The Secret to Tokyo's Rail Success

Fares are nice, but real estate and retail holdings are the main reasons why its private rail companies profit.

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Flickr/wallyg

Twice during my recent trip to Tokyo, once at Shibuya and again in a suburb to the west of the city, I exited a subway platform only to find myself swaddled in a massive department store. This was the Tokyu store. In Shibuya, at least, it felt every bit as gigantic as Macy's gigantic flagship store on New York's 34th Street. It had at least 10 stories to its name and a curious arrangement of chairs outside the elevator bank, which people sat in so attentively, you'd think that's exactly what they'd awakened to do.

In other words the railway itself was just a sideline attraction. This is no accident. As John Calimente reminds us in the latest issue of the Journal of Transport and Land Use [PDF], a major reason Tokyo's private rail lines are so successful is that they've diversified the business beyond transportation into real estate holdings and retail outlets. At the end of the day this means both profitability for the company and better transportation for city residents. Calimente writes:

Government regulation of fares coupled with limited subsidies for railway operations pushed the private railways to innovate and diversify into a wide variety of related businesses, most notably real estate. Due to their long-term interest in the communities they built along their rail lines, the private railways provided valuable social benefits through public transportation while still pursuing profits. High quality, frequent rail service to dense, mixed-use, safe, pedestrian-friendly developments has allowed Tokyo to achieve enviable rates of public transit usage and given Tokyoites the freedom to view automobile ownership as a lifestyle choice rather than a necessity.

Take, for instance, the Tokyu Corporation. Established in 1922 as a regional development company, Tokyu today is a massive "rail-based conglomerate" of nearly 400 companies that employs 30,000 people, only a tenth of which work directly for the railway. Beginning in the 1930s Tokyu surrounded its hubs with commercial and retail buildings and sold land near its intermediate stations to universities at good prices, to create reliable residential (and thus passenger) corridors.

Pretty good plan: Tokyu's seven main rail lines and branch line now carry about a billion riders a year. That's the most of any private railway in Japan, as of 2006, according to Calimente. That year Tokyu generated $2.63 billion in revenue en route to $587 million in profits. Rail fares brought in about a third of that figure, real estate holdings reap another third, and retail about a fifth.

Two stations in particular epitomize Tokyu's success to Calimente. These are Jiyugaoka Station, southwest of Tokyo, and Tama Plaza, about 20 minutes west of Shibuya. Both are surrounded by department stores. Both are located in dense communities that include schools, businesses, and government facilities. And both stations discourage automobile dependence.

The latter is achieved through frequency and land use. Trains run every couple minutes at rush hour at both stations, and 3 to 5 minutes during off-peak times. At Jiyugaoka in particular, there are only 569 parking spaces within a quick walk of the station, compared to 673 bicycle spots. As a result, the vast majority of commuters walk or ride to Jiyugaoka, and only 5 percent drive. The situation at Tama Plaza is similar, Calimente reports, with only 11 percent of commuters arriving by car.

This is more than American-style transit-oriented development, Calimente argues. Rather it's an example of robust "rail-integrated communities": dense, walkable, mixed-use centers with a "morning-to-night vibrancy" that turns riders into customers, and vice versa, at all times of day. He sees Tokyu as a model that U.S. rail companies might one day adopt as a guide to profitable transit development:

Rather than relying strictly on farebox revenue and taxation, transit agencies in North America should be freed to develop other revenue sources, just as the Japanese private railways have done to great success. Diversification into related businesses could hold the key to long term financial health for public transit in North America. ... A version of the rail integrated community model developed in Tokyo could be a key to greater financial stability for public transit in North America.

Calimente is notably light on concrete suggestions for how the West might achieve this change. Privatizing American rail in the Tokyo mold has been suggested on Atlantic Cities before, but of course there are a host of political, historical, and cultural differences to consider. As the elevator bank audience at the Tokyu store in Shibuya can attest, sometimes it's a good idea just to sit and watch.

Images: Top, Flickr user wallyg under a Creative Commons license; inset, J Calimente, "Rail integrated communities in Tokyo," The Journal of Transport and Land Use, vol 5, no. 1 (Spring 2012), pp. 19-32, doi: 10.5198/jtlu.v5i1.280.

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