Japan’s controversial casino implementation bill is capturing worldwide attention, promising major large scale development and investments. This approval would bring waves of opportunities to a variety of markets, including luxury hospitality, as Japan sets itself up to be the next major gaming destination.
The implementation bill being drafted by Japan’s ruling Liberal Democratic Party aims to pass during the current parliamentary period, which has been extended, and will help determine regulations should integrated resorts be developed. One regulation being discussed is the number of resorts to be licensed and where. Current discussions are to limit it to three to five, limiting the first phase of developments to three.
Most speculate that the leading contenders for the developments are Tokyo, Yokohama and Osaka. Other potential locations include Kyushu, Hokkaido and Okinawa. Japanese landowners and developers understand the new market for luxury hospitality provided by the casino bill, and we observe an increase in luxury products not just in Tokyo but in resort destinations as well. Specifically for the luxury hospitality sector, we can see growing demand as the integrated resorts attract affluent tourists.
Assuming the bill passes, the casinos are expected to be developed around 2025. We can already observe specific companies making moves in potential integrated resort (IR) site locations. We see a large number of hotels announced in Japan’s three major markets – Tokyo, Osaka and Kyoto – and can expect the number of hotel rooms to increase by 38% from 2017 to 2020, according to CBRE. This is in large part due to the upcoming 2020 Olympic games, but Japanese developers and investors are seeing promise after the games, especially because of integrated resorts.
Where will they go?
One of the top questions we receive is “Which city will be selected?” While no one can answer this at this stage, significant factors can help us guess which city has potential. Public opinion, government support and the ability to support economic growth are the main influencers of the selection process. Let’s compare the cities’ potential in these domains:
Osaka. Many assume Osaka has the most chance to be selected as one of three IR sites. The local government is very eager to promote IR with public consensus. The city has large sites available for development and high potential for economic growth. With tourism expected to rise even further, Osaka has welcomed a few luxury grade hotels. Conrad hotels opened a property in 2017, and a W has been announced for 2021. Osaka will also be the host of the G20 meeting in 2019, and it is expected to benefit from “Olympic Tour Packages” that will promote travel to Osaka during the Olympic games.
Tokyo. Tokyo, on the other hand, has not received as much support for IR development. Concerns include the necessity of an IR for Tokyo in contrast to local regional economies that could benefit from a new development. Furthermore, with the 2020 Olympics in Tokyo, there is less focus on IR preparation.
Yokohama. Yokohama also has strong potential for supporting economic growth, and can serve as a complimentary submarket to Tokyo. With that said, should both Osaka and Yokohama have an IR, it will limit the economic growth of Japan as a whole, because Osaka and Yokohama are both already economic hubs of Japan.
Hokkaido. Hokkaido has a number of candidate sites for IR. While it is known for its snow resorts, the candidate sites are located in areas much closer to airports. With the privatization of Sapporo airport in 2020, plans to accept more international flights are in place, and thus a larger number of tourists.
MA Platform, an investment company affiliated with Mori Trust, has been constructing a large-scale resort development catering to foreign tourists in Tomakomai, Hokkaido. This resort is to include a hotel development, holiday cottages, medical facilities, retail, etc. The site is directly adjacent to a potential integrated resort site. The area does not have much tourist attention, but with the possibility of an integrated resort coming to the area, development of a large-scale resort can be justified.
Kyushu. Kyushu has two potential IR sites: Haus Den Bosch in Nagasaki and Phoenix SeaGaia in Miyazaki. The candidate sites are led by specific developers, so their effort to promote IR development by involving other Japanese companies and meaning for economic percussions for other players might be a key agenda.
In preparation for the upcoming Rugby World Cup in 2019, the forecasted increase of tourists during the Olympics in 2020, and the potential integrated resorts bill, IHG has announced a hotel in Beppu scheduled to open in 2019, Fukuoka is scheduled to welcome the Ritz Carlton in 2020, and Hoshino Resorts has announced plan for hotel in Beppu.
Economic ripple effects
To justify the IR bill passing, an economic ripple effect in regional cities is a necessity. For this reason, Hokkaido and Kyushu have a good chance. Even without IR, Hokkaido has shown much promise with its ability to integrate new tourism and hospitality trends such as wellness, entertainment and medical tourism options. The luxury hospitality sector has also been strong in Hokkaido, with many international companies developing hotels. Recent news includes a new Aman in Moiwa, Ritz Carlton by YTL Corporation, and SC Global announcing a luxury hotel residence development in Niseko.
While the likelihood of the casino opening in Tokyo, Okinawa and Kyoto is still low in comparison to Osaka, luxury hospitality developments have been increasing, including Bulgari Hotel in Tokyo, Ace Hotel and MGallery in Kyoto, and Iraph Sui Luxury Collection in Miyakojima Okinawa. While there are a number of factors for this, we can argue that with the announcement of the IR bill potentially passing, there is an expected increase of ultra high-net-worth (HNW) individuals looking for luxury grade accommodation when traveling around Japan.
While we can already observe significant confidence in these markets, after the casino implementation bill is passed and there is confirmation that integrated resorts will be developed in Japan, we can predict a much bigger wave of activity in the hospitality sector.
Government support
Luxury hospitality is also receiving attention from key government players. The deputy minister of land, infrastructure, transport and tourism, for example, is promoting new tourism projects targeting the world’s ultra HNW individuals for Japan’s economic growth after the Olympics and Paralympics in 2020. Further laws and reforms to stimulate this sector are expected.
As the deadline for the bill approaches, many different industries anticipate the wave of opportunities the developments may bring. Luxury hospitality is showing keen interest to match tourist demands, and we expect to see more developments announced once there are more updates.
Yukihiko Ito is managing director of Asterisk Realty, a fund placement agency and real estate broker based in Tokyo.