WeWork Competitor Sees Opportunity in Tokyo’s Shrinking Offices

(Bloomberg) -- A radical rethink of work culture that threatens to push Tokyo office vacancy rates to new heights has the largest Japanese shared workspace provider preparing for opportunity.

The coronavirus outbreak caused a drop in TKP Corp.’s revenue, but while its shares are still down 40% for the year they have rebounded about 180% from their March trough as investors look for a rebound. The stock rose 5.6% Wednesday, capping a three-day gain of 19%.

Takateru Kawano, TKP’s founder and chief executive, envisions transformation of the market over the next few years. He said the firm has seen new sources of demand emerge as companies implement business continuity plans and hold more webinars amid social distancing concerns.

“The pandemic has brought the need for such spaces all at once,” Kawano said in a Sept. 9 interview. “Many companies will begin to shrink their office space, and in turn will look to decentralize and disperse employees to satellite offices.”

WeWork, which saw a drop in membership amid social-distancing concerns, has also touted this “hub-and-spoke” model for companies looking to revamp their work cultures and use of buildings. In Japan, firms including Fujitsu Ltd., Nomura Holdings Inc. and Toshiba Corp. have either moved to reduce office space already or are said to be considering doing so. Tokyo’s office vacancy rate has risen to over 3%, the highest since January 2018, and Morgan Stanley has said it could climb to record levels over the next five years.

Tokyo Offices Seen Facing Record Vacancies on Shift to Telework

Originally focused on providing conference rooms for hourly rental, TKP pushed into shared offices with the $400 million acquisition last year of Regus Japan from IWG Plc. That purchase helped drive three quarters of 60%-plus revenue growth before sales stalled in the March-May period on Covid-19, resulting in TKP’s first three-month loss since its 2017 listing.

Still, analysts have remained bullish on TKP, pointing to a rebound in demand and praising its repurposing of space during the pandemic. The company’s innovative efforts include converting conference rooms to smaller office spaces and utilizing empty wedding halls for weekday corporate events through a tie-up with wedding coordinator Escrit Inc.

Shared offices stand to do well assuming companies adopt new styles of human resource management, with “some working from home, some working from satellite offices and then bringing people together in flexible office hubs,” said Tim Morse, a Singapore-based director at Asymmetric Advisors. Despite the stock’s strong rebound from the virus selloff, “TKP has plenty more upside” in this scenario, he said.

Kawano said the next big growth opportunity for his firm may come in the next 2-3 years, when he estimates that half of all current corporate five-year office leases will expire.

“That’s when the change really takes place,” he said. “They will shrink offices, cut office floor and rent satellite offices. That’s when we can attract clients with our added value.

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