The Secret to Tokyo’s Rail Success

Eric Jaffe @ The Atlantic Cities picks up on John Calimente’s recent JTLU article: The Secret to Tokyo’s Rail Success :

“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.”

[This is from the recent special issue on Value Capture.]