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Development of suburban centers rises in Japan

By Susan Thorne

On a site previously covered with rice paddies, the brand-new Torius Mall opened for business in April in Fukuyama, southwestern Japan.

Torius, the country's largest mall in surface area at 2.6 million square feet, is a prominent example of a relatively new trend in Japan: the development of shopping centers in suburbs. Oddly enough, the economic problems that have hurt Japanese real estate investments in the United States are encouraging the building of North American style malls at home.

In this very urbanized country, retail development has traditionally been concentrated in city centers, close to public transport connections and places of business. Most suburban land is reserved by zoning for agriculture, and the process of converting it for commercial use is complex and time-consuming, explained William Karst, CEO of Callison Architects, Seattle, a firm active throughout Asia. Most projects take between five and 10 years from inception to construction, he said. Strong lobby groups for small retailers and farmers pose further obstacles to development outside urban cores, he explained.

But a combination of lifestyle, economic and legal changes is helping to combat that resistance and push suburban development ahead. Many Japanese are embracing the suburban lifestyle, buying houses and living farther from their downtown workplaces than previously. Car ownership has been on the rise and exceeds one per family now, Karst said, noting people drive to shop near their homes. The reduction this decade in the work week from six to five days means families are spending more time together and want to shop in the suburbs.

Building on the city periphery or in the suburbs has become more feasible from a development perspective because of decreasing land costs from the national economic crisis, remarked Seth Sulkin, president and CEO of the Pacifica Corp., a Washington, D.C.-based retail developer with extensive operations in Japan. Land leasing, previously uncommon, is also taking off, he said, and the law has changed in the last several years to permit new forms of leasing with terms up to 50 years.

"The combination -- leasing and lower prices -- makes suburban land much more attractive," he said. Rural sites are slowly becoming available as land regulations loosen slightly, said Masahiro Hioki, deputy senior manager with the Office of Project Development at Takenaka Corp., a Tokyo-based retail construction company.

Despite Japan's economic difficulties, both retail sales per capita and retail sales productivity in sales per square foot are still higher than in the United States, Sulkin said.

Suburban retail development might be increasing to meet demand, but its character is distinctly Japanese. One important difference from the U.S. model is the fact that most major developers of shopping centers are retail companies.

For example, the chairman of the Japan Shopping Center Association, Takuya Okada, is also CEO of JUSCO, a top Japanese retailer, pointed out Reiko Takayama, managing director of Shop System Study Society, Tokyo, a nonprofit, government-affiliated retail research and educational organization. This close association of the retail and development sectors affects the anchoring of centers, she explained, because the retailer/developer generally does not wish to bring in a competitor as tenant to co-anchor the center. Consequently, in a vivid contrast to the multiple-anchor malls found in North America, Japanese centers with two or more anchors are rare.

"In most cases, centers have one major general merchandise store or one department store as anchor tenant, with multiple movie theaters and small theme parks," Takayama summed up.

The merchandise mix in suburban centers differs from typical urban offerings. Japan's economic problems have hurt the large department store companies that play an important part in downtown retailing, and the rush to the suburbs is being spearheaded by general merchandise retailers initiating center projects as sites for their own large-format stores: JUSCO, Daiei and Ito-Yokado are three of the leading players.

However, the lack of land for retail building is still clear. Regional malls as found in many U.S. suburbs are not numerous; Karst estimates that there are now around one dozen enclosed mall projects in Japanese suburbs, with another 30 in some stage of development. Instead, many projects are similar to the North American big-box center: They might comprise a food store, a general merchandise outlet and entertainment features. Other well-represented categories include outdoor goods, home fashions and jeans retailers, and off-price stores.

Downtown developments include more flagship units and are more oriented to high-end retail, Takenaka's Hioki indicated, but the suburbs are benefiting from the presence of cinema complexes, "which, due to high rents [in cities], have not had much success in the downtown core. At this time, Warner-Mycal, AMC, Virgin, UCI and the local operator Toho are all busy planning new cinema outlets, most of which are in the suburbs," Hioki said.

Outlet malls are a popular format that is multiplying in suburbs, particularly in the Osaka and Kansai areas. Information from Shop System Study shows five new outlet centers coming on line soon: ATC Mare in Osaka City, Kishiwada Kan Kan Bay Side in Kishiwada City, Costa Mall in Kaizuka City and Marine Pier Kobe in Kobe.

Foreign retailers and developers are important participants in the new suburban growth. Laura Ashley Home Fashion, Body Shop, OfficeMax, Talbots and Sports Authority are cooperatively involved with JUSCO, for example, which also brings in its own Max Value and Mega Mart general merchandise formats as anchors in suburban projects, according to Takayama. Carrefou, the French hypermarket company, is slated to open a store in Chiba prefecture in 2000, she said, and The Home Depot, Marks & Spencer, Roots and IKEA are rumored to be on their way into the Japanese market in the near future.

In design terms, Japan's suburban shoppers respond to the same qualities in a shopping center -- convenience, accessibility and easy circulation on-site -- that attract U.S. shoppers, Karst said. This means that parking is important, even if it must be located on the roof of the center. Although cars are smaller than in North America, many Japanese now drive vans, so parking requires a significant allotment of space.

Suburban development of the immediate future will be heavily influenced by the upcoming "Law Concerning ... Large Scale Retail Stores for Preservation of the Living Environment" which applies to projects initiated after Jan. 1, 2001, according to industry observers. This restrictive legislation may be deterring some parties who are considering shopping center projects, but for other developers, it is stimulus to speed up new center and store construction.

"Everybody wants to open ahead of the law because they're uncertain about its implications," said Sulkin. "This year and next will see a boom."