Japan - August 2024

S P OT L I G H T
Savills Research

Japan Hospitality

Retail sales in Beijing were up 4.4% year-on-year to RMB539.8 billion in 1H 2018

Japan Hospitality

Hotel sector continues strong performance
Summary• The number of inbound tourists
in the ﬁrst half of 2024 has
surpassed the same period in2019 and is on track to reach
new highs.
• ADR and RevPAR keep hitting
new highs. Occupancy started to
improve with extensive recruiting
and training efforts, which should
gain more momentum.
• Apartment hotels are relatively
new to Japan but they could
emerge as a viable and more
affordable option for families andthose travelling in larger parties.
• While popular cities in Japan
face overtourism, this problem
could be overcome withproper direction to attract
more visitors and redirect
tourist traffic to lesser-known
destinations that would beneﬁt
from more tourism.
• With the optimistic outlook
for the hospitality sector,
investment volumes in
1H/2024 exceeded 1H/2023
by approximately 50%,and international investors
accounted for half.
• The chronic labour shortage is
gradually easing as the hotelindustry offers higher wages
and better working conditions
to attract more workers,
leading to an improvement in
occupancy rates.

savills.co.jp/insight-and-opinion/

INTRODUCTION
The hospitality sector has continued toperform strongly into 2024. The numberof inbound tourists has continued to hit
record levels since late 2023 - the numberof inbound tourists was 17.8 million in theﬁ rst half of 2024, 7% greater than the same
period in 2019. It should also be noted thatthe number of mainland Chinese tourists
has not fully recovered yet, and as of theﬁ rst half of 2024, they only accounted
for about two thirds of the 2019 level. In
addition, spending per inbound tourist in
2023 has also hit a new high, exceeding 2019
levels by 34% (Graph 5).
The Average Daily Rates (ADR) and
Revenue per Available Room (RevPAR)
indices have both surpassed 2019 ﬁ gures,as hotels successfully leverage increased
demand to achieve greater room rates. The
momentum of recovery of occupancy rates
appears to be tapering oﬀ after extensive
recruiting and training eﬀorts, although
it takes time to overcome the persisting
challenges posed by severe labour shortages,
especially in resorts and remote areas.
The overall positive trend, supported bysustained pent-up demand and the weak yen,is expected to continue as Japan is projected
to welcome 35 million visitors in 2024, easily
surpassing the previous peak in 2019.
OVERTOURISM IN JAPAN
While the surge in the number of tourists
has been greatly welcomed by the hotelindustry, many are raising concerns
regarding overtourism. Overtourism is an
issue that many tourism hotspots worldwide
are dealing with. Indeed, complaints fromresidents will cause headaches for oﬃcialsthat might be pressured to take drastic
measures to appease them.
Overtourism is a relatively new
phenomenon in Japan - the number of
inbound tourists has risen rapidly fromfewer than seven million in 2009 to over
31 million in its peak year of 2019, andwith 2024 on track to reach a new record
level. There are countless anecdotes from
popular tourist destinations that talk about
the overcrowding of public transport andheritage sites, which has ultimately led tothe disruption of the lives of local residents.
For example, the population in Kyoto City
appears to be declining as some residents
relocate to escape the overcrowding.

2

Indeed, the Japanese government’s targetof 60 million international visitors per
year by 2030 appears to be at odds with thefeasibility of making it sustainable.
At the same time, it should be recognisedthat this issue is primarily prevalent in
only a handful of prefectures - namely
Tokyo, Osaka, and Kyoto, and a few others.
Furthermore, within these prefectures,
only a few cities or speciﬁc areas are
actually grappling with overtourism, while
many others would gladly welcome moretourists. According to the Japan Tourism
Agency, the number of hotel stays for both
domestic and international tourists in
2024 have clearly surpassed 2019 levels in
only a few prefectures, including Tokyo,
Osaka, and Kyoto, while most others haverecovered to only around 2019 levels (Graph2). For international tourists, a similar
picture is painted, and it appears that many
areas still have signiﬁcantly more roomfor growth in tourism. Presently, as seenfrom statistics of hotel stays, foreigners
have a higher tendency to visit more wellknown destinations that have establishedinfrastructure to accommodate them.
Indeed, in the case of less establishedregions, this is likely a situation where agreater supply of hotels could generate
more demand. Therefore, even greaternumbers of tourists should be sustainable
as long as destinations of inbound tourists
are well diversiﬁed, and there is suﬃcient
infrastructure to host them in other regions.
Japan has many areas that are relatively
unknown to international audiences thathave the potential to attract tourists. For
instance, in The New York Times’ annual“52 places to Travel” series, Morioka waslisted as number 2 in 2023, and Yamaguchi
was featured as number 3 in 2024. In fact,
they lost only to major cities like London
and Paris, each of which were hosting
once-in-a-lifetime events like the royalcoronation and the Olympics. This showsthat many relatively undiscovered places inJapan could be thought of as potential top
destinations, and if the right infrastructure
is in place, many more travellers would visit
them. To wit, if distributed accordingly,
the goal of 60 million tourist arrivals by
2030 could be attained in a sustainablefashion. As a precondition, greater eﬀorts
need to be poured into encouraging local
governments and organisations, especiallyJapan Hospitality

