1. What is GRM and why Japan uses it
GRM (Gross Rent Multiplier) expresses price as a multiple of annual or monthly rent. In Japan, especially in Tokyo, GRM is used more consistently than CAP rate because rental liquidity is high and operating costs are relatively predictable. For investors, GRM is a fast way to understand whether a listing is within, above or below the institutional pricing corridor at that station.
2. Why GRM works so well in Tokyo
Tokyo’s rental market generates a large volume of comparable transactions every year. Tenants move frequently, vacancy cycles are short and rent behaviour follows clear station‑level patterns. This produces stable relationships between rent and price, making GRM a powerful screening tool. Institutional buyers often use GRM to narrow the funnel before running deeper underwriting models.
3. GRM benchmarks by layout
Layout drives achievable rent. Micro‑markets distinguish sharply between 1R, 1K, 1DK, 1LDK and larger family units. As a result, GRM corridors differ: compact 1R/1K units near core stations often trade at higher GRM because rent per square metre is strong, while larger layouts trade at lower GRM but higher absolute price. Serious investors always interpret GRM through the lens of layout and station, not in isolation.
4. Walk‑time penalty and GRM
Distance to station compresses or expands GRM. Units within 5 minutes of a major hub may transact several points tighter than similar units at 12 minutes. The penalty, however, is not linear; understanding the shape of the curve for each station helps avoid overpaying for marginal locations or rejecting strong deals that sit slightly outside the "perfect" radius.
5. Using GRM in a disciplined workflow
A professional underwriting sequence typically looks like this: (1) identify the station‑level GRM corridor for the layout and age class, (2) compare the listing’s GRM to that corridor, (3) stress‑test rent assumptions, (4) incorporate renovation or repositioning, and (5) only then run detailed cash‑flow scenarios. GRM is the filter, not the final answer.
6. Common mistakes to avoid
The most frequent errors are comparing GRM across incompatible layouts, ignoring walk‑time, or applying Tokyo corridors mechanically to non‑core prefectures. Another mistake is treating a "low" GRM as automatically attractive without checking liquidity, rent resilience and structural risks.