are shared by mini-office tenants. (Photo: Kyodo)

Consider the example of a high-rise building located near the government ministries of Kasumigaseki, Tokyo. Its move into the mini-office business last summer has proved wildly popular. The building has 24 rental office spaces, ranging from 13 to 25 square meters in size. Each office comes fully outfitted with desks, chairs, file cabinets, and multifunction telephones. Other facilities, such as the reception areas, copiers, and employee lounges, are used communally by the companies; conference rooms are available for a fee.

Reception services, too, are provided for the mini-office tenants. A visitor to a company is greeted by a reception secretary, who ascertains the visitor's business, contacts the company in question, and shows the client to the company's office. The monthly rent on the offices themselves runs from 95,000 to 100,000 yen (826 to 870 dollars at 115 yen to the dollar) per tsubo, a measure of area equal to 3.3 square meters. This makes them rather more expensive than ordinary offices, but after figuring in the cost of secretarial services, conference and reception areas, copiers, and the like, mini-offices are quite a bargain.

Building containing mini-offices like these are cropping up not only near Kasumigaseki, but in all Tokyo's prominent business districts, including Marunouchi, Otemachi, and Shinjuku. It is more efficient for the real-estate companies owning these buildings to rent out as large a space as possible to a single tenant; why is this compartmentalized business so popular among them?

Owners Seek to Increase Income in a Tenant's Market
Under the booming economic conditions of the late 1980s, skyrocketing demand for offices in central Tokyo brought on cries of a shortage of office space. This led to a surge of new building construction and remodeling; at the peak of this surge, in 1992, the nationwide supply of new office space topped 2 million square meters. But demand for office space plummeted with the bursting of the bubble economy in the early 1990s, leaving the building-lease industry facing a bleak period of dropping rents and surplus office space.

This cooling trend in office demand lasted until 1995, when tenancy began at last to head upward again. Office occupancy rates are expected to have recovered to 90% by the end of 1996. Rental fees, however, are not returning to their former levels; leasing prices of many buildings remain some 20% to 30% below their peak level, depending on the location and condition of the properties.

In this renter's market for offices, the increasingly popular mini-office business is seen by property owners as one way to increase rental income. Recently, some real-estate companies have taken to leasing entire building floors in order to begin their own mini-office operations by renting the space out themselves. In this way the building-rental industry is showing its growing versatility.

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