those of tourist hotspots, to better prepare
for more inbound tourists. Additional
secondary traﬃc will be critical. Local
governments need more funds to welcome
tourists, which justiﬁes appropriate
charges, such as hotel taxes or higher
entry fees. Overall, tourism can be adouble-edged sword but should serve as animportant pillar of the wider economy.
EXPLORING THE POTENTIAL OF
APARTMENT HOTELS
The return of inbound tourism in Japan
has greatly beneﬁtted the hotel sector,
with the ADRs of many hotels reachingrecord levels due to the high demand. A
record number of inbound tourists havealso entered the country so far since late
2023. Furthermore, according to theJapan Tourism Agency, in 2023, about

The hotel sector has continued onits upward trend, reaching newhighs for ADR and RevPAR. This
sustained robustness has also fuelled
investment sentiment and volumes
to historical highs. While overtourism
is an issue in some popular areas,
Japan has a wide and diverse arrayof locations that have not been
discovered yet. More inboundtourists should be welcomed as longas they are properly distributed.
GRAPH 2: Total Number of Hotel Stays by Region, 2016 toApril 2024*

GRAPH 1: Total Number of Hotel Stays by Region, 2016 toApril 2024*
Kanto**

Shikoku

Kyushu

Tokyo

Osaka

Tohoku

Kyoto

160

140

140

120

120
INDEX 2019=100

INDEX 2019=100

Hokkaido
160

100

80

Kansai**

Chugoku

100

80

60

60

40

40

20

20
2016

2017

2018

2016

2019 2020 2021 2022 2023 2024 2024 2024 2024
Jan

Feb

Mar

2017

Osaka

2019 2020 2021 2022 2023 2024 2024 2024 2024
Jan

Feb

Mar

Apr

Source JTA, Savills Research & Consultancy* Only includes regions that underperformed 2019 levels as of 2023** Kansai excludes Osaka and Kyoto

GRAPH 4: Total Number of Hotel Stays by Foreigners by Region
2016 to April 2024*

GRAPH 3: Total Number of Hotel Stays by Foreigners by Region,
2016 to April 2024*
Tokyo

2018

Apr

Source JTA, Savills Research & Consultancy* Only includes regions that outperformed 2019 levels as of 2023** Kanto excludes Tokyo

Hokkaido

Kyoto

250

200

200

INDEX 2019=100

250

INDEX 2019=100

Chubu

150

100

50

TohokuKanto**

Chubu

Kansai**

Chugoku

Shikoku

Kyushu

150

100

50

0

0
2016

2017

2018

2019 2020 2021

2016

2022 2023 2024 2024 2024 2024
Jan

Feb

Mar

2017

2018

2019 2020 2021

2022 2023 2024 2024 2024 2024
Jan

Apr

Feb

Mar

Apr

Source JTA, Savills Research & Consultancy* Only includes regions that underperformed 2019 levels as of 2023** Kanto excludes Tokyo and Kansai excludes Osaka and Kyoto

Source JTA, Savills Research & Consultancy* Only includes regions that outperformed 2019 levels as of 2023

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Japan Hospitality

30% of visitors to Japan come with theirfamilies, which is the largest demographic
statistically 1. Despite the large number offamily unit inbound tourists to Japan, only asmall number of hotels have rooms that areable to accommodate families; most hotel
rooms in Japan have only twin or double
beds in a room smaller than 20