The Journal The Authority on Global Business in Japan

As the Tokyo 2020 Olympic and Paralympic Games rapidly approaches, the city is working at a feverish pace to prepare for the world’s attention. This isn’t limited to building new sports venues and reno­vating old ones. There is also a huge amount of work going into the redevelopment of Tokyo itself, with plenty of buildings being added to the skyline.

According to a recent survey by Mori Building Co., Ltd. that analyzes the market for large-scale office buildings (10,000 square meters or larger) in Tokyo’s 23 wards, a whopping 75 buildings will be finished in the years leading up to the Games. Some 27 should be completed in 2018, another 27 by the end of 2019, and 21 more by 2020.

And the construction is showing no signs of stopping once the Games have come and gone.

Shibuya Stream is one of seven buildings going up around Shibuya Station.

There are many large-scale projects that will continue beyond 2020, one of which is a major redevelopment at Shinagawa Station that will be completed in 2024. Other projects in the area include new high-rise residential buildings and the transformation of the Shinagawa Prince Hotel into a mixed-use facility that will be used for offices, retail, and other businesses (see page 10).

The Shibuya Station Area Redevelopment project will see a total of seven new skyscrapers in the area—six for offices and retail and one for residential—by 2027.

There will also be several major projects around Tokyo Station, including a 37-floor, 230-meter-tall office tower to be constructed by 2021 and a 61-floor, 390-meter-tall tower—the tallest building in Japan—to be completed by 2027.

Still other projects include new high-rises in the Shimbashi area and the country’s tallest apartment building, which will be completed in Shinjuku by 2026.

But another trend in Japan raises a question about all the con­struction: Who will occupy these buildings?

The country’s population is not just aging, it is shrinking. More than half are over the age of 46, making Japan the oldest highly populated country in the world. According to informa­tion released by the Ministry of Internal Affairs and Communications on September 15, those 70 and older make up 20.7 percent of the population (26.18 million), the first time the number has reached the 20-percent mark. This is up from 19.9 percent in 2017.

For the past 11 years, annual deaths in Japan have exceeded births, and census data also shows that people 14 and younger account for just 12.6 percent. The Japanese Statistics Bureau predicts that, by 2050, the country’s population will fall to 100 million, down from the current 127 million.

Given these alarming—yet well-known—trends, will there truly be a demand for this rapid pace of development, and will there be people to live and work in all the buildings that continue to sprout up around Tokyo?

The answer depends on who you ask. One of the biggest players when it comes to Tokyo real estate is Mori Building, which has been behind some of the city’s biggest development projects in recent decades. In 2017, the company launched Ginza Six, the largest mixed-use complex in the area. In June, Mori opened the MORI Building Digital Art Museum: teamLab borderless in Odaiba. And, in April, they celebrated the 15th anniversary of the Roppongi Hills mixed-use complex.

As Masa Yamamoto, senior manager of the Public Relations Department at Mori Building explained, all of these projects have been well received. In its first year, Ginza Six has drawn 20 million visitors and recorded sales of ¥60 billion. During the same time, the number of daily users of Ginza Station has increased by 7,400. The digital art museum continues to sell out every day and has already welcomed 500,000 visitors. Meanwhile, over the past 15 years, 600 million people have come to Roppongi Hills.

Looking ahead, Mori Building has ambitious plans, including the development of a new neighborhood around Toranomon Hills Mori Tower, which was constructed in 2014 and is currently the city’s tallest building. In addition to the Shintora-Dori Core, a multi-use building that was completed in September, the neighbor­hood will include three high-rise buildings: a business tower that will be completed in December 2019, a residential tower to be finished in January 2021, and a tower that will incorporate a new subway station on the Hibiya Line to go into operation in 2020.

Also on the horizon for Mori is the Toranomon–Azabudai Project, which will add a world-class hotel to the area, new resi­den­tial units, and global-level offices. There will also be ele­ments of art, international schools, and a global super­market, along with many retail shops, wellness centers, and other functions.

Yamamoto explained that Mori Building’s efforts are meant to help drive the city’s overall appeal, for international visitors and businesses. “Our long-term goal is to increase Tokyo’s comprehensive power or ‘magnetism’ through urban redevelopment and town management efforts so that Tokyo can win the fierce competition among global cities.”

However, he clearly acknowledges the city’s strengths and weaknesses: “According to the Global Power City Index, Tokyo ranks highly for the size of its economy. Good food and safety are also strong elements for the city. But the corporate tax rate and some of the difficulties global companies face when they are doing business here are weak points.”

