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Tokyo exodus: Is the capital losing its luster among businesses?

  • December 19, 2021
  • , The Japan Times
  • English Press

BY ALEX K.T. MARTIN, STAFF WRITER

 

Collabo Style Inc. was among the myriad tech companies that were quick to embrace remote work when the COVID-19 pandemic swept through the nation last year.

 

As firms scrambled to introduce flexible working arrangements to reduce infection risks, the cloud-based workflow solutions startup took things a step further — it relocated its headquarters out of the bustling capital to the manufacturing hub of Nagoya.

 

“Tokyo is an important market but if we can work from wherever we want to, there isn’t much reason for us to have our main office there,” says Yosuke Matsumoto, founder and CEO of the company. “It’s also dangerous to concentrate our resources in the capital in case disaster strikes. What’s more, Nagoya is a great place to live. Not only does it have good access to Tokyo, there are both beaches and mountains in close proximity.”

 

The number of companies relocating their headquarters out of Tokyo is growing at a record pace as the ongoing health crisis forces workers and businesses to reassess their priorities in the face of potential calamities, be it viral outbreaks, earthquakes or a host of weather-related disasters that scientists predict will only get worse in the age of climate change.

 

According to corporate research firm Teikoku Databank, 186 companies moved their headquarters out of the Tokyo metropolitan area between January and June, the first time in a decade the figure has exceeded 150 in the first six months of any given year.

 

If this pace continues, Teikoku Databank said in a September release, the number of corporations relocating outside the capital is expected to pass 300 by the end of the year for the first time since 2002, and could exceed the record 324 logged in 1994. Meanwhile, the number of firms moving out of Tokyo this year is expected to surpass those moving into the city for the first time in 11 years, the research firm said.

Where are these companies going? Osaka was the most popular destination, with 22 firms choosing the metropolis as their new home, while the northern island of Hokkaido, known for its abundance of land and nature, came in fourth with 14 companies.

 

“These include firms in the service sector and business-to-consumer online retailers. Information technology companies in general comprise the bulk of the firms moving out of Tokyo,” says Daisuke Iijima, an analyst at Teikoku Databank. “These companies also tend to have better systems in place for their employees to work remotely.”

 

While it’s too early to tell whether the exodus will continue, Iijima says there’s a growing trend among firms to establish back-up offices outside of Tokyo as part of their business continuity plans. Regional cities, meanwhile, have been luring corporations through various subsidy programs and other perks.

 

Fumihiko Kamio, research director at Nomura Research Institute and an expert on regional revitalization, says as the pandemic triggers a rethink of working environments, local communities seeking businesses and talent need to take advantage by leveraging their existing assets while offering opportunities for firms seeking fertile ground.

 

“Meanwhile, it’s important for firms dealing with climate change and other risk scenarios to expand their scope and seek innovation outside of Tokyo,” Kamio says. “Those are also the type of companies that I believe will persevere in the long run.”

 

The city of Kurume in Fukuoka Prefecture, for example, has been promoting what it calls the Fukuoka Bio Valley Project, a collaboration between industry, academia and government to transform the city into a bio-industry cluster.

 

Under the program, Kurume has been recruiting residents to its incubation facility, including startups and research organizations.

 

“Around 40 firms have so far joined us in Kurume,” says Chika Fujiki, a city official. Office rooms can be rented for a discount for a maximum of 10 years, while firms can rent laboratories equipped with expensive instruments and devices by the hour.

 

“Companies with headquarters elsewhere have also established emergency bases,” Fujiki says.

 

Even before the pandemic, experts have warned that the extreme concentration of people, a complicated web of roads, tunnels, overpasses and underpasses, as well as the vast railway and subway networks that cover Tokyo pose substantial risks in the event of a disaster.

 

With more than half of all listed companies basing their headquarters in Tokyo, the capital is the center of economic activity in Japan. It also sits on a floodplain and tectonic plate boundaries, making it vulnerable to heavy rains, storm surges and powerful quakes.

 

According to the Cities@Risk outlook released by research firm Verisk Maplecroft in March, when looking solely at natural disasters and the impact of earthquakes and typhoons on economies, populations and infrastructure, Tokyo was listed as high-risk.

 

When Typhoon Faxai hammered the Kanto region in September 2019, for example, extreme gusts triggered massive blackouts in the city’s neighboring Chiba Prefecture, recovery from which took weeks in some places. And when a magnitude-5.9 earthquake struck Tokyo and its surrounding prefectures in October, all train and subway lines in and around the capital temporarily halted operations after water pipes burst and fires broke out.

 

To reduce such risks while increasing local jobs to energize regional economies, the central government has been promoting corporate office relocations through tax breaks and other measures. While such efforts have made little headway so far, the pandemic and the introduction of new working styles appears to be convincing many of the merits of downsizing office space in the capital.

 

In April, mobile and online services company DeNA Co. announced that it will move its headquarters to a shared office space. Meanwhile, Deloitte Tohmatsu Group moved out of two floors of a building near Tokyo Station this summer, and Yahoo Japan Corp. has said it is vacating 40% of its Tokyo office space by November in response to the high percentage of its employees working remotely.

 

Workers also seem to be looking for opportunities outside of Tokyo. According to a Cabinet Office survey that was published in June, 53.5% of respondents based in Tokyo said they work remotely to varying degrees, while 38.1% said they were interested in relocating outside of Tokyo, up from 28% in December 2019. The trend was especially pronounced among those in their 20s.

 

In a move reflecting how COVID-19 has set in motion major reforms within the business community, staffing giant Pasona Group Inc. moved its core functions from Tokyo to Awaji Island, near Kobe, in September last year.

 

The plan is to relocate around 1,200 of the 1,800 employees tasked with head office functions at Pasona’s home office in Chiyoda Ward in Tokyo to the new base by 2024.

 

CEO Yasuyuki Nanbu has been based at the island’s office since April, and around 230 employees have already moved to the island as of May, says Akira Sato, head of Pasona’s public relations department for the Kansai area.

 

“There are several factors that we took into consideration when making the decision, one of them being the risks of pandemics, natural disasters stemming from global warming and terrorism,” he says.

 

Offering a stress-free working environment for its employees and stimulating new business ideas and opportunities are also reasons behind the decision, he says.

 

Pasona has been investing in the scenic island of 130,000 residents since it launched farming and tourism operations there in 2008. It currently manages more than a dozen establishments in Awaji, including restaurants, a hotel and a theme park.

 

Employees who have relocated to the island, including Sato, can use one of three satellite offices Pasona operates. Those moving with their families typically live in a seven-story apartment building equipped with an office and nursery on the first floor.

 

Local residents also appear to be welcoming the move, Sato says, noting that it should create more jobs for them.

 

According to the results of a survey released last November by Keidanren, Japan’s largest business lobby, 22.6% of 131 member firms that responded said they were either currently implementing, considering or could eventually consider the relocation of their head office functions outside of Tokyo. That figure represents a sharp increase from 7.5% in a similar survey conducted in 2015.

 

Matsumoto, CEO of Collabo Style, says moving his firm’s headquarters from Tokyo to Nagoya, a city where he grew up, has helped his company attract talent.

 

“Recruiting in Tokyo can be extremely competitive, whereas we are able to stand out in Nagoya,” Matsumoto says.

 

Ultimately, he wants his employees to be able to work from wherever they feel comfortable.

 

“While Tokyo does harbor substantial geological risks, disasters can essentially strike anywhere in Japan,” he says. “In that sense it’s important to distribute physical workspaces and other resources across different locations.”

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