If you build it, they will come: from bog to boomtown, Shiodome's excellent adventure is just beginning - business, residential and commercial waterfront development on Tokyo Bay

Japan, Inc., August, 2003 by Tim Hornyak

"What's going on in the property market is another form of Japanese momentum investment, and it's being driven by low market returns," says independent financial analyst Stephen Church, head of Analytica Japan. "It's people searching for yield. It just so happens that a lot of sites have become available."

While the country's abnormally low interest rates and bond returns may be driving institutional and individual investors to sink funds into real estate, Church says the property bubble is a reflection of underlying distortions in the economy such as the bad loan crisis.

"The problem is, in the current Japanese economy, with a flat nominal GDP and deflationary undertow, you're not guaranteed rental tenants," he adds, pointing to the fears that a good chunk of the Shiodome City Center would be vacant after a merger between prospective tenants Mitsui Chemicals Inc. and Sumitomo Chemical Co. fell through. Mitsui Fudosan has since said its chemical peer in the powerful Mitsui conglomerate will rent most of the space.

With the rush of tenants into the redevelopments and the huge volume of office space that has entered the market, observers have discussed the "2003 problem" of buildings in other parts of Tokyo being left unoccupied. At the end of last March, the vacancy rate of office buildings in the five wards of central Tokyo hit a post-bubble high of 8.18 percent.

"It's not that difficult to find tenants for new buildings because the technology is so different," says Fred Takahashi of Shiodome lead developer Sumitomo Realty & Development Co., which is erecting three structures on the site, including one that will be Japan's tallest residential tower at 190 meters and a 37-story building that will house the luxurious St. Regis Tokyo hotel of the US Starwood chain, where suites will cost [yen] 50,000 to [yen] 100,000 a night. He says most of the 2003 vacancy problem was concentrated in the first three months of the year and he's glad it's over.

His firm hasn't started the marketing yet, but Takahashi says prospective office tenants are being drawn by more versatile air conditioning systems, better electricity supply to power computer equipment and enhanced security features. On the residential side, La Tour Shiodome on the far south-western end of Shiodome will have larger windows in its leased units, a 24-hour bilingual front desk and a gym.

Some critics have said the fact that Shiodome is bound by a highway and railway will limit its growth, but Takahashi believes the transport access is what sets the complex apart from rival developments.

"It's very competitive," he adds. "Marunouchi is a very dry part of the city without greenery or hotels. It has Tokyo Station, but the transport is just as good at Shimbashi. Roppongi Hills only has the subway, and transport is sub-par. Japan Railways is the main artery for transport in Japan with its large network."

As a railway cargo terminal, Shiodome played a crucial role in Japan's extraordinary modernization in the 20th century following its long feudal age. What was once the last stop on a line that extended to the port of Kobe is now a brash new beginning in the protean environment of Tokyo and the lifestyles of its residents.