State of the Occupier - Tokyo: Reopening Slowly

The Japanese government announce the end of the State of Emergency measures for many parts of Japan and looks set to end for three prefectures around Osaka soon. They are scheduled to remain in place in prefectures around Tokyo and Hokaidao until the end of May. The original state of emergency was announced by the Japanese Prime Minister on April 7 for one month. In the seven key prefectures encompassing Tokyo and Osaka the government is targeting a reduction in social interaction by 80% and commuter volume by 70%. Schools are closed and authorities have asked people to stay at home wherever possible and for non-essential businesses to suspend operations with a particular focus on bars, nightclubs and karaoke venues.

As a result, places that draw large crowds such as shopping malls, department stores, fitness clubs and coffee shops, have been closed. Bars and restaurant chain outlets have been operating with reduce hours.  At the authorities’ urging, companies are rolling out work-from-home protocols and most companies have complied.  However, commuter train and subway volumes showed a sharp drop in the week after the emergency was declared with the number of commuters 60% below benchmark at key times during the morning rush. 

Occupiers particularly those in the entertainment and retail sectors, are looking for rent abatements or rent deferral and also putting expansion and relocation projects on hold. Several of the large Japanese general contracting firms have suspended construction work across the majority of their sites. Large general contracting firms have resumed construction work after suspending operations earlier in the crisis.   In general, tenant fit-out construction continues as scheduled, but it is anticipated that some projects may face delay/rescheduling. At this time, our client base is not seeking to return space or terminate office leases.

OCCUPIERS?
Most tenant rep assignments that have been substantially negotiated continue to progress toward conclusion. Most of our client base has adopted work-from-home protocols and are supporting social distancing measures for their staff. A number of occupiers have sent or are preparing to send letters requesting rent relief to landlords. Often these efforts are coordinated at a Headquarter level and messages are not tailored to the specifics of the situation in Japan. 


LANDLORDS? DEVELOPERS / INVESTORS?
Japanese landlords continue to field rent reduction/waiver requests from their tenant base, initially in relation to shuttered facilities in the hospitality and entertainment industries . We are hearing instances of landlords agreeing to some level of relief for review on a month-to-month basis for retail and entertainment establishments that have been impacted by a dramatic drop in traffic.

There is no playbook for the current situation and Japan's businesses are only just beginning to directly contemplate the impact of a drastic slowdown — the impact here has been moderate so far. However, a carefully calibrated and structured approach to a landlord early, providing clear information regarding the challenges faced by the specific business (global and local impacts), can set the table for later consideration of a level of relief, provided it is meaningful for bridging back to business as usual.

The expectation should not be for immediate relief, as landlords have limited bandwidth and will prioritize larger/key tenancies, but clear and open dialog early can be invaluable in coming weeks/months. We are ready to meet (remotely of course) with the Japan business stakeholders to understand the specific challenges and craft and convey an appropriate message to landlords and building owners.

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