Flexible workspace in Tokyo CBD picked up sharply in 2018 as total stock rose 48% to 156,000 square meters from the end of 2017 (Figure 1). WeWork, the largest global co-working operator with headquarters in New York, opened 8 locations in Tokyo CBD within 11 months. The global operator is drawing great attention with an additional $3 billion funding from Softbank after an initial $4 billion investment.

More than 90% of new supply of flexible workspace in 2018 were co-working offices or community-oriented workspaces. The focus on large communal spaces in workspaces is increasing and as a result, many large corporates are adding co-working to their portfolio as a strategy (Full Report on Flexible Workspaces in Tokyo CBD).

In addition, serviced offices are also incorporating lounges and common areas for tenants. Some operators in Tokyo CBD have even acquired external co-working brands as part of their strategy to expand in the market. For example, Regus, the largest serviced office operator that acquired Spaces and opened Spaces Otemachi in April 2017, recently announced a second location in Roppongi.

Domestic developers including Mitsui Fudosan (Workstyling), Tokyu Land Corporation (Business-Airport), and NTT Urban Development (LIFORK) have also launched co-working and serviced office brands. Japan’s largest domestic developer Mitsubishi Estate has been operating its own brand since 2007 and is scheduled to open its third Premier Floor location in February this year.

Furthermore, non-real estate developers such as Tokyu Corporation (NewWork) and JR East (Station Work) are opening satellite offices that enable tenants to work remotely. Tokyu Corporation operates 4 locations in Tokyo CBD and JR East is expected to open 30 new locations by 2020 as teleworking becomes the norm.

Implementation of the new work style reform law that addresses issues such as overtime, paid leave, extension of flex time period, will take effect in April 2019 and is expected to boost demand for flexible workspaces.

Figure 1 Flexible Workspaces in Tokyo CBD (cumulative)
Source: JLL estimates

WeWork Enters the Market

WeWork, the world’s largest co-working operator, started operations in Japan in 2018 and currently operates more than 40,000 square meters of leased space in Tokyo CBD (Figure 2). Although WeWork initially entered the market with relatively limited brand recognition, the operator has rapidly expanded operations and holds significant presence in the market.

The average size of a WeWork location in Tokyo CBD is approximately 5,000 square meters and is significantly larger than the past average sizes of its centers (1,000 square meters). The co-working operator anticipates larger communities and has therefore incorporated large communal spaces and ample room for seats.

Recent WeWork additions in Tokyo CBD include Tokyo Square Garden (4,000 square meters) and former Sanyo Shokai Aoyama building (5,000 square meters) in Nogizaka. Several new locations are expected to start operations in the first quarter of 2019.

Figure 2 Key Operators in Tokyo CBD
Source: JLL estimates

Outlook       

Demand for flexible workspaces, particular for community-oriented offices, is set to increase and the industry is expected to become more robust. Global operator WeWork’s expansion plans and business model will continue to transform the industry. JLL expects that flexible workspace in Tokyo CBD will expand by about 20% in 2019 and again by 30% in 2020.

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