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Tokyo Governor Yuriko Koike has a message for foreign multinationals and their high-flying executives: the city wants you back.
“Tokyo’s position in the financial world is declining”, the recently elected independent reportedly told Prime Minister Shinzo Abe. “I want to give it a boost by utilising special zones”.
Tokyo has seen its competitiveness lag in recent years, with many foreign multinationals preferring to set up their regional headquarters in Singapore or Hong Kong. Their lower taxes and pro-business regulations have seen them supplant the world’s largest and richest city — but there is hope that new incentives, along with international events such as the Tokyo 2020 Olympic and Paralympic Games, might help draw them back.
In an August interview, Koike told the Nikkei financial daily that she was ready to make Tokyo “the financial hub of Asia again”. She flagged measures including making the city more English-language friendly, being more accommodating to families with children, improving international schools and implementing a “transparent, reasonably low tax rate”. And such moves have precedent.
Launched in 2011, the Tokyo Metropolitan Government’s Special Zones for Asian Headquarters offers a range of incentives and support for foreign firms establishing operations in five areas. These comprise the northern portion of Tokyo Bay, stretching from Roppongi to Odaiba; Shinjuku Ward; Shibuya Ward; the district between Shinagawa and Tamachi stations; and a vacant site formerly used by Tokyo International Airport Haneda.
The plan is designed to bring in more than 500 foreign firms, of which at least 50 in the special zones are expected to establish regional headquarters there by the end of fiscal 2016. Currently, there are an estimated 2,300 foreign-affiliated firms in Tokyo, a number that may also grow following a programme to increase foreign entrepreneurs that the city introduced in January to encourage more foreign startups.
Nevertheless, Tokyo has its work cut out in matching the efforts of regional rivals. According to a recent report by real estate firm DTZ/Cushman & Wakefield, Singapore remains the most attractive Asia–Pacific destination for multinationals’ regional headquarters due to its economic and regulatory environment, followed by Hong Kong and Shanghai.
The favourable corporate tax rates in these business centres — Singapore’s 17% and Hong Kong’s 16.5% — are in sharp contrast with Japan’s 32.26% although, according to professional services firm KPMG, if reform proposals play out as planned, Japan’s corporate tax rate will fall below 30% beginning in 2018. The ease of doing business, according to the World Bank’s Doing Business 2016 report, ranks Singapore in first, Hong Kong in fifth and Japan in 34th place.
That said, Hong Kong has been rated the world’s most expensive city in which to rent high-rise office space. It had an average annual office rent of US$2,998 per square metre in the second quarter of 2016, compared with Tokyo’s $1,609 and London’s $1,227. Meanwhile, Singapore’s rate of $775 is the same as that in Shanghai, according to the “Skyscraper Index” in Knight Frank’s September 2016 issue of its Global Cities.
In Japan, negative interest rates and the tourism boom have seen commercial land prices rise nationwide for the first time in nine years, although residential land prices still posted a slight decline overall, according to the latest annual report put out by Japan’s Ministry of Land, Infrastructure, Transport and Tourism.
Commercial land in the major cities of Tokyo, Osaka and Nagoya rose an average 2.9%, while residential land prices rose 0.4%. In the second quarter of 2016, Tokyo Grade A office space had a vacancy rate of just 1.9%, compared with 4.8% for the same period a year earlier, according to commercial real estate services firm CBRE Japan.
Expat havens
Real estate-related firms surveyed for this article said they had yet to see a surge in British executive arrivals in the wake of Brexit. However, for those who are planning a move, a number of areas have become known as foreigner friendly.
“The majority of expats live in Minato [Ward] — I would estimate over 85% — while Shibuya and Meguro [Wards] are also popular. Due to earthquake safety concerns, the majority prefer newer apartment buildings with up-to-date building safety codes”, according to Dennis Muldowney, general manager of relocation firm Crown Worldwide Japan.
Muldowney said his firm had seen a 10% year-on-year rise in the number of expats coming to Japan in 2016. This reflects the expat market’s continuing recovery following the Lehman shock of 2008, and the 2011 Great East Japan Earthquake and Tsunami.
“People and companies realised that you still need a presence here — you can’t just run away” from the world’s third-largest economy, said Martin Fluck, director of operations, North Asia at serviced apartment provider Oakwood.
With the increase in foreign executives, certain areas look set to benefit given their respective advantages and highlights.
Kenneth Arbour, director of Tokyo Orientations, said the districts of Azabu and Hiro were generally recommended among expats, although families seeking proximity to international schools might prefer other areas.
“Central Tokyo is mainly apartments. Generally, if you want a house, you have to go outside the Yamanote [railway] Line”, he said.
Housing Japan’s Robin Sakai said neighbourhoods such as Akasaka, Azabu and Roppongi remain popular with expats due to their proximity to major business centres and established international communities — including clubs, schools and shops catering to global tastes.
