Office rents and deposits in Japan
Let's first look at what was identified recently by American business people as being the largest barrier to making further progress in the Japanese market : the high fixed costs associated with rents or buying property in Japan.
According to a 1993 study, office space in Tokyo runs about $230 per square foot, including taxes and other charges. This compares with average total costs of about $100 per square foot in London and $55 in New York. Thus, according to this study, office rents in Tokyo are about four times New York rates.
According to a different study by Japan's Economic Planning Agency, Tokyo was not quite as expensive. In that study, office rates were about equal in Tokyo and London, while rates in Tokyo were only about twice those in New York.
Regardless of the accuracy of the two studies, it's clear that office rates in Tokyo are extremely high, and rates in Yokohama or Osaka, although about half of Tokyo's rates, are still very high.
On top of this, Japanese landlords hit tenants with a variety of deposits - so-called key money - including the following :
Hosho-kin : This is a standard deposit that is refunded without interest after the tenant has vacated.
Shiki-kin : This is another deposit that is refunded upon vacancy, but the amount of shiki-kin is based on the monthly rent, so the shiki-kin deposit can increase if the rent increases.
Kenri-kin : This is usually associated with retail space and is meant to represent the right or privilege of doing business in a retail area. Kenri-kin is not refundable, but it may be resold to the next tenant.
When these various deposits are summed up, a business will have to put up a total of anywhere from 12 to 18 months rent before they can move in. In the case of buying kenri-kin for retail space, the total in one case has reportedly gone up to 100 months rent!
Even at the more normal rate of about 15 months rent as a deposit, this deposit, combined with the high rents in Tokyo, represents a huge investment for an office.
Fortunately, there's now a glimmer of hope.
The same asset deflation which hit the Japanese stock market is now hitting the real estate market. Although this makes for big problems for Japanese banks who loaned too much money to real estate speculators, this represents a good opportunity for foreign businesses wanting to move into Japanese offices.