An increasing number of companies in Tokyo are downsizing their offices as teleworking spreads in response to the novel coronavirus pandemic -- a trend that looks likely to continue even after the outbreak ends.
IT ventures and startups, known for their quick and flexible decision-making, are at the vanguard of the move. They are rethinking the worth of paying expensive rents, partly since they are struggling to raise capital amid the pandemic.
In late June, xenodata lab, a startup offering AI-based data analysis services ranging from predicting the performance of companies to the movement of economic data in Japan, vacated over 150 square meters of office space near Shibuya Station and moved to a nearby location a third of the size.
Like xenodata, many IT ventures and startups have offices in Shibuya, a youth culture hub that is also known as "Bit Valley" -- Tokyo's version of Silicon Valley in the United States.
At xenodata, all of its nearly 30 workers, most of whom are engineers, have shifted to remote working because of the influence of the virus, and the company found it unnecessary to maintain an office at high cost.
Although sales have been growing thanks to demand for the firm's analysis of the virus' impact, xenodata expects customers to cut budgets due to the pandemic, according to spokeswoman Mariko Kitaguchi. "It is better to keep costs as low as possible," she said.
Since shifting to telework herself, Kitaguchi added, she has been able to save time on commuting and is in a more relaxed mood because there is no need to wear business attire.
"We will move flexibly regarding our workspace," she said, looking ahead. "We have not ruled out the possibility of expanding our workspace again, but it is not a high priority as teleworking has become a common practice for us."
Machimachi Inc., the operator of a neighborhood social network service, canceled the lease on its office in Shibuya in April. Its workforce of more than 10 has completely shifted to working from home.
"We decided to abandon the office as a cost-cutting measure given the uncertainty of the business environment," said Machimachi Chief Executive Officer Ikuma Mutobe.
Even after Japan in late May fully lifted the coronavirus state of emergency it declared in April, many people have continued to work from home with no end in sight to the pandemic.
According to Ippo, a company that helps startups and ventures find office space, more than 90 percent of its customers had been considering moving into bigger offices but that changed in April.
The number of inquiries about relocations to smaller offices stood at three in March but jumped to 35 in April, 49 in May and 65 in June, Ippo said.
Real estate brokerage Miki Shoji Co. says overall demand for office space in Tokyo remains sluggish even after economic activities restarted with the lifting of the state of emergency.
The office vacancy rate for five of Tokyo's major business districts increased for a record fifth consecutive month in July, rising to 2.77 percent from the previous month's 1.97 percent, according to the firm. It was the largest one-month gain on record, beating a high set in 2009 in the aftermath of the global financial crisis.
Still, opinions are divided over whether the move to downsize offices will continue in the future.
Ippo believes the trend will be short-lived, saying there is a limit to how well companies can operate with staff working from home.
"Remote working may be fine for existing workers as they have built up a network of connections and accumulated knowhow on business," said Norifumi Osumi, Ippo's executive managing officer.
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"New graduates, however, don't have many connections and there is quite a high hurdle to doing business via Zoom without face-to-face communication," he said, referring to the videoconferencing app.
He also suggested that relying on videoconferencing among staff could slow the pace of innovation for startups.
But some analysts think that if internet security can be ensured, the trend of downsizing offices will spread to even more firms as teleworking begins to take root.
Considering that even Fujitsu Ltd., a giant IT solutions company, has moved to cut office spaces, smaller firms may feel encouraged to do so, analysts added.
Fujitsu said in July that the company will halve its office spaces in Japan by March 2023 as it pushes for more of its 80,000 employees to work remotely to reduce the risk of being infected with COVID-19, the disease caused by the novel coronavirus.
Daiwa Securities Co. estimates that the planned office space reduction would have a cost-saving effect of 27 billion yen ($255 million) for Fujitsu even if it has to grant additional teleworking benefits to workers.
"There are many merits for IT companies going office-less," Makoto Ueno, an analyst at Daiwa, said, stressing the need to establish IT infrastructure to support teleworking. "If Fujitsu succeeds in the announced initiative, other companies in different sectors will follow suit."