Why eight Tokyo minutes from office to metro is too long

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How far, in an age of demographically turbocharged choice, should a country’s best and brightest be expected to walk from the nearest station to their place of work? 

Two minutes? No problem. Four? Fine, provided there’s coffee on the way. Eight? Forget it. So, bad luck if your company sits in the barren wilderness outside this modest radius: labour has scarcity on its side these days and no one is going to come and work for you. Apparently.

The location of Tokyo’s walkability-workability inflection point and what it might mean for Japan’s great megacity has become a preoccupation of Goldman Sachs. The investment bank has, coincidentally, just moved its Japan headquarters into a tower directly above a Metro station.

In a September 10 note to clients, Goldman’s real estate analyst, Sachiko Okada, took a look at office relocation trends within central Tokyo, overlaying that with a calculation of average walking distances between offices and the nearest station — a metric commonly used in Japan’s commercial and residential real estate markets and pivotal in a metropolis where the overwhelming majority of commuters travel by rail. 

Okada’s analysis comes at a time when the five innermost wards of Tokyo have never looked so frenetic, with Godzilla-scale office construction in prime locations. Around 1.2mn square metres of new space is due to come on to the market in 2025, she says. Even in a still heavily office-based work culture, that could push overall vacancy rates higher. 

But the issue, as ever, is location. For offices within Tokyo’s five central wards, the average walk from a station is a breezy three minutes 42 seconds, with 64 per cent within the four-minute walk zone that even the heaviest-footed sloth cannot grumble about. But a significant amount — roughly 7 per cent — lies outside an eight-minute walk. Back in the days where Japanese companies were routinely able to make staff feel grateful to have a job, and surveys showed far higher ratios of people prioritising their work over everything else, that was less of an issue. 

But now, with priorities shifting, labour more willing to quit and companies increasingly unable to meet their staffing targets, proximity to stations is yet another battleground in the war to attract and keep good staff.

Given Japan’s declining working population and the growing need for tenant companies to retain talented employees, argues Okada, there is an increasing pressure on companies to relocate nearer to stations. Her note concludes with an appendix of dozens that have begun to do just that. So roll on the relocation — and don’t force the precious labour force to walk.

The thesis underpinning this is compelling, and increasingly a version of it is used to chart the country’s broader trajectory. Japan’s demographics, with a native population shrinking at well over 800,000 people a year and with 29 per cent of the country aged over 65, are now a permanent generator of mesmerising socio-economic phenomena. 

And a solid argument is that, for a period, these phenomena are combining to form a sweet spot where some of Japan’s most stubborn problems are being solved. It is also where the Bank of Japan continues to see the formation of a virtuous cycle and thus a window in which to finally normalise policy after years of unorthodoxy. Labour shortages are driving up wages after decades of stagnation and have coaxed the economy out of deflation. They are propelling labour market liquidity, better allocation of human capital and a greater propensity for risk-taking and entrepreneurship. They are forcing companies to digitise and automate more quickly than they might otherwise have done. 

The risk, though, is that this sweet spot is very much smaller — or more shortlived — than the optimists suppose. Companies are noticeably short of labour. But that is because they have not yet adapted from an era where there was not only plenty to go around, but where their perceived social duty was to help keep unemployment down. Two things could now change more rapidly than expected: the number of small companies (mostly run by people above retirement age) that simply decide to close and the number of larger ones that rapidly restructure to accommodate demographic reality.

Before the pandemic, a much-cited gauge of Japanese labour market tightness was an active job-to-applicants ratio of 1.6. It has never, in fact, recovered and currently hovers around 1.3 — still tight by global standards, but not, perhaps, on the sort of upward trend that should give anyone confidence to walk away from a good job. Even if the walk takes eight minutes.

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