A household name in Japanese real estate is making inroads into developments in the US, UK and Australia. President and CEO of NTT Urban Development Sadao Maki, discusses the company’s overseas plans and its eye for niche growth sectors in Japan’s changing real estate scene.
What would you say has been the impact of Abenomics on the construction and real estate sectors, or indeed specifically on NTT Urban Development?
Speaking honestly, I believe there are various appraisals of Abenomics, but if I am to speak as one private person and as a citizen of the country, I feel that Abenomics has drastically changed Japan’s mood and improved the pessimistic dark mood of the last two decades, which is why I appreciate highly what Abenomics has done.
Regarding the management of Japanese companies, during the economic miracle the country went through after the war, Japan was growing aggressively, but at that time it was actually quite an easy environment, where as long as you made something you were able to sell it. However, now we are in a more difficult time, but I feel that through Abenomics the mentality of the top management of Japanese companies has changed.
I feel that Japanese companies are once again taking the stance of taking on the world. Many Japanese companies are proactively doing business transformations and M&A. The management styles of Japanese companies are becoming like the global standard and adopting best practices. The number of business leaders with this mindset is increasing.
Speaking now specifically about the construction and real estate sector, we are actually in a very positive environment at the moment and the biggest issue facing the construction sector is the lack of workers, engineers and architects. We are currently in a big rush to create new buildings and constructing facilities with the Olympics and Paralympics in mind, and we do not have enough workers.
In terms of the real estate sector, during the last two decades, there were high vacancy rates in the office buildings business. Particularly in the Tokyo area, but also in our entire country, the vacancy rates have been reduced considerably and for now we are in a situation where hotels and other types of accommodation are lacking.
Given the sharp increase in the number of inbound tourists, the commercial sector – for example the department stores – is booming at the moment. So, this has had a positive effect on the real estate sector. In terms of the residential market, in Central Tokyo, for example, the expensive condominiums are selling very well and so the overall real estate trend in the residential sector is positive as well.
That was the overview of the sector. Speaking about our company, just as Japan is changing, we believe that we have to also change our strategy. Until now, we have been building offices in the central areas of Tokyo and Osaka, and we will continue to do that, but we also need to adapt to the changes in society. With a decrease in population, the low birth rate and an aging population, we need to change our business strategy as well. Within the Japanese real estate sector, we should have a different strategy from major development companies. We need to really focus on what will be the next trend in the sector.
You were appointed in 2013 as president, and your medium-term plan was to put the customer first, as well as be more flexible and adaptable to the market. So considering we’re about halfway through that strategy, how would you rate the performance so far and what are the outstanding priorities you have as president?
For us, but also for all of Japan, people are looking forward to the 2020 Olympics and Paralympics very much. There is a mood that says we should just continue as we are, but I’m always telling my employees that we need to be looking beyond 2020 and to prepare for what is coming next. One of the initiatives is looking forward to more alliances in the hotel and hospitality sector.
Regarding the medium-term plan, it is going as planned. I had many discussions with our employees about what we should be doing in this new era, how we need to change, how we are going to live and face the new era. And as a result, I feel that my aim of bringing innovation to the company has now permeated throughout it, particularly in the hotel and renovation sector. For example, in Japan, building new buildings is something that is common and has been happening all throughout history, but I have been fortunate to have employees who proactively proposed new renovation projects, like the recent “Hive Tokyo”, and so I feel that my work has borne fruit.
Indeed Japan is going through a historic tourism boom. Last year, spending was up 40% to $17.6 billion, and having noticed this trend you’re focusing on diversifying with the Hiramatsu joint venture. Can you maybe elaborate on other strategies you have in the tourism sector or how you’re trying to grow this part of NTT Urban Development?
Japanese real estate was about creating hardware, but now this is going to change. From us making things we are going to provide actions. In the future, we are going to be creating services rather than just products – tourism for example. For instance, in Disneyland or Universal Studios Japan you see that even though it is an expensive form of entertainment, people line up in long cues, such as three hours for the Harry Potter ride. And people are willing to pay a lot of money to enjoy themselves like this, so you can see that there is demand there.
Also, in Kyoto, the hotels have become so booked up that it is very difficult to reserve a room. So you wonder: why is Kyoto so attractive to people? Actually, both Japanese and foreign people appreciate the city itself and just feel happy being there. I believe that our objective for the future is to both capitalize on this trend, as well as to create new environments like this, but that can’t be done right away. So, we are working on it and in Osaka, next to the Universal Studios Japan, we are planning to create a condominium there. But when I joined the company I told them that’s not a good idea. Instead, we have planned to build a hotel and it is currently under construction.
Also, in the center of Kyoto, we are now working with foreign capital, a hotel chain and famous architects from abroad to create a kind of a luxury hotel, which is very interesting and exciting. The details have not been announced yet.
