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The gap between the average rent and the actual rent received by landlords

Some owners of apartments and office buildings in downtown Tokyo complain that the amount they receive for rent does not increase, despite the rise in the going rental rate according to statistics. Indeed, statistical data may indicate that rent for apartments and office buildings in some areas of downtown Tokyo is on the rise, while rent for older buildings is steadily falling. No wonder that some landlords are disillusioned by these counterintuitive results.

Year after year the buildings owned by the landlords are deteriorating but they refer to the statistical data of the going rental rate for the market as a whole, where new buildings appear one after another. This misguided perception goes the furthest in explaining landlords’ disappointment with the thickness of their wallets.

Deteriorating and in time obsolete small- and medium-sized properties owned by typical landlords are eclipsed by the ceaseless entry into the market of new apartments and offices. Moreover, new buildings can no longer be compared with ones built a few decades ago, due to the impressive technological progress achieved over this period.

For instance, Washlet (electric toilet seats with water spray feature for washing) is provided in newly built apartments as a matter of course. There are air dryers in the bathroom and the floors dry quicker. The integrated kitchen systems often include disposers of organic waste. The cost of utilities can be reduced thanks to high-performance and energy-saving air-conditioners and LED, florescent bulbs, or other efficient lighting. Other subtle changes include intercoms with displays, improved sound-proofing performance of the floors and walls, and odor-neutralizing wall papers.

Such equipment and features cost money. In a sense, it is only natural for the rent of new properties to hover at a high level rather than falling, even when pulled down by economic slumps.

The very comparable quality of rental properties in the past may well justify the popular practice of equating the rent level that landowners should expect with the going rent in the area. But aside from their locations, buildings today have totally different equipment and functions. The price goes up and down by taking into account such differences. Therefore, the expectation of rising rent just by seeing the rising average price is farfetched at best.

Importantly, statistics can be taken in various manners, ones which produce differing implications

Some are based on fixed-point surveys of multiple buildings – others compile data only on relatively new properties, or extract buildings only above a certain scale. The phrase “going rental rate” can have completely different meanings. You may misread the current trend without exercising your imagination as to what kind of data are compiled and how they are corrected or rearranged when buildings are replaced.

(Author: Tatsuo Hayashi, Tokyo Synergy Office)