COVID-19 reshapes Japan’s office real-estate market

The coronavirus pandemic has made working from home commonplace, and left many companies looking to reduce office space. The problem is, relocating in Japan can be crushingly expensive, even if you’re downsizing. But some innovators are offering a solution.

When a company in Japan relocates, they have traditionally paid to have their old office remodeled and restored to its original, unfurnished state. Carpets are replaced, walls are removed, lighting fixtures are torn down, and the painters turn the wall a spotless white. In central Tokyo, the average cost for this work is nearly $100,000.

Tenants in Japan are responsible for restoring their office space to its original condition when they leave.

Landlords typically prefer to rent their rooms as empty shells because it means they won’t be responsible for repairs. Even the interior walls belong to the tenant.

But this standard may be starting to change as the coronavirus pandemic reshapes the office rental market and puts pressure on the owners.

For eight years, Tokyo landlords had all the bargaining power as demand for land rose. But that trend reversed in March and analysts say the uptick in availability will only continue to grow in the coming months.

This means that Tokyo-based Hitokara Media has been busier than ever. The company mediates between tenants and owners, and tries to minimize the costs of a relocation.

Chief sales director Kohata Daichi says they’re getting more and more enquiries from companies looking to quit their leases and move into smaller digs. This would have been difficult in the past, when owners refused to renegotiate agreements. But with the current market favorable to tenants, Kohata says many are willing to discuss new terms as long as Hitokara Media can find a replacement.

The coronavirus pandemic means many companies are looking to downsize their office footprint in a hurry.

Renovation fees aren’t the only hurdle for a relocation. Tenants usually have to give six months’ or even a full year’s notice and pay rent for that period. But a new company called Venture Property is trying to solve that issue.

The firm takes over the office space, furnishings and all, from tenants who want to move out quickly. It then leases them “as-is” to other companies, with an agreement that the new tenants can also leave at short notice and without paying for any restoration work.

CEO Udagawa Yoshihiro says many companies rent office space without thinking they will one day have to move out, and they are often astonished at how long and expensive the process is. He says his company offers other businesses an exit strategy.

For companies going through tough financial times, services such as those offered by Hitokara Media and Venture Property can be a lifeline, and even the landlords see the benefit, as they too worry about the future and how to fill their office space.

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