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Japan: Land of rising opportunity

Japan’s economic stimulus plan is paying off as its status as a destination brightens, particularly among Asian travelers.

“Major cities in Japan are the great beneficiary of Abenomics,” says Tomohiko Sawayanagi, managing director, Japan, at JLL’s hotels and hospitality group, referring to Prime Minister Shinzo Abe’s plan, which lowered interest rates into the negative and softened the value of the yen. Inbound visitors hit a record last year, when the yen’s depreciation offset a rise in ADR. This year, the yen is rising along with ADR. “Japan’s hotel market is still healthy, but it’s taking a break for now,” he says.

The government met, five years early, a goal of attracting 20 million tourists by 2020; it since has doubled that. But hotel development is stymied by high construction costs and competition from office and residential developers, Sawayanagi says. But as Tokyo’s 2020 Summer Olympics looms, developers aren’t rushing to build, even with incentives such as lowered restrictions on hotel floor area ratios and on hostels.

Fujita Kanko's Hotel Chinzanso Tokyo
Fujita Kanko’s Hotel Chinzanso Tokyo

“We are always evaluating opportunities, but given increasing construction costs and competition, now is not the right time for us to expand our Tokyo offerings,” says Akira Segawa, president and CEO of Fujita Kanko, a publically traded management company. Fujita Kanko hotels in Hakone, Kyoto and Kisarazu are scheduled to open in the next two years. Segawa sees a shortage of luxury hotels in Tokyo, “but given the limited time frame of the Olympics, I think overall demand will be met by an increase in private guest houses.”

Limited, indeed: According to JLL, The number of luxury and upscale keys in Tokyo in 2015 was 16,564 – less than the 16,793 in 2007. Occupancy slipped six percentage points, to 75.6%, in August 2016 over the year-earlier period as ADR remained flat at nearly 50,000 yen (US$476.69). Leisure travelers are coming mainly from China, Korea, Taiwan and Hong Kong, Sawayanagi says.

Return to tradition

To maximize profits, hotel companies will leverage existing partnerships and business models, says Akira Segawa, president and CEO of Fujita Kanko, a publically traded management company that leases 52 hotels in Japan including Washington and Gracery brands and Japanese-style inns.

But he sees heavy price competition hobbling Japan’s promise as a travel destination. His advice? “Start focusing on providing increased value and high levels of service to our guests while still aiming to improve profitability.” With a shift by inbound tourism from shopping to experiential activities, “lodging in old or historic houses and buildings is becoming increasingly popular,” Segawa says. Or, he says, in ryokan, the inns, usually family-run, that offer hot spring baths and traditional Japanese aesthetics and hospitality – the type of hotels that make up much of the country’s fragmented hotel market. Fujita Kanko could start offering historic house lodgings to more directly target that demand, Segawa says.

Hoshino Resorts, a 102-year-old family company, operates 34 properties in Japan and three brands, including lux Hoshinoya and traditional Kai. “By bringing these properties together, we are able to overcome the challenges concerning cost efficiency by creating economies of scale,” CEO Yoshiharu Hoshino says, while balancing local charm and modernity required by the modern traveler. A joint venture between Hoshino and Goldman Sachs in 2005 focuses on turnarounds of traditional hotels.

Hoshino says that the next step is to export the ryokan to cities like New York, London and Paris. “We aim to develop a market in which travelers choose ryokan primarily for comfort and relaxation rather than for a ‘Japanese experience,’” he says, in the same way that Japanese cars and cuisine are ubiquitous. “Achieving this will be a challenge, but it is one of our major objectives.”

Still, the challenge to develop starts at home, and government support is a double-edged sword, says JLL’s Sawayanagi: Next year Airbnb-type rentals will be legalized, easing a room shortage but leaving future hotel growth vulnerable.

 

Q216 JAPAN HOTEL PIPELINE

TOTAL PIPELINE Q3 (% PROJECTS YEAR OVER YEAR)  

135 projects/25,251 rooms (0% projects, -11% rooms)

Under construction: 98 projects/16,943 rooms (-3% projects, -9% rooms)

Start in the next 12 months: 27 projects/4,661 rooms (+35% projects, +52% rooms)

Early planning: 10 projects/3,647 rooms (-29% projects, -49% rooms)

TOP FRANCHISE COMPANIES, BY PROJECT COUNT

Unbranded: 50 projects/7,589 rooms

Route Inn Group Co. Ltd.: 34 projects/4,237 rooms

APA Hotel Ltd.: 12 projects/6,718 rooms

Tokoyo Inn Co Ltd: 7 projects/893 rooms

Dormy Inn Hotels: 4 projects/517 rooms

TOP BRANDS, BY PROJECT COUNT

Unbranded: 46 projects/6,702 rooms

Hotel Route Inn: 34 projects/4,237 rooms

APA Hotel: 12 projects/6,718 rooms

Toyoko Inn: 7 projects/893 rooms

Dormy Inn: 4 projects/517 rooms

TOP MARKETS

Tokyo: 54 projects/12,029 rooms

Kyoto-Osaka-Kobe: 13 projects/2,947 rooms

Nagoya: 9 projects/1,987 rooms

 

Source: Lodging Econometrics

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