As Yamamoto sees it, the way to address Japan’s population trend dovetails with the company’s long-term goals and extends beyond just opening office buildings: “Japan is an aging country with a declining population, so we must overcome these weak­­nesses, increase the city’s magnetism, and attract global companies and people. To attract global players to Tokyo, just offering new office spaces is not sufficient. We also need to offer residences, international schools, international supermarkets, hotels, cultural facilities, and greenery to support their overall urban lifestyle. That is why we have been developing mixed-use complexes. We believe that reviving the capital city of Japan and bringing back global companies and individuals is the key to boosting the entire Japanese economy.”

Offices such as Tri-Seven Roppongi are changing the work environment.

Gordon Hatton, head of Japan at Pembroke and co-chair of the American Chamber of Commerce in Japan (ACCJ) Real Estate Committee, explained that his company has also been active on newer projects. Azabu Gardens West is a luxury residence in Moto-Azabu that opened in 2015, while Tri-Seven Roppongi is a multi-use office and retail complex that opened in 2016. Their current project is a renovation of Hikawa Gardens, another luxury residence, which will be completed in October. Pembroke has not officially announced any new projects with a timeline beyond 2020.

As Hatton explained, Pembroke chooses its projects with an eye on success in the long run, so they are optimistic about their prospects with their most recent endeavors. “We take a long-term view and seek to develop and manage real estate assets that will perform well over the long term, making a positive contribution to each urban center we work in.”

While Hatton said the aging of society doesn’t factor into Pembroke’s long-term development projects, he thinks that Japan’s position as the first major country to wrestle with aging gives it a unique opportunity to offer solutions to the dilemma. “Changing demographics will certainly present challenges and opportunities for not just Japan but numerous countries. Given that Japan is the front-runner in this trend, it is perhaps worth considering that the future will come first in Japan, and companies that explore innovative and appropriate responses could lead the way.”

Although Japan’s overall population is declining, Hatton is optimistic about the sustainability of Tokyo’s pace of redevelopment in the long run, given that the city is one of the few places where demographic trends are not in decline. “The population of Tokyo is forecast to continue growing for a number of years as people relocate from other regions and suburbs to fill employment needs and to enjoy the urban lifestyle Tokyo offers.”

Seth Sulkin, CEO at Pacifica Capital K.K. and co-chair of the ACCJ Real Estate Committee, offers a contrasting view. His company manages investor capital in commercial development projects that now primarily focus on the hotel sector. Although the company opened a new 205-room life­style hotel called Moxy Tokyo Kinshicho, which is a conversion from an office building, he was far less bullish on Tokyo as a market, given the high price of its real estate. “We would love to be doing luxury hotels in Tokyo, and mid-scale hotels in Tokyo—new constructions and conversions of existing hotels. We would love to be doing all three, but there is an incredible shortage of properties. And when we do see a property come to market, the asking price is absolutely absurd. We frequently see asking prices of land or empty buildings that are twice what we think they’re worth.”

As quickly as Tokyo’s inbound tourism market is growing, Osaka’s is growing faster. This has led Pacifica Capital to explore the western Japan city—as well as Kyoto, located between Osaka and Tokyo—for their projects, including the Oakwood Osaka Hotel & Apartments, which opened in August.

Pacifica Capital opened the Moxy Tokyo Kinshicho in November 2017.

As he explained, the aging and shrinking of Japan’s popula­tion had a major effect on the company’s business. “For more of our existence, we focused on retail real estate. We were an innovator in building shopping centers all over Japan. But about 10 years ago, I realized there was no future in retail. Even though, on a per capita basis, Japan has fewer shopping centers by far than the United States, it was already overbuilt. With the shrinking population, along with shopping on the internet, it was clear to me that there was no future in retail.”

But the growing tourism numbers give him hope for their current focus. “Hotels is an industry in which we believe we can do well, even as the population ages and shrinks, because our products are mostly focused on inbound visitors and less on the domestic market.”

As for all the office buildings that continue to open up in Tokyo, Sulkin has his doubts. “It’s been a mystery to me how it is that all these new, large-scale office buildings have filled up so quickly. With the working population falling so rapidly, it is amazing how robust the office market is right now, but it cannot last forever.”

Perhaps not, but according to the most recent census information, the only one of Japan’s three largest metropolitan areas to show an increase in population was the greater Tokyo area, which includes Saitama, Chiba, and Kanagawa Prefectures—a finding that echoes Hatton’s views. This region is home to 28.3 percent of the country’s residents, and the city of Tokyo itself showed population growth of 72,000—the largest of any area in the country.

Although the administration of Prime Minister Shinzo Abe is trying to prevent the country’s population from becoming concentrated in Tokyo, it seems unlikely that this trend will reverse. And that means that all the redevelopment projects around the city do seem to make sense—despite Japan’s overall downward population trends.

Alec Jordan is a staff writer at Custom Media for The ACCJ Journal.
To attract global players to Tokyo, just offering new office spaces is not sufficient.