Coworking Sector in Tokyo Expands July 218 JLL Research Overview The coworking sector, or community-oriented office space, in Tokyo has been rapidly expanding in 218. During the first half of 218, total leasing space of coworking offices increased to 62,68 sqm and nearly doubled from 217. Approximately 41 coworking offices are currently in operation in Tokyo 5-ku (Chiyoda, Minato, Chuo, Shibuya, and Shinjuku) with the largest location seating 1,9 people. Most notably, global operator WeWork opened its first location in Tokyo in February 218 and has been expanding at a rapid pace. Furthermore, serviced offices are also adding more communal spaces to meet the increase in demand for community-oriented spaces. In addition, recent workplace reforms led by the government are boosting demand for more flexible types of office space in Tokyo. Figure 1 Coworking vs Serviced office Type Key Characteristics Coworking office Community-oriented office spaces which feature open plan, communal seating arrangements. This concept is growing rapidly in the US, Europe, and Asia Pacific markets. Serviced office Provides services such as concierge and translation for multiple firms. Historically serviced offices have consisted almost exclusively of private offices. COPYRIGHT JONES LANG LASALLE 218 1
1. A sharp pick-up in flexible space supply Leasing activity of coworking space in Tokyo picked up in 213 and 214 as local operators launched operations and then surged again in 217. In the first half of 218, coworking operators share of Tokyo gross leasing activity increased from 3% in 217 to 34%. As shown in Figure 2, new supply of coworking offices increased markedly by 16,92 sqm in 217. As of the 1st half of 218, coworking operators opened an additional 32,624 sqm. In the 199 s and early 2 s, serviced offices were the primary providers of flexible workspace options; however, in the past five years, coworking has picked up notably and the composition of flexible office space has shifted dramatically. Furthermore, the average size of coworking space has rapidly increased in 217. Average location was 1, sqm in size at the end of 217, but sharply rose to 2,3 square meters as of June 218. Operators are building offices with larger capacity (such as 9-1,9 seats) to accommodate demand from large-scale corporates. Figure 2 Coworking and Serviced Office By Year of Opening (sqm) 4, 35, 3, 25, 2, 15, 1, 5, Serviced office Coworking 2. High concentration of new supply in the Tokyo CBD The Tokyo Grade A office market is facing unprecedented new supply volumes from now until 22. New supply resulting from redevelopment activity is particularly concentrated in Marunouchi and Otemachi, as well as Toranomon, Shinagawa, and Shibuya. As competition in coworking sector is picking up, more operators are securing locations with good access. The most notable new openings since April 217 are listed in figure 3. COPYRIGHT JONES LANG LASALLE 218 2
Figure 3 Recent Examples of Coworking Offices (as of Opening Date) Developer Occupier Date of Opening Buildings Lease Area (sqm) Mitsui Fudosan Workstyling Apr-17 Shiodome City Center 35 Mitsui Fudosan Workstyling Apr-17 Shinjuku L Tower 43 Mitsui Fudosan Workstyling Apr-17 Shinagawa Grand 52 Central Tower Spaces Apr-17 Otemachi Building 1,66 Mori Building Park6 Dec-17 Roppongi Hills Mori Tower 45 Mitsui Fudosan Workstyling Dec-17 Grand Tokyo South Tower 2,18 WeWork Feb-18 Ark Hills South Tower 3,77 WeWork Mar-18 Marunouchi Kita Building 6,31 NTT UD LIFORK Apr-18 Otemachi First Square 4 NTT UD LIFORK Apr-18 Akihabara UDX 4 WeWork Apr-18 Ginza Six 3,7 WeWork Apr-18 Shimbashi 3,39 WeWork Jul 218* Hibiya Park Front 8,27 WeWork Jul 218* The Iceberg 5,13 *Expected As seen in the above chart, notably, WeWork has opened six new locations in Tokyo CBD during the first half of 218 after receiving $4.4 billion in funding from Softbank Capital in July 217. Also, IWG, the parent company of Regus, one of the major serviced office operators, acquired coworking operator Spaces and opened its first Tokyo location in April 217 in Otemachi Building. Additionally, Mitsui Fudosan opened its 2, sqm flagship office on the 9th floor of Gran Tokyo South Tower. COPYRIGHT JONES LANG LASALLE 218 3
As a result by Q1 218 the largest share of Tokyo flexible space stock was concentrated in Chiyoda Ward with 16 of the 41 coworking centers found in Chiyoda Ward. Operators are increasingly focused on areas with high commercial activity and are pushing into Chiyoda and Minato Wards. Figure 4 Coworking vs serviced office in Tokyo CBD (by ward) 6, 5, 4, 3, 2, 1, Chiyoda Minato Shibuya Chuo Shinjuku 35 3 25 2 15 1 5 Coworking stock Serviced office stock No. of coworking centres No. of serviced office centres 3. Rental Levels Average asking rent in the Tokyo CBD as of June 218 was 91,95 yen per seat, a 16% yoy increase from the previous year. Large volumes of new supply of coworking locations in Tokyo CBD (notably Hibiya, Marunouchi, and Yaesu) is putting upward pressure on rental levels. Fewer operators are choosing locations in older building stock and fringe areas where typical coworking rent is generally around 3, yen per seat and significantly below the market average. Figure 5 Average rental rates per coworking seat Year Average Asking Rent 217 78,414 yen 218 91,95 yen 4. Pick-up in demand Strong demand for community-oriented spaces is picking up among start-ups as well as large companies. Financial services, technology, food, fashion companies, as well as small businesses and local organizations are current users of the sector. High occupancy levels are seen across locations in Tokyo CBD including the new, large-scale offices. In addition, workplace reform led by government initiatives is also boosting interest in the sector. COPYRIGHT JONES LANG LASALLE 218 4
5. Outlook The pickup in activity in the coworking sector in Tokyo is expected to continue going forward. Operators are providing new supply to meet increasing tenant demand for flexible workspaces. At the same time, demand for community-oriented spaces is steadily growing not in small part due to recent government initiatives for workplace reform. However, over the next several years, as new supply of grade A office buildings in Tokyo increases and office vacancy is expected to rise. The ability to maintain strong relationships with existing tenants and attract new tenants will be increasingly important for operators. Contact Information Yuto Ohigashi Research Associate Director 3 551 9249 yuto.ohigashi@ap.jll.com Tomoyo Nakamaru Research Assistant Manager 3 5511 343 tomoyo.nakamaru@ap.jll.com COPYRIGHT JONES LANG LASALLE 218 5