Asia driving new Japan hotel boom

Once prohibitively expensive to most Asian travelers, Japan’s travel market has been transformed in several ways. Among the most significant of these changes are sustained deflation, a debased currency and the unprecedented generation of wealth in China and its attendant knock-on effects in the region.

These trends have combined to send record numbers of visitors to Japan, with the Japan National Tourism Organization (JNTO) announcing in late 2015 that it expected close to 20 million visitors for the year—a jump of 40 percent over 2014’s already high arrival figures. This has created a shortage of hotel rooms that has led to unused office buildings being converted, seemingly overnight, into hotels and a boom in the budget hotel segment.

Tokyo’s iconic Hotel Okura serves as an apt metaphor for the shift in Japan’s inbound tourism market. Opened in 1962, the hotel was a favorite of American visitors as well as other Westerners. Its legendary Orchid Bar a popular haunt for foreign journalists, the hotel even appeared as a setting in the James Bond book You Only Live Twice.

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Hotel Okura was demolished last year to make way for a $1 billion development with a new hotel featuring 102 more rooms than the original, plus 18 stories of office space. Major investors in the project, including Japan’s second-largest property developer, Mitsubishi Estate, are betting that the high numbers of Asian—especially Chinese—visitors to Tokyo will remain strong well into the foreseeable future.

JNTO said that visitors from China were driving visitor growth to Japan, growing by 114.5 percent year-on-year in the first nine months of 2015. Chinese visitors with varying levels of spending power can now be found not only in major cities including Tokyo, Osaka and Kyoto, but well off the beaten path as well.

There are plenty of big projects in the pipeline around Japan. In the second half of last year, Great Eagle Group entered into an agreement for a site in Tokyo where it will build a 270-room luxury Langham Place hotel. Langham Place is a well-recognized brand among both Hong Kong and mainland Chinese travelers. The plot was reportedly acquired for just under $180 million.

Although Osaka had the highest occupancy rates in Asia Pacific in H1 2015 (90.2 percent), the major action appears to be focused on Tokyo, which will host the 2020 Olympic Games. Between now and 2019, the city is expected to add nearly 22,000 hotel rooms, roughly 9,000 of which will be upscale.

Speaking to Japanese media, an executive at Apa Hotels, a large domestic business hotel brand, recently said he expected international visits to Japan to double in the short term. The company is working on increasing its total guest rooms to 100,000 by 2020.

In its Q3 assessment of the Japanese hotel investment environment, CBRE noted that the Japanese hotel industry “views the inbound tourism boom as the ‘new norm’ rather than a short term trend. Hotel development makes sense for more players even though land prices and construction costs appear to be in the higher range.”

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