Japan’s decades-long love affair with status-symbol office towers is now fading, as the pandemic upends work styles and puts a strain on company finances.
In a country where companies have long taken pride in owning their buildings, advertising agency Dentsu Group Inc. and logistics firm Nippon Express Co. are now considering selling their Tokyo headquarters. Avex Inc., an entertainment company, also plans to offload its head office in the capital.
Companies around the world are paring office space as workers stay at home during the pandemic, giving firms an opportunity to save costs and raise cash. In Tokyo, office vacancies have surged to a five-year high and may continue to climb as the government urges people to work remotely to curtail the latest wave of coronavirus cases.
"Not many companies in Japan have sold headquarters buildings before, but we may see more of it,” said Kakyu Tanaka, a senior researcher at Sumitomo Mitsui Trust Research Institute Co. Firms that are faced with tough business prospects but have room to reduce office space through remote work may do so, he said.
With thousands of its employees working from home, Dentsu is looking to sell its 48-floor headquarters for around ¥300 billion and lease back some of the space, the Nikkei reported in January. A deal of that size would be the largest in Japan, eclipsing the ¥200 billion sale of Pacific Century Place Marunouchi in 2006, according to Jones Lang LaSalle Inc.
Nippon Express, which has also embraced telework during the health crisis, could sell its 28-floor building for more than ¥100 billion, the Yomiuri Shimbun said last week.
In an encouraging sign for firms considering sales, foreign investors have been pouring money into Tokyo’s commercial properties even as they cut investment in cities like New York and Paris. Real estate investor BentallGreenOak plans to invest $10 billion in Japan over the next two to three years, of which as much as 70% may go into office buildings in major areas.
"Potential sales of headquarters by some companies in Tokyo could be very good opportunities for investors to acquire those properties, particularly if those are located in prime locations,” said Patrick Wong, a Bloomberg Intelligence real estate analyst. "Investors would still be interested in buying now, especially if they expect the vacancy rate to drop again after the COVID-19 pandemic.”
Tokyo prime office prices fell 7% last year, ending eight years of gains, according to Colliers International Group Inc. data on capital value per square foot. Wong said prices may continue to fall slightly in the first half of 2021 before improving in the second, when COVID-19 vaccines are likely to become available in Japan.
And while some firms have warmed to the work-from-home trend, offices aren’t going away anytime soon, according to Shinji Oda, a real estate appraiser at Japan Real Estate Institute.
Many companies will prefer to see employees in the office, believing that working in person helps stimulate ideas and innovation, Oda said. "It’s about a balance.”
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