He said major new property developments had been designed with international businesses in mind, including Mori Building’s Toranomon Hills skyscraper complex, and that even more are being planned.
“These developments have renewed several former industrial neighbourhoods and created an atmosphere where foreign clientele are actively welcomed and embraced, whereas historically that may not always have been the case”, he said.
Olympic boost?
The 2020 Olympic Games and 2019 Rugby World Cup are expected to prompt another surge in international tourists, with Japan eyeing 40 million foreign visitors by 2020, double the previous government target.
"There is a certain feel-good factor from these major international sporting events that brings a much-needed optimism and attention to Japan”, Muldowney said. “Hotels and serviced apartments will see high demand and room prices go up for the events … and property prices will continue to rise and rents along with them”.
Sakai agreed, saying the city “is in a powerful position through the 2020 Olympics and beyond.
“It is still the richest metropolis in the world, it possesses a large and highly talented population, it is home to a number of world-leading companies and its arts are firmly established as cultural leaders across Asia. With foreign involvement with the property market now also being welcomed, all of the groundwork is in place for Tokyo property to be a key pillar of the international real estate market”.
Custom Media publishes BCCJ ACUMEN for the British Chamber of Commerce in Japan.
© Japan Today
29 Comments
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Thunderbird
my dream is to live in a glass apartment with a view just like that, will it ever come true? ;,(
mu-da
Governor Koike is dreaming. It's not just the higher taxes. Singapore has better educational facilities, much much better medical facilities and competently staffed, a multiligual environment and an efficiency which Japan with all its rules and regulations never will reach. Just look at the airport for one example: If you arrive in Singapore you are through immigration and customs on the average in 20-30 minutes. Maybe Japan has a highly talented population, but this is voided by incompetent government, administration and management. Before anything they should worry about actually realising the Olympic Games in time and without further blunders.
Silvafan
Not if China has anything to say about it.
TravelingSales
Obviously the foreign executives will want to come here to pay a 55% marginal tax rate rather than paying 16% in HK, 18% in Korea or 20% in SIngapore. Who wouldn't?
Alistair Carnell
Hope this bid is nothing like the 2020 Olympic one.
Alfie Noakes
Erm, what? Brexit won't begin until two years after Mrs.May pushes the button, and the sky most probably won't fall even then. This article makes it sound like the UK has been hit by the Black Death and the Rapture on the same day. And those "executives" who will want to leave, surely they'll move to somewhere nice in Europe, like Frankfurt, Amsterdam or Paris. This is nothing more than advertising by some real-estate companies.
GW
Koike san, please concentrate on fixing some of the cost issues etc with 2020.
Don't worry too much about foreign execs in Japan, while there will always be some, that horse left the barn a long time ago, I don't see it doing a 180 & coming back.
Japan is just too difficult & costly for it to dream of aspiring to be a hub, should have been SERIOUS about it back in say 1985.........a lot has changed, opportunities missed
Wakarimasen
We hear this so often. I wish it would come true but so far not much has been done since the first iteration of this in 2006.
dharmadan
No chance: High taxes, cold, unfriendly people, almost nobody speaks even passable English, uber by-the-book bureaucratic mentality. So many better options than Tokyo.
Tokyo-Engr
For those that say Koike is dreaming and this will never happen...
I agree with alot of your criticisms or rationale as to why this will not happen, BUT
I am very impressed with her and I am glad she is at least expressing her vision. She is off to a strong start and seems to be willing to buck the status-quo so I hope she makes strides in making Tokyo more attractive!A 180 degree comeback or turnaround is not needed but it would be nice to see the trend reverse. I think this is critical for the future of Tokyo and all of Japan.
I like her so far and I like that she expresses her vision. The best thing she could do would be to set up a forum/meetings with expats in Tokyo to hear their opinions. The meetings should consist of not only executives but all categories of expats including small business owners, etc.
Regardless good for her and I support her efforts, regardless of the outcome.
fxgai
What would a non-transparent tax rate be, I wonder? Government makes it up and tells you later? I guess transparent sounds good, but "lowest tax rate" would be better. If businesses were flocking to Tokyo I'd bet that personal income tax revenues would jump as a result.
Not good enough.
Not to mention the Japanese government deserving a slice of any inheritance coming the way of foreigners living here.
I am biased in favour of Tokyo on one point and that is the city environment. I've never been to Singapore and Hong Kong to judge, but I suspect it'd be boring living there on those islands compared with Tokyo where the is plenty of stuff to do outside the city (if you like doing stuff outside the city, which I do.)
Moonraker
Another thing is that a 3 hour or so flight from HK or Singapore gets you to a whole lot of cheap places for an interesting and relaxing break. Three hours from Tokyo gets you only to ... well... Hong Kong.
lucabrasi
@Moonraker
Three hours? That's one quick flight....
cleo
Okinawa. Very relaxing, if you avoid the bases.
