For owners considering land utilization, tenant management has 1.5-2x the profitability of residential rentals and is a promising option. However, without appropriate rent setting, profits cannot be maximized. This article explains tenant fee market data and professional rent determination methods.
What Is Tenant Management?
Tenant management is a land utilization method of earning income by renting out buildings or land occupied by company offices, restaurants, beauty salons, convenience stores, etc. There are 2 types: "rental income" (renting out the whole building) and "land rent income" (renting land only).
Merits of Tenant Management
- High profitability: Since tenants are corporations/businesses, rent is about 1.5-2x that of apartment/condo management
- Interior cost savings: Tenants don't require equipment, so initial costs can be reduced with skeleton delivery
- Running cost reduction: Insurance premiums and utility costs tend to be lower
Demerits of Tenant Management
- High vacancy risk: When a tenant leaves, finding the next one takes time
- Building customization costs: When renting to a specific tenant, customization costs may be borne
Tenant Fee Market Rates by Type
Retail Space and Restaurants
In city centers, monthly 20,000-30,000 yen/tsubo is common. In rural areas it falls to 5,000-8,000 yen/tsubo. Corner locations on main roads command a 20-30% premium.
Offices
In central Tokyo, 25,000-60,000 yen/tsubo per month depending on grade. In regional cities, 5,000-15,000 yen/tsubo.
Industrial Properties (Warehouses, Factories)
Monthly 2,000-5,000 yen/tsubo. Access to expressways and loading facilities greatly affect value.
Professional Rent Determination Methods
Cost Approach (Cost Method)
Setting rent calculated from land acquisition price + construction cost + profit margin. The basis of pricing for newly built properties.
Income Approach (Comparable Method)
Setting based on rent of similar properties in the area. The most commonly used method in practice.
DCF Method (Discounted Cash Flow)
A method for quantifying risk factors by discounting future revenue with a discount rate. Used primarily for large commercial buildings and office buildings.
For overall investment strategy for tenant management, see Why Is Real Estate Investment Difficult?
FAQ
- Q. Is tenant rent negotiable?
- A. Yes. Especially at the time of contract renewal, tenants often request rent reductions. Maintaining rent levels by showing added value such as facility updates is important.
- Q. How long does it typically take to find a tenant?
- A. Varies greatly by location and type, but 3-6 months on average. For major cities and prime locations, it can be within 1-2 months, while rural areas and specialized properties may take over a year.
- Q. What are the precautions when setting tenant rent?
- A. Once set, rent is difficult to raise. Setting slightly low from the beginning invites long-term financial damage. Checking market rates and appropriately evaluating location superiority is important.