I’d like to also mention our collaboration with Hiramatsu. I believe that for humans, eating is a major source of satisfaction. The Japanese people really have a sophisticated palate and appreciation for good food. We are developing and looking into the Auberge style of gastronomy. We are studying that right now and I believe that providing this taste of good food in small luxury accommodation and having an impact on our customers in that way is very interesting to us, and so we decided to join up with Hiramatsu in order to do something really interesting.
To correctly convey our partners’ intentions, I’d like to say the CEO of Hiramatsu, Mr. Hirotoshi Hiramatsu, has recently started calling this concept of Auberge, “small luxury hotel”.
NTT Urban Development is determined to increase its significant strides towards acquiring four properties, bringing the total to six in the US. So how important is the US market to the continued growth of NTT Urban Development? Can you outline your strategies for the US market?
Japanese real estate companies have been focusing on the domestic market until now, but given the demographic changes in Japan with the low birth rate and aging population, we have felt the need to expand globally in order for the company to continue growing. Other real estate companies are doing the same. Our portfolio until now had been focused on Japan, but I believe that in the future it is going to be very important for us to diversify by going abroad, and this is a major priority for our company’s strategy.
In my previous capacity, I was going all over the world working on expanding the IT infrastructure globally, but for the real estate sector, it is not necessary to invest in all parts of the world. So we have selected areas of the world and markets that have less regulation and that are transparent. This has led to our investments in London as well as in the US – in New York, Boston and Washington D.C. – and we’re also involved in Australia in selling developing residential lots.
In view of the current and future economic situation, my personal belief is that the US market will continue to be very successful and a huge source of potential. It is such a large country. So we feel it’s necessary to focus on certain areas such as Boston, New York, San Francisco and Washington DC.
In any case, we would be a newcomer in the US market so I believe that it’s important for us to work with good partners within the US in order for us to minimize risks as well as to secure returns.
How are you working to build your brand? In Japan, you obviously enjoy strong brand recognition; NTT is a household name. What would you like NTT Urban Development to signal to potential partners and investors?
The name of NTT has been well known in Japan; some Fortune 500 companies have now contracted NTT’s IT services. So, the name, NTT, is starting to become recognized because our name at first was not at all recognized globally; we became painfully aware that it is difficult to do any work there. In Boston, New York and Washington D.C., in all we have acquired five buildings, but many more have actually failed because we tried to do things different on our own.
So through this experience, we became aware that, without recognition, people would not take us seriously. I believe that it will be important for us to work with local partners on a sustained basis and having done that our current recognition within London and New York is gradually growing. We have acquired four buildings in London and those include some historical buildings which contributed to our brand recognition.
In addition, it is important to note that we are not a company that simply buys and sells. We make an effort to value up with the property by, for example, including unique touches such as including more wood in our buildings. We should strive for quality in creating these properties that the tenants and visitors find to be satisfactory and touching.
US companies can particularly learn from Japanese companies such as NTT Urban Development and your corporate culture and corporate slogan of “Integrity and Innovation” – this really is focused on sustainable urban development and high quality. So why are these concepts so important to NTT Urban Development in its long-term success and growth?
In this age, we are required to publish our financial results every quarter and of course it is natural for investors to require these kinds of reports. But for business, I believe, it is important to conduct operations on a medium and long-term view, and it takes time to implement strategies. A corporation’s value cannot be determined on a moment-to-moment basis. It has to be seen in the long term. And I believe that what our company must do is to work in order to gain the satisfaction of our customers and have them say, “Oh, what wonderful buildings they build.”
Regarding NTT itself, on a negative note, people may say that our culture is kind of a monopoly. But on a positive note, I can say that our culture is that we stay responsible. We never run away. We build our relationships with our customers and providing services with integrity, and I believe that that is a value of our company. So, even in an era when a lot is changing quickly, I believe that for any company, integrity is the most important. Now, that is our motto.
Speaking about innovation, of course it is the word that is being talked about around the world. In this era when things are changing so rapidly, it is dangerous as well as foolish to stick to tradition.
For me personally, having come from the IT sector, I’ve found that because the real estate sector creates hardware, the people in it value tradition very much; but with the current evolution of the internet and technology, which is expected to continue, it has brought change to all sectors. As a real estate company that is affiliated with NTT and inherent to their DNA, we intend to capitalize on our technological heritage to create innovation that is reflected in our slogan.
As Japan turns the corner and leaves behind these two decades of poor economic growth and deflation, what is the new brand that Japan that G7 leaders should have in their mind?
Well, Kashikojima Island where the G7 will be held in Mie Prefecture, is a beautiful place, full of history – Ise Shrine is nearby. It is also a place of innovation because it is the first place in the world where pearls were cultivated. So, it is a good combination.
I believe that one of the key words for the future world is the word “fusion”. So, I believe that this is the future of the world and the globalization that is under way will accelerate this fusion.
So for the G7, I wish for there to be frank communication between the leaders and a development of further mutual trust, and I think the Kashikojima Island is a perfect place to do that. It’s a symbolic place for that spirit and so I wish for every success for the G7.