Our firm conducts real estate appraisals throughout Hokkaido, mainly within the Sapporo metropolitan area. I believe this is not unique to us, but in recent years we have seen a remarkable increase in consultations concerning rents—both land rents and building rents.
From the landlord’s perspective, this trend is understandable. Every time official land price announcements are released—such as the Land Price Publication (Chika Kōji), Prefectural Land Survey (Chika Chōsa), or Inheritance Tax Road Value (Rosenka)—the rise in central land values becomes a topic of discussion. Combined with the soaring costs of construction, repair expenses now far exceed those assumed in initial maintenance plans. Public taxes and dues have also risen despite certain offset measures. Thus, many landlords think: with land prices and living costs increasing this much, ground rents and building rents should naturally rise as well.
Conversely, from the tenant’s standpoint, many question why the rent is being raised for an aging building whose owner has neglected maintenance. Increased competition has eroded sales and profit margins, while utility and labor costs continue to rise. Tenants understandably feel they cannot bear additional rent increases.
For offices or residential units, tenants unhappy with high rent or management conditions can simply move out. But when it comes to entire-building leases—especially skeleton leases—both lessor and lessee have invested heavily, and relocation is not easy. Neither side can afford to back down.
Even where the rent was agreed upon from the start, some cases begin with structural imbalance—rents that were too low or too high. I have received inquiries from heirs whose parents set unusually low rents and now wish to rectify the situation. How far should we honor an initially irrational contract?
Evaluating ongoing rent is among the most cumbersome assignments for real estate appraisers. Some even refuse such cases altogether.
When commissioned by landlords, applying the income capitalization approach is difficult. While certain estimates can be made from public data, each property’s unique conditions limit reliability; any statement of such assumptions would likely be dismissed by tenants as inaccurate.
In litigation-related cases, appraisal reports sometimes omit the rental comparison approach entirely. Many appraisers believe this is standard practice, as obtaining comparable data or documents is often very challenging.
Even when asked to revise rents under old-law lease contracts, the current prevalence of fixed-term land and building leases means that actual lease agreements or memoranda are seldom accessible. Determining which portions of rent cover the building, parking lot, or equipment maintenance is difficult, making comparisons problematic even when data exist.
Yet, whether for offices, residences, stores, warehouses, hospitals, or nursing homes, rental market levels do exist. The existence of rental benchmarks suggests the presence of a “standard plot value” equivalent, as we might say in land valuation.
For commercial properties, even where uses differ, market information within a business area remains vital. Depending on location, an office lease example may still offer useful reference when evaluating rent for a hospital located in a business district.
Although we have faced numerous challenges, we continue striving to grasp rental market levels and aim to deliver persuasive, well-grounded rent evaluations that all parties can accept.
Reprinted from Real Estate Management Journal Co., Ltd. “Weekly Real Estate Management” (with permission)
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