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