MsDelicious
This Tokyo Village is not good for young artists at all. The art seen is terrible. Unless you are a living treasure, or a family member of one, you can forget about showing your artwork unless you want to cough out $3000 to rent a place for 3-5 days. Great for those with money and an ego.
I find the airports customs very very fast here compared to Singapore and Hong Kong.
Okinawa is closer than three hours. Seoul and Shanghai are close hops too.
smithinjapan
They needed someone like Koike LONG ago instead of the morons who just sit on their butts catering to local interests and collecting and using public funds for private use. Too late now. While Tokyo is playing catch up and suffering for it, the other nations will still be ahead and keep ahead. They can still make improvements, though, that will make Japan MORE competitive than it is now.
Steven C. Schulz
It'll take a lot of effort to pull in multinationals from Hong Kong and Singapore, both of which have large natively English-speaking populations. It would likely require a new type of visa and drastically accelerate fluency education. In effect, Tokyo would need to become an English-speaking society. All that before overcoming the simple inertia of the matter.
If only someone like Koike had be around 30 years ago.
Tokyo-Engr
@smithinjapan.....It may be too late as you say but one would never know unless they try.
Again this is why I support Koike and support her efforts. Tokyo is playing catch up...absolutely agree with you!
Although Tokyo may never catch up to Hong Kong and Singapore I say why not make that the goal and if you get 1/2 way there alot of good has been done! I think it is getting to the point that moving forward in this direction is a matter of survival for Japan as the Showa days are long gone and will not return.
I really like Koike so far so I would really like her succeed to the extent possible (if she maintains her current style of governance - I do recognize her term is young).
goldorak
Used to have an APAC job (wasnt an exec thoug) and Tokyo was by far my fav Asian biz destination followed closely by bkk. Seoul and HK last.
Tokyo ticks many/most boxes, and Japanese ppl/colleagues too (in my/this case). Living there as an expat is a whole different story though. Chiang Mai would get my vote but am yet to find a company/industry willing to move their asian hq there.
Spanki
Not to mention that a lot of multinationals and expats who relocated in the march 2011 aftermath, still have that experience fresh in their minds.
cobaltblue
I really appreciate her vigor and support her efforts.
I have wanted to start a business in Tokyo for several years but the biggest thing is not taxes that is holding me back - it's the brutal cost of real estate in Tokyo. If you are lucky you can find a decent spot that charges no more than 2 months deposit and 2 months "key money."
Most places I have looked at that were not roach infested hovels or mass shared spaces were pushing 7 to 10 months deposit with obscene costs for key money. If she could see to a forced deposit cap (or something, I am not a financial person so these are just hopes) along with the tax fixes I could see it being a huge help to those interested in starting up here.
Of course you could always move way outside Tokyo - but I like what Tokyo has to offer after living here for almost 10 years. Koike is on a roll and I am excited to see where she puts her mind to next. So far she has done a great deal of good with being vocal, forward, and transparent. I am hoping she keeps up with this progress through her entire term/terms.
We will just have to wait and see where her efforts get her.
BertieWooster
What!!!!
Don't they know about Abenomics?
Yubaru
Which means just what? Nothing is going to happen when you have a society in general that pays only lip service to the idea of fluency or ability in English and is for the most part xenophobic and only wants foreigners here for a short term.
Tokyo will be hard pressed to regain what it once had, it's been passed by and has become a megalopolis that isnt worth the trouble for those who have a choice.
Dukeleto
I don't even need to read the article ( I didn't ), but the headline it's has prompted a response from me. Had they instituted English into the Japanese schooling system and by that I mean a proper English program which churned out students who could speak English proficiently four decades ago they would be well poised around about now to become the New Asian business center. Without this key factor it's a complete non-starter...unfortunately as I believe they truly could be exactly what the headline of this article is proposing.
SaikoPhysco
Its not going to work... they must be seeing planes because I think they're on Fantasy Island.
wtfjapan
never going to happen, Singapore for example has a large percentage of the native population speak English as a second language, then youve got salary taxes that are much less for high earners, much better international schools UNI that use english . Japan just isnt a country that is ready to embrace, or ever will be, a large expat population. Sorry but Japan needed to act decades ago, now it trying to play catch up when its just too far behind.
shallots
They'll be lucky to get through the Olympics. Japan is sleepwalking toward it's destiny. Koike cannot even get the support of her own party. It's nice that she sounds like she has a dream. However, shoganai rules the future.
ThePBot
Has-been. There are other places in Asia that's better suitable for business hubs, right now or in the future. You can't even seem to get the Olympics in place. The IOC threatened to have some venues held in South Korea for goodness' sake.