From the outside, the apartment building Kenny Sumitani recently moved into looks exactly like an office high-rise.
That’s because up until January 2005 it was an office complex.
Now, the seven-story building next to a canal in Minato Ward, Tokyo, houses 60 spacious condominiums with large windows and high ceilings.
“At first glance, it looks like nothing but an office building, and that is what I love about it,” Sumitani, a 34-year-old photographer, said.
Ten months after its corporate tenant moved out, Nippon Tochi-Tatemono Co., the building’s owner, had converted the 20-year-old structure into a luxury apartment complex.
“We thought about whether this building would continue to be attractive as an office building,” looking at market demand, location and local infrastructure, said Muneyasu Okayama, in charge of remodeling projects at Nippon Tochi-Tatemono.
Costs for converting an office building into a condominium complex is about 30 percent higher than simply renovating it for new offices, Okayama said. But the company decided that turning the building into a residential property would generate more profit in the long run.
The company said getting a return on its initial investment won’t take long, as all the apartments are rented. Monthly rents range from 185,000 yen to 1.2 million yen, 34 percent higher than office rents.
Converting office space into condominiums first drew public attention in 2003 as a solution to an expected rise in the vacancy rate due to a sudden increase in office space.
At the time, the completion of a number of extremely big high-rise office buildings in central Tokyo — including Roppongi Hills and the Shiodome complex — was expected to trigger a decline in demand and result in lower rents.
Although the vacancy rate didn’t rise as much as predicted, Okayama said many firms were affected because they had to lower their rents to keep their tenants.
Nippon Tochi-Tatemono believes the remodeling business still has potential to grow, especially with the mass retirement of baby boomers over the next decade and an already-growing demand for condos in central Tokyo.
Tokyo lost at least 183,000 white-collar workers between 1995 and 2004, and another 100,000 workers will go between 2005 and 2010, according to an estimate by NLI Research Institute, a private think tank.
Separately, Mitsubishi Research Institute Inc.’s analysis of the 2005 census data shows a double-digit increase in the population of Chiyoda, Chuo and Minato wards — which have a concentration of office buildings — between 2000 and 2005. More young people are choosing to live in these areas, driving up the demand for condos.
“If demand for office buildings is to decline and result in lower rents . . . converting old office complexes into apartments is one option to increase buildings’ competitiveness,” Nippon Tochi-Tatemono’s Okayama said.
He also said Japan is becoming more recycle-oriented. It is more economical and environmentally friendly to reuse a building than to tear it down and build a new one.
However, industrial officials and experts say Japan still has a long way to go before office-to-apartment projects take root.
No official data are available on how many office buildings have been turned into residential complexes. Nippon Tochi-Tatemono has remodeled only three buildings so far.
When the company looked at the feasibility of converting about 100 office buildings into residential properties, most did not satisfy the strict laws and regulations on residential properties.
The Building Standards Law requires apartment buildings to have balconies, a rarity for office buildings.
Regulations on emergency exits, evacuation routes and lighting are stricter for residential properties than for office buildings. Buildings constructed before 1981 must be reinforced to meet the new, stricter quake-proofing standards. It can cost more to fix some buildings to comply with the law than to build something new, Okayama said.
Taisei Corp., a major construction firm, sees little advantage in remodeling old office buildings.
“There are not many good-quality office buildings suitable for conversion because the existing properties” are not designed to last for a long time, said Kumiko Kawakami, a senior architect at Taisei.
Unlike in Europe and the U.S., where there is a tradition of renovating old buildings again and again, Japan chooses to scrap and rebuild, Kawakami said.
“It doesn’t mean there is no demand for such conversion projects,” she said. “It’s just that there are too many hurdles to clear.”
Taisei is placing more emphasis on other types of remodeling projects. It is changing a dormitory into a nursing home and an auto-repair garage into a funeral hall. Still, revenue from these types of projects accounts for only about 0.15 percent of Taisei’s total revenue, Kawakami said.
Now, demand for office space is starting to increase again with the economic recovery, even though the number of white collar workers is shrinking, according to think tank NLI.
Still, developers and construction firms believe that remodeling is the way of the future and are developing better ways to renovate.
The Land, Infrastructure and Transport Ministry is looking at how to promote the remodeling of buildings. It is considering deregulating parts of the Building Standards Law and offering tax incentives.
“In a mature society where we can no longer expect rapid economic growth in the future, we need a vision of how to use good-quality buildings over the long term,” said Yasuyoshi Iwashita at the land ministry’s metropolitan-area planning division.
“The era of scrap-and-build backed by rapid economic growth is coming to an end.”
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