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The real estate-railway connection reshaping Japanese cities

Interview - September 27, 2016

In nearly 95 years, Tokyu Corporation has become a key player in reshaping and rebuilding Japan, and particularly in the Tokyo area. The synergies between its railway operations and its real estate and lifestyle services businesses have led to creating one of Japan’s most prominent infrastructure companies, comprising more than 230 companies and operating approximately 400 businesses. President & Representative Director Hirofumi Nomoto explains what differentiates the model created by the Japanese private railway operator and land developer from those of its contemporaries overseas, and also its ambitions for Shibuya as a global ‘entertainment city’. 


What are your thoughts on Abenomics? What has been the impact on your sector, and on Tokyu Corporation in particular?

Having a stable government is the most important thing. Abenomics, has set forth regulation, fiscal reforms and also growth strategies. Many measures have been put into place to energize the flow of foreign visitors coming to Japan, therefore stimulating national consumption, and having largely profitable repercussions on our economy.

Thanks to such a phenomenon, Japanese have rediscovered their own country as many tourists were going to unknown places to many locals. It is fact. Japanese people are more interested in tourism than before. Now many regions are “reactivated” – I have hotels and retail establishments in many regions that have benefited from such effects of Abenomics.

The recently stabilized environment has been very important and lead to many favorable impacts. The real estate sector is still benefiting of the measures taken because many foreign companies are bringing the employees back. They are rediscovering the benefits of operating in Japan, and this has a truly positive impact on the real estate sector; in-occupation rates are drastically decreasing. We have about 1 million square meters of property, but the in-occupancy rate is below 2%, which is quite a significant figure. Our entire fleet is almost completely full.


Could you please outline for us the key achievements or milestones that have led Tokyu Group where it stands today?

I think though we are a railway company, we consider ourselves as a city-shaping company. In Europe for instance, railways companies simply connect cities through their terminals. That is a pretty normal way of operating in this industry, whereas what we do is a completely different: we create cities and then, as a utility facility, we add the stations and the railways to connect them one with another.

The Japanese particularity within this industry is that many companies exist in the field of railways. Their infrastructures connect seamlessly. Unlike its common definition, a terminal in Japan is not a synonym with an end of a line, but it rather serves as a connecting point. In that sense, the Japanese railway system is totally different, and more specifically in terms of convenience. Even the main role of our company, or that of our competition, is inherently to connect cities; we focus on railway development to develop cities and mostly create new cities.

Also while doing that, we put in place railways to connect each of those cities and to expand these later. We became what we are today thanks to our model: by creating cities, we generate profit from our real estate development, which enable us to invest into the railway infrastructure, which consequently allowed to invest even more in cities, etc. We have continually repeated this model for the past 95 years!

The usual process for real estate companies is to invest in real estate projects and then sell it in order to get some profit out of the transaction and repeat this exact model elsewhere. However, what we have been doing is to invest the profits generated through our real-estate properties into our elaborate railway system, around which, we created communities, commercial facilities, schools, hospitals and various infrastructure, and through that way, we were able to secure the stability in our income.

One hundred years ago, the founder of our company had a business model in mind whereby the temporary capital gain would be converted into a continuous and more stable probable income. In Tama Garden City for instance, we have developed over 5,000 hectares. This actually was 60 years of development. Today there are over 650,000 people living there. There's always something new popping up. It's a repetition of this continuous repetition of this business model.

Our founder, Keita Goto’s, philosophy was to provide convenience to the customers and therefore he wanted to cooperate with other railway companies to have a seamless operation, and yet very efficient network. This mindset goes against the general thought which is to have a monopolistic philosophy towards the customers. One of his main objectives was to bring back some benefits to the community, reinvesting the profits in the improvement of off everyone’s convenience.

By following Goto’s philosophy, the town of Futako-Tamagawa was finally completed last year, which had taken 33 years since generating the redevelopment plan in 1982. Happily enough, the traffic of railway passengers at Futako-Tamagawa station has increased 70% this year.


Among Tokyu’s most significant projects is the redevelopment of the Shibuya area in the heart of Tokyo. Shibuya Ward Mayor, Mr Hasebe, said he wanted people to think of Shibuya in the same way people think of Paris or New York. Could you tell us more about this major urban development project, and how Tokyu Corporation is contributing to repositioning Shibuya as the place to visit here?

The idea that we have is to make Shibuya as much of an entertainment city as Broadway is. Of course it cannot be done overnight, but we're doing our best to reach this objective as soon as possible. The first building we have inaugurated was Shibuya Hikarie in 2012. Six additional +100meters new buildings will also be made by us. The tallest one will be the building above Shibuya station. It will be 230 meters high and be done by 2019.

Normally when talking about redevelopment, the only thing considered is building an already existing property in a new manner, whereas we focus on creating something completely new: a revolutionary city. We always have in mind the impact that our building will have. We work in synergy with the cities we are working in. If you pay attention to other major projects in Tokyo, you will notice that some cities tend to enclose customers into their infrastructure. However we want people to move freely. We want to be part of an entire system.  As we mainly are a railway company, and more than 3.2 million people are passing through our underground network, we also want users to discover Shibuya outside. Buildings should not be an end objective, but rather a starting point of an exploratory mission.


When is it going to stop? What's the limit of your project?

It's a development spiral. Once you have the inner circle done, the outer circle is taken care of through expansion. Once we are done with renovating Shibuya’s scramble crossing we will consider Shibuya’s outskirts’ reconstruction. We want to make Shibuya a place where people are able to find a new environment and rediscover something new every time they go. Shibuya’s slogan is entertainment city; we are doing our best to meet that promise in the best possible way. Our goal is to make Shibuya a place where both foreign and domestic visitors would want to come anytime and many times.


Apart from the Shibuya redevelopment plan, Tokyu is involved in various projects set to support Japan’s tourism sector and business attractiveness. Although the country is already facing an unprecedented touristic boom, Abe-san believes Japan will easily attract over 40 million tourists by the 2020 Olympics. With the improvement of the access to Haneda airport, the enhancement of the sightseeing bus network, and the development of hotel resorts, is Tokyu positioning itself as a pillar in the tourism industry?

As we said, we have applied for the Kamata to Haneda airport railway approval. We're waiting for the decision to be taken. That way then we will have a straight access from Shibuya to Haneda. That's the plan that we have currently. We only have to extend the railway by 800 meters at Kamata, and this will enable us to realize our ambition which is to connect the two railways.


It seems you have an endless number of projects. How do you make it all happen?

Because we are active in both real estate and railway businesses, among others, we have about over $150 billion worth of cash flow. We can continuously move on because continuity is very important.


Your group’s Urban Development Business is leading major projects in the region, such as in Thailand and Vietnam. In Vietnam, Tokyu is creating a ‘second Tama Garden City’. The project in Vietnam is the first of its kind for Tokyu. Amid growing demand for development in the developing markets, how is Tokyu planning to expand globally?

Airports are very important, especially when we talk about inbound business and internationalization as it is a major gateway. In that sense, the Sendai Airport project is very important and we want it to become Asia’s hub, especially in accommodating LCCs (low-cost carriers) since Haneda and Kansai airports are reaching their limits. We want to make Sendai Airport a regional hub so that Hakodate or Haneda could be easily reached. By having an established hub, we can start developing different and various tourism areas. Having Sendai accommodating many LCCs will be beneficial not only because it will accommodate more foreign visitors, but also because it will be used as a gateway for Japanese people to go abroad. This is specially the case in the Tohoku region, where fewer foreign visitors go to, but also where fewer Tohoku people are going abroad. Having a hub airport in Sendai would contribute to the internationalization of the Tohoku region. Tohoku’s business environment of is really looking forward to that and they're encouraging our project. I think it will contribute to the regeneration of the Tohoku region.

As for Vietnam, we started about four years ago. We had an inquiry from the Vietnamese people saying they had public mass housing projects, but no real residential housing project. So we turned to this country quite seriously, letting the people know that our intention was by no means to settle in the country in the short term: our objective was to build a residential area in which Vietnamese people would really dream about living. That kind of city creation is at the core of redevelopment.

Local partners loved this concept and I think they are looking forward to a long-term relationship with us. We are ready to get involved on 20-to-30 year projects now. We are intending to bring our profits back to its community and then to expand local communities. Eventually we might start having rental offices and residence projects.


As a leader of helping to reposition Japan as a hub, what would you like world leaders, world investors or the millions of tourists that are increasingly visiting the country to remember of Japan? Why should companies around the world trust Japanese monozukuri, today?

By looking at Japan in the lines of Russia, China, Vietnam, Indonesia and India, we may realize that about half of the world’s population lives in that region of the world. Its GDP will eventually comprise half the world’s GDP also, at least thinking in such a way would be wise. By looking at the global big picture, Japan will be East Asia’s hub, a continent that will become very safe, secure, clean and easy to live in. This will definitely have a positive impact on the local populations. I would like that all major worldwide corporations establish their East Asia headquarters here in Japan. By doing so, it will increase Japan’s international appearance and status. Also, in order to enable that, we have to improve the educational facilities as well. This process has already started: Apple is soon going to implement its Asian headquarters in Tsunashima along Tokyu railway lines.