“So where should I buy?” It’s the question I get more than any other from people looking to invest in Japanese short-term rental property. And my honest answer is always the same: it depends on what you’re optimising for. Each of Japan’s three major hospitality markets — Tokyo, Kyoto, and Osaka — has a genuinely different risk/return profile. After running guesthouse operations across a few of these cities and spending too many late nights in spreadsheets, here’s how I actually think about it.

TL;DR

  • Tokyo is the most expensive market to enter but the most stable, with diversified demand and realistic annual occupancy of 75-85%.
  • Kyoto has the highest ADR potential (¥20,000-40,000+ at peak), but extreme seasonality and the strictest short-term rental regulations in Japan.
  • Osaka offers the best balance for first-time investors: lower acquisition costs (¥15-30M for a usable unit), consistent year-round demand, and more pragmatic licensing.
  • The 180-night annual minpaku cap applies nationally; running 365 days requires a simple accommodation (簡易宿所) licence with fire safety and room standard requirements.
  • All three cities reward careful modeling — use realistic annual occupancy and net ADR after OTA commissions, not peak-week numbers.

The Setup: Why These Three

Tokyo, Kyoto, and Osaka account for the vast majority of inbound tourism nights in Japan, and they’re where most foreign investors start looking. They’re also meaningfully different from each other in ways that matter a lot once you’re operating — not just visiting.

JNTO data from 2025 showed continued record-breaking inbound numbers, and 2026 looks similar. The question isn’t whether demand is there. It’s how that demand translates into yield given acquisition costs, operating constraints, and regulatory headaches specific to each market.

Tokyo: High Cost, Steady Returns, Tight Rules

Tokyo is the most expensive market to enter but arguably the most stable. Acquisition costs for a central property (say, Shinjuku, Shibuya, or Sumida Ward) are steep — you’re looking at ¥30–60 million for a small apartment that might work as a short-term rental. Cap rates for hospitality properties typically run in the 4–6% range for well-located assets.

What Tokyo offers in return is diversified demand. Business travellers, transit tourists, long-term stays from digital nomads and expanders — it’s not purely a leisure market. This flattens your seasonality curve compared to Kyoto. Occupancy can realistically sit at 75–85% annually for a well-managed unit, with average daily rates (ADR) anywhere from ¥8,000 to ¥20,000+ depending on location and fit-out.

The regulatory picture is mixed. Minpaku operations are capped at 180 nights per year nationally, and Tokyo wards vary significantly in their local restrictions. Some (like Shinjuku) apply additional limits. If you want to run 365 days, you’re looking at a full hotel or simple accommodation (簡易宿所) licence, which requires specific room dimensions, fire safety fit-out, and dealing with the ward office. Not impossible, but it adds time and cost to your project.

Kyoto: High ADR, High Seasonality, Growing Restrictions

Kyoto is where the numbers look most exciting on paper — and where you have to squint hardest at the fine print.

ADR in Kyoto can be extraordinary. Peak cherry blossom (late March–early April) and autumn foliage (November) periods push rates for a well-presented property to ¥20,000–¥40,000 per night and above. If you hit those two windows right, you can do serious revenue in a short period.

The problem is what happens in the valleys. January and February occupancy drops sharply for leisure-focused properties. You need to model your annual return with realistic off-peak numbers, not just the peak weeks. A back-of-envelope calculation that uses cherry blossom ADR as a baseline will mislead you badly.

Kyoto has also been the most aggressive city in Japan on short-term rental regulation. Overtourism concerns have been politically salient there for years. Restrictions on minpaku operations in residential zones are strict, and there’s been ongoing discussion about further tightening. If you’re buying a residential property hoping to convert it to short-term rental use, Kyoto needs careful due diligence — the zoning and licensing picture changes more often than in Tokyo or Osaka.

That said, Kyoto hospitality assets — particularly in desirable Higashiyama or Nishiki areas — attract a premium guest willing to pay for experience. If you can secure the right licence structure and manage the seasonality, the upside is real.

Osaka: The Operator’s Market

Osaka is where I’d point most first-time investors, and also where the maths works most cleanly for a small operator trying to build a portfolio rather than buy a single trophy asset.

Acquisition costs are meaningfully lower than Tokyo or Kyoto for comparable-quality properties. Namba, Shinsaibashi, and areas around Osaka Station have strong demand and lower entry prices. You can buy a usable unit for ¥15–30 million in areas that perform well as short-term rentals.

Osaka’s tourism profile has shifted significantly in the past few years. It was always strong for domestic leisure, but inbound numbers — particularly from Korea, China, and Southeast Asia — have made it a major international destination in its own right. The 2025 Expo drove investment in infrastructure and accommodation, and the effects are sticky. ADR is lower than Kyoto at peak but more consistent across the year: you’re not as dependent on two seasonal spikes.

Regulatory-wise, Osaka sits in the middle. It has a more commercial hospitality culture than Kyoto, and the city government has been more pragmatic about short-term rental licensing. Simple accommodation (簡易宿所) licences are achievable for small operators, though you still need to clear the fire safety and room standard requirements.

Operating costs in Osaka are also generally lower — cleaning contractors, maintenance workers, and management services are more plentiful and competitive than in Kyoto, where demand from the hospitality sector has driven up service costs.

Running the Numbers: What Actually Matters

When I run ROI scenarios, the inputs that move the needle most are: (1) your total acquisition and fit-out cost, (2) realistic annual occupancy — not peak-week occupancy, (3) net ADR after OTA commissions (15–20% for Airbnb, Booking.com can be higher), and (4) operating costs including cleaning, management, maintenance, and any licensing-related overhead.

I built the japan-invest calculator specifically to work through these numbers — it handles the accommodation tax layer, operating cost ratios, and lets you model different occupancy scenarios side by side. It’s useful for stress-testing assumptions before you commit.

The short version: Tokyo offers the most stability but the slowest payback on acquisition cost. Kyoto offers the highest ceiling but the most volatility and regulatory risk. Osaka offers the best balance for a first investment — lower entry cost, manageable regulation, consistent demand.

None of these cities is a bad investment with a sensible business case. But all three will punish you if you model the good scenario and ignore the realistic one.

FAQ

Q: Which city would you recommend for a first-time short-term rental investor in Japan?

Osaka. The acquisition costs are meaningfully lower than Tokyo or Kyoto, the regulatory environment is more practical for small operators, and demand is consistent year-round rather than spiking in two seasonal windows. It’s the easiest market to build a sensible business case around.

Q: Can I operate a short-term rental year-round in Japan?

Not under the standard minpaku framework, which caps operations at 180 nights per year nationally. For 365-day operation, you need a simple accommodation (簡易宿所) licence under the Hotel Business Act. This requires meeting fire safety standards, minimum room dimensions, and clearing your local ward or city office approval process. It’s achievable but adds time and upfront cost.

Q: How much do OTA commissions eat into my revenue?

Expect 15-20% for Airbnb and potentially higher for Booking.com depending on your visibility settings. When modeling ROI, always use net ADR after commissions — your actual revenue per night is meaningfully less than the listed price. This is one of the most common mistakes in back-of-envelope calculations.

This post is for informational purposes only and does not constitute legal, financial, or tax advice. Property investment involves risk, including potential loss of capital. Please consult a qualified professional for advice specific to your situation.