Challenges of a Global World For Kansai Real Estate

“Everyone wants economic growth, but nobody wants to change.”

Thomas L. Friedman in The World Is Flat, the Globalized World in the Twenty-First Century.

We know change is necessary, but in a global world, often we do not realize how urgent it is and how quickly we must abandon current business methods. Here in Kansai, this is especially important if we are to bring the economy back to its historic prominent role in Japan and the world. After all, this has been the business and creative center of Japan for centuries. There is no reason why it cannot be that again.

One area we need to examine is making more efficient use of land and buildings in Japan, discussed below.

Thomas Friedman’s international best-selling book is probably the best recent account of worldwide events that are changing our economy.. It explains why the industrialized nations, including Japan, are threatened and why it is so urgent that they should quickly adopt policies and programs for change.

If we were to explain the reasons for this great urgency in a single word, it might be this one –– China!

There is more. Nonetheless, thinking about China helps us to imagine a long list of other factors –– from booming national economic growth rates, strong educational levels and motivated work forces (in countries that have historically not been significant world traders) to who and what countries will control and consume increasingly short supplies of natural resources.

Japan simply must respond vigorously to these challenges. As the title of Mr. Friedman’s book “The World Is Flat” implies, a far more level “playing field” –– or ability to compete –– has appeared in just the past few years. Countries formerly viewed as powerless and unimportant to the world economy are now able to take business away from the world leaders in Japan, Europe and the United States. And they do so.

Let me give one example of how this applies to Osaka and the Kansai community.

Lawyers like me often assist in bringing together local and foreign parties for mutually productive deals. This often consists of sales opportunities or even merger and acquisition transactions. More recently it has also included finding buyers such as foreign-based investment funds for local commercial real estate.

As for real estate, several issues have kept the market from using assets effectively. Surveys show that most people in Japan now do believe that real estate that does not earn income is not as desirable as other forms of investment. Nonetheless, change has come slowly in this market, as companies and investors have held onto properties for which they have no use, hoping for price improvements that have not occurred. In some other cases, the underutilized property may be highly valuable, but pressures from potential hostile takeovers or other market factors may make liquidation of such investments necessary to free cash for other uses.

One attractive option may be to sell to foreign interests that are not constrained by old ideas about how to use property and to gain returns.

I have been working with various foreign investors who are interested in commercial properties in Japan, including office buildings, apartments, warehouses and land for development. In some cases, their plans far exceed those of local investors. I have seen from their interests what is important to them. As the flow of such investors came to Tokyo first, the Tokyo market no longer has many bargain prices. Prices are now moving up in Osaka too, although there will still be opportunities in many desirable areas (if one knows where to look) since foreign buyers as well as local ones have focused primarily on the obvious –– Midosuji Boulevard, Umeda and premium locations.

Japan very much needs this investment. New investment means new business and new jobs. Combined with the planning efforts of local government for incubator industries and education-industry coalitions, it can accelerate the right kind of growth and prosperity.

We also need to “benchmark” the standards and growth rates of cities like Shanghai to see what we should be doing. The number of new skyscraper high-rise buildings there is shocking in comparison to Osaka. Other economies are achieving prosperity. There is no question that we are in a race for the top, in terms of who will prosper in the coming decades. Putting all of our assets –– both people and property –– to their most effective uses will help us to achieve the changes that are necessary. We do not have to win in the sense that others must fail, as a famous Broadway producer used to claim to enjoy. We simply need to keep pace and to use our assets for the maximum benefit to our community.

Copyright © 2006 Norman R. Solberg