Vacancy rates in Japanese office space

Vacancy rates in Japanese office space

In the late 1980s, with office occupancy rates in Tokyo consistently running at 99 percent and with land prices skyrocketing, building large office buildings seemed like a fool-proof way to make money. Unfortunately, it seems like a lot of people realized this simultaneously, and this started a construction boom.

The buildings begun in the late 1980s are being finished now, and in 1993 and 1994 the equivalent of 21 large sky scrapers worth of office space will appear in Tokyo. Even with a robust economy, Tokyo would be strained to fill up all that space. But vacancy rates in Tokyo are increasing rapidly because a major office space user - the financial industry - is suffering through the third year of a bear market.

According to vacancy numbers from real estate agents and rental associations, the 1993 vacancy rate in Tokyo is running at about 7%. However, unofficial estimates put the real vacancy rate at more than double the official number.

Thus, monthly rents are apt to be very open to negotiation. However, an area that may be even more open to negotiation is deposits. According to various reports, the very large amounts required for deposits have been reduced by 20 percent, and another 15 percent drop in deposits is expected. There have been reports of new tenants receiving several months of free rent, and of others demanding that their contracts be renegotiated.

So this over supply of office space is not only leading to lower prices but also to a more open market for foreigners. A few years ago, when occupancy rates were 99%, land lords often would not extend a welcome to foreign clients because foreigners had a tendency to leave suddenly.

Now that the Japanese rental office market is becoming more of a buyer's market, potential renters should look first to rent from large life insurance companies because they have lower deposit rates and generally refund deposits in full.

Finally, when considering entering the Japanese market, remember that a large office in a great location is not necessary. I've known a number of successful sales offices that were located away from the most expensive districts, and which also doubled as an apartment for executives traveling from the home office.

Also, there are a number of "incubators" that will allow you to set up shop in Japan. These operations usually provide a small office fully equipped with faxes, phones and copiers. Larger meeting rooms are also available. Such incubators generally have shorter-term leases from 12 months, and, best of all, usually require relatively small deposits of $2,000 and up.

So when considering your office in Japan, remember that at least for now, everything is negotiable and you can start inexpensively if you want.