Shrinkage in Tokyo's central business district: Large-scale redevelopment in the spatially shrinking office market

Abstract

Although metropolises continue to grow worldwide, they face the risk of shrinkage. This study seeks to capture and contextualize the "shrinkage" of the office market in Tokyo, a city that is one of the largest in the world but whose labor force has been shrinking since 1995. Employing unique property-level data on office building performance and use, this study quantifies the geographical distribution of office supply over time and shows that the geographical area of office supply is shrinking from the fringes, in line with the large-scale redevelopment of the central area since the collapse of the asset bubble in the early 1990s. As a result, analyses of changes in the vacancy rate and rent premium (from hedonic regressions) suggest that old office properties in the suburbs have recently faced more vacancies and lower rent premiums, even during the upturn peak of around 2007. This evidence suggests that (i) the concept of shrinking cities is also applicable in a spatial context, even for service sector workplaces in a nation's central metropolis, and that (ii) allowing large-scale redevelopment in the central area while the economy remains powerful can transform the metropolis into a more compact form, which may be desirable in the long run.