When you get down to 4 or less monsters do you go back to only occupying Tokyo City and not both Tokyo City and Tokyo Bay? I played my first game with 5 players and after few of us died we continued occupying both until it came down to 2 players and we realized it would not work with 2 players in Tokyo at the same time. I could not find anything in the rules, but I suspect once you get down to less than 5 players, you only occupy Tokyo City. However, I would like to know the actual rules around when you go from 5 to 4 monsters.
Page 2 of the rules, under the Advanced Rules section, answers this question:
If a monster is eliminated and that brings the number of Monsters below 5, Tokyo Bay can't be occupied anymore. The monster in it must leave Tokyo.
So your guess was correct. You can only occupy Tokyo City once you drop down to 4 Monsters.