Hotel transactions in Japan to increase as Olympics near

Tokyo. Photo credit: iStock / Getty Images Plus / f11photo

With the 2020 Summer Olympic Games in Tokyo just over two years away, investors are taking a closer look at Japan’s hotels.

According to the Japan National Tourist Organization, more than 25.5 million travelers visited Japan last year, an increase of 19 percent over 2016 and more than 300 percent above the 6.2 million visitors recorded in 2011. And as the games draw closer, JLL Hotels & Hospitality Group expects these numbers to grow—offering a great opportunity for investors and developers.

The Olympic Effect

“Tourism demand is expected to grow significantly toward the 2020 Tokyo Olympic Games,” Kei Sumiyoshi of JLL Hotels & Hospitality Group said. With this demand, Sumiyoshi expects transactions between buyers and sellers to increase significantly, a turn from the past year when there was a shortage of hotels for sale, making it difficult for investors to access the market, Sumiyoshi said. This is likely to change, he added, as investors start selling hotel assets in their portfolio, creating a bit more liquidity in the market.

“Asian investors led by China remain keenly interested in hotel investment,” he added. As do other foreign and domestic companies who will be competing for the assets, he said. “Japanese investors, such as developers and railway companies, are actively entering the hotel investment market along with overseas investors.”

What’s more, Sumiyoshi expects both foreign and domestic companies to fight over the assets, which could trigger a bidding war. 

The Value of Japan’s Hotels

Investors have good reason to snap up Japanese properties as they become available. Hotels in the country account for 28 percent of tourist spend on average, second only to shopping. As recently as last November, revenue per available room at five-star hotels in Tokyo was ¥47,756 (USD$436), an increase of 5.8 percent from the same period the year prior.

The Japanese government is taking steps to keep the numbers growing, with a goal of 40 million international visitors in 2020 and 60 million by 2030. These steps include the possible legalization of casinos, relaxing visa requirements, repair and maintenance of 200 cultural assets across Japan and implementation of multi-language services. 

Airlift Factor

If Japan expects to get 40 million visitors in 2020, it will need to expand its airlift capacity. As such, Japan Airlines, the nation’s flag-carrier, is establishing a new low-cost brand for the international market with medium- to long-haul flights. 

The company will be a consolidated subsidiary of the JAL Group and plans to operate flights from Narita International Airport to Asia, Europe, and the Americas. 

In the first stages of its establishment, the carrier will operate two Boeing 787-8 aircraft and is targeting to launch commercial flights from the summer of 2020 when Narita Airport completes enhancements to its facilities—just before the Olympics begin.

JAL will invest 10 billion yen to 20 billion yen ($91.44 million to $182.88 million) in the business, with the aim of reaching profitability within three years from the launch, the company said.

“Full-service airlines typically have high costs, but in Japan this is especially so,” Will Horton, senior analyst at research consultancy CAPA Center for Aviation, told Reuters. “Japan needs new platforms to capture foreign visitors. They are not like the Japanese who are sticky in wanting to fly a costly Japanese full-service airline.”