From Vacancy to Full Occupancy: How Smart Investors Stabilize Assets in Japan

Tokyo may feel like an appealing investment option for foreign investors. As one of the most populated metropolises in the world, property demand is at a premium, and prime real estate is frequently snatched up by the professionals in the area. But like all good things, tenancies end and investors turn to their property management company to find their next tenant.

A month goes by. Then another. Then half a year. Suddenly, your managed investment isn’t generating, and you’re none the wiser on why. Your management says they are searching for a tenant, but you see almost no results.

For Tsuyoshi Hikichi, Managing Director at Axios Management, this is a pattern he’s heard from several clients. And while he acknowledges some vacancies are unavoidable, he feels that if your short-term vacancies are stretching, it’s time for a good, hard look at your management company.

Why would there be a vacancy when demand is so high in Tokyo? 

“First, there are the obvious things,” Hikichi explains. “People move for all sorts of reasons. Students return home after their courses end. Families move for more space after children, or for a new job offer. But these should be short-term vacancies. In a well-managed property, finding a new tenant should be swift.”

The data supports this: most rental properties only remain vacant for one or two months at most in Tokyo. If in a high-demand area, or during peak season, that can even shrink to two or three weeks.

It’s also worth noting that the two-month figure is primarily for properties that need upkeep or renovation. A significant portion of this time is not spent searching for tenants, but rather ensuring the property is in good condition, with any existing wear and tear mended and fresh fittings brought in to replace damaged ones. Take that time away, and you should be counting your tenancy gaps in weeks, not months.

Why could my management company be responsible? 

It seems odd, when this is the core value a management company offers real estate investors — stress-free management of a property. But Hikichi notes that some problems can arise from simple complacency — a point he’s noted in the past as indicative of a subpar company.

“Once a tenant moves out, proactivity is key,” Hikichi says. “Firstly, a good manager will check the rent against local averages, to ensure they’re listing the property at a competitive rate. The local prices may have changed. Or if the last tenant was a foreign student or otherwise internationally based, they may have been charged an inflated rate. If a careless manager doesn’t confirm, these properties will sit empty.”

As an outside investor, this is the first step you can take to ensure your managers are on top of things. Check if comparable homes nearby are offering similar rents. If not, ask your management company why it hasn’t been adjusted. Some managers will push for aggressive rent increases, and forget that they must be aligned with the market again when the property is vacant.

My rent is similar to local rates, what else could cause an extended vacancy? 

Unfortunately, there are also times that management companies will act in their own best interests, and by doing so, leave your property vacant. It has to do with the Real Estate Information Network System (REINS) database, which every real estate agent has access to. To open the property to as many potential tenants as possible, a management company should place your property on the system. But often, larger management companies will not, for their own benefit.

“The problem with REINS, especially for bigger companies, is that every estate agent now has access to your properties,” Hikichi explains. “If another agency finds a tenant for the property you are managing, they will receive the fees on the tenant side. By keeping these properties in house and only passing them onto their clients, these companies ensure they get both the landlord and the tenant’s fees. But that means your property isn’t being shown to the entire market, which makes it likelier that it sits vacant.”

Once again, your best defense against this is to be vigilant when the vacant months start to pile up. Ask your management company how they’re marketing your property. If it’s being kept in house, and they’re unwilling to open it to REINS, consider if they’re the right fit for you.

What can a property management company such as Axios Management do differently? 

When asked, Hikichi doesn’t present magic solutions. His pitch for Axios is simple — it gets the basics right, and that multitudes of little things done correctly lead to results. For him, these are the vital steps:

• Don’t wait. A tenant submits their notice one to two months in advance. Axios moves from the day it receives that notice. It analyzes its in-house database, and proposes a new, market-adjusted rate to the owner.
• Use every avenue. Not only will Axios’ property managers list the property in REINS, but they’ll visit local agencies in person to ensure it’s being noticed. Their goal is maximum visibility for your property and a quick turnaround. 
• No complacency. Axios doesn’t just sit and wait for things to work. If there are questions or issues, it will remain in communication with the property owner, suggesting solutions or providing advice. Its clients never miss an opportunity because they weren’t prepared.

If this sounds like the sort of savvy management company you need overseeing your investment in Tokyo, reach out to Axios Management and book an appointment.