Tokyo Synergy Office

Business-tenants grow older along with the buildings they work in. Ideally, the businesses they run should be handed over in a timely manner. Unfortunately, most restaurants and the like are forced to close when their operators retire, as they fail to groom successors.
Indeed, such a handover process from elder to newer business-tenants is essential for a viable building-rental business. How frustrating it is to see a building abandoned when shops close, with their rich social network and know-how being squandered!

1. The woes of tenants

Younger business-tenants can work hard to keep on paying monthly rent. But as they grow older, they hit their physical limits and find it harder to serve even a decreasing number of clients. Many departing business-tenants feel chagrined because they could have afforded to stay in business if they had had an option to use the space only for half-a-month or just a few days a week. Thus, there are not many options left when they face losing their livelihood.

2. The headaches of building owners

Building owners used to regard the withdrawal of business-tenants as an obvious option when they could not afford monthly rent. But things have changed with the decline of the restaurant industry. Owners must endlessly look for replacements as new business-tenants struggle in their business and end up leaving their buildings.

3. A win-win solution

Arguably, the building-rental business has a special social role in helping former tenants pass along their clients and know-how to new tenants to spare them trouble in starting-up a business. In this way, former business-tenants may not only earn some money for their retirement, but also help preserve what they have achieved with their business and something to live for.

Yokosuka Group has taken the lead by introducing a one-day bar master system at our Enisi bar and lounge so that veteran bar masters who have left Ginza in tears can shine again by working with junior staff once a week or once a month.

Bars usually are packed when former bar masters appear on that one special day as “stars” who do their best in attracting clients. The extra sales above the target level are divided between the one-day master and building owner. Increased profits aside, successful one-day masters can pass on tips to fledging masters and help building owners to tap into their social network and business know-how.

Such a new style of business succession is being tested at Yokosuka Building to gracefully adapt to demographic decline.

Written by Hiroshi Yokosuka and Tatsuo Hayashi

For almost half a century, Yokosuka Real Estate Appraisal Corporation has witnessed dramatic change in the real estate rental industry.

Once, a five-story building was regarded as a tall building. Today, we see forests of high-rise buildings with dozens of floors. The latest high-rise buildings attract the market’s apparent demand for numerous advantages, including beautifully designed common spaces; functional and hygienic air-conditioning, water, and sanitation systems; and energy-saving lighting.

Considering that the shrinking number of people in urban areas tend to flock to new high-rise buildings, the profitability of small- and middle-sized buildings is naturally expected to fall, which is only accelerated by their deterioration.

Due to our company’s long history, we own many such smaller “aging” buildings. In order to compete with the forests of the latest high-rise buildings, we also must be prepared for a tough war of attrition – that is to say, either merge them with their adjacent buildings into larger buildings or resort to a price war. Of course, such a war of attrition does not offer much hope for surviving the coming half century. Here are some challenges that can be pointed out in keeping up with the latest trend:

– The largest share of market demand for smaller offices is accounted for by individual entrepreneurs who are accompanied by one or two colleagues at most. The majority of them hail from the younger generations, who think that office space can be as small as the space for working at their computers. Some even say that it is enough to have a P.O. Box as a virtual office while they work in a coffee shop with internet, beverages, and a restroom

– Most of our buildings offered office space of around 80 m² on each floor. Such a space costing as much as JPY 250,000 is either too small or too large for most clients. For that same money, they can rent a section (ca. 33 m²) in a high-rise building. Taking the equipment and the location also into consideration, these older buildings had no chance against newer, more attractive high-rise buildings.

– The office space of 80 m² on each floor had only one bathroom to be used by both women and men. Considering the advance of women in the workplace, it would be a surprise to find such a “unisex toilet” in any new buildings. Our older buildings simply became relics of the earlier male-dominated labor market, which lacked due consideration for women.

– A few people starting up a business together tend to have little money and creditworthiness. They are not even sure if their business will take off. Traditionally complicated lease contracts add to their uncertainty by the extremely punishing conditions for both Japanese and foreign entrepreneurs. They are first greeted by having to pay a large sum as a security deposit, key money, guarantee deposit – and by an unnecessarily long lease term. A penalty charge awaits them if they dare to cancel the contract. Otherwise, they must pay renewal fees each time the contract term expires.

– On the one hand, the logic went: “It is impossible to achieve an agreement with foreigners who will be inevitably confused with unfriendly and complicated Japanese practice regarding rental offices. So, we’d rather focus on Japanese customers.” On the other hand, it was a big waste to exclude foreigners and foreign companies when our building is located in Hamamatsu-cho with convenient access to Haneda International Airport. Moreover, there is no hope for Japan to grow unless real estate agents try very hard to attract foreign companies into the country.

– Office sharing among several companies on one floor is increasingly popular because of the opportunities to exchange ideas with fellow entrepreneurs and reduced fixed cost thanks to the shared equipment and space. At times, though, they need to focus on their own job in their own rooms. So the shared office would be even more attractive if the shared spaces are combined with private spaces for working alone or holding a meeting.

– There are already rental offices that stress privacy as an advantage. Yet the provider of such rental offices tends to focus on an increased number of compartments resembling cells and minimized shared space to maximize their income from the rent. These offices look as barren as prisons. What a waste to confine entrepreneurs with diverse backgrounds into their cells without any mutual exchange, as if to say “who cares about neighbors”. For business startups, personal networks with other entrepreneurs and live information are extremely valuable. Such personal and live exchange can be hard to gain even with all the virtual networks via internet.

– Real estate agents today still engage in the rather simple business to “build and rent”. This is as close as the primary industry, in which farmers sell their own agricultural products. Such a simple business with an excess supply of buildings will sooner or later end up in the dead-end of a price war.

– The above analysis of the current business environment and of market needs brought us to the conclusion that real estate agents must take the initiative to comprehensively manage their offices in order to offer more sophisticated services. In other words, our business must be transformed into the third industry (or, the so-called “sixth industry” in Japan) to integrate services which to date have been provided by other types of businesses.

One way to achieve this was the increasingly popular “rental office business”. As a matter of fact, the world’s leading rental office companies have already advanced to Japan. We have also considered outsourcing rental office management. However, they charge a large amount in management fees and require building owners to cover most of the costs involved for remodeling the interior and operating the facilities. In addition, the management companies maximize their large profit margin by renting the addresses of “virtual offices” to a large number of clients.

This practice of renting a “virtual address” for a company that does not physically exist there is nothing more than a ruse, which is quite contrary to our management policy of building genuine trust above all. In fact, such offices tend to become a breeding ground for fraud. Police often inspect them. No matter how profitable that may be, we cannot encourage any type of rental office business that can harm others. This is why we decided not to enter into a contract with a major rental office operator.

Besides, outsourcing such a rental office business yielding a high value-added blows the chance to accumulate our own knowhow and profits. Committed to operating our real estate rental business for another half a century, we decided to find our own way step by step, no matter occasional failures and lessons learned.

This is how Tokyo Synergy Office came about .

Our office combines rental booths for concentrating on jobs and the common area for stimulating exchange among users with diverse industrial backgrounds. The restroom was of course divided into one for women and another for men. As to be expected, the office is equipped with the latest equipment and energy-saving air-conditioners, shared copier and shredder, desks, chairs, storage cabinets, and free internet connection. The security of the office is intact, as access to the office is controlled by card keys. There is no need to worry about arranging for a cleaning service on your own, either. Practically, business persons can focus only on their business from Day 1.

Our service is modeled on the business office services provided by hotels. Utmost business comfort is provided on the basis of a very simple and user-friendly agreement. Unlike the traditional lease contract in Japan, there is no need for customary payment of, for example, a security deposit, key money, and a renewal fee. Cancelation can be freely made with due advance notice. This is a revolutionary change.

We acknowledge that there are many lessons to be learned, starting with the fact that being too comfortable with doing things the old way leads to stagnation. Thus, in blazing a new trail, we will first strive to offer a new form of service at Tokyo Synergy Office in Hamamatsu-cho near Haneda International Airport. This service will attract both entrepreneurs and pioneering companies regardless of which country they come from.

Tatsuo Hayashi

Some owners of apartments and office buildings in downtown Tokyo complain that the amount they receive for rent does not increase, despite the rise in the going rental rate according to statistics. Indeed, statistical data may indicate that rent for apartments and office buildings in some areas of downtown Tokyo is on the rise, while rent for older buildings is steadily falling. No wonder that some landlords are disillusioned by these counterintuitive results.

Year after year the buildings owned by the landlords are deteriorating but they refer to the statistical data of the going rental rate for the market as a whole, where new buildings appear one after another. This misguided perception goes the furthest in explaining landlords’ disappointment with the thickness of their wallets.

Deteriorating and in time obsolete small- and medium-sized properties owned by typical landlords are eclipsed by the ceaseless entry into the market of new apartments and offices. Moreover, new buildings can no longer be compared with ones built a few decades ago, due to the impressive technological progress achieved over this period.

For instance, Washlet (electric toilet seats with water spray feature for washing) is provided in newly built apartments as a matter of course. There are air dryers in the bathroom and the floors dry quicker. The integrated kitchen systems often include disposers of organic waste. The cost of utilities can be reduced thanks to high-performance and energy-saving air-conditioners and LED, florescent bulbs, or other efficient lighting. Other subtle changes include intercoms with displays, improved sound-proofing performance of the floors and walls, and odor-neutralizing wall papers.

Such equipment and features cost money. In a sense, it is only natural for the rent of new properties to hover at a high level rather than falling, even when pulled down by economic slumps.

The very comparable quality of rental properties in the past may well justify the popular practice of equating the rent level that landowners should expect with the going rent in the area. But aside from their locations, buildings today have totally different equipment and functions. The price goes up and down by taking into account such differences. Therefore, the expectation of rising rent just by seeing the rising average price is farfetched at best.

Importantly, statistics can be taken in various manners, ones which produce differing implications

Some are based on fixed-point surveys of multiple buildings – others compile data only on relatively new properties, or extract buildings only above a certain scale. The phrase “going rental rate” can have completely different meanings. You may misread the current trend without exercising your imagination as to what kind of data are compiled and how they are corrected or rearranged when buildings are replaced.

(Author: Tatsuo Hayashi, Tokyo Synergy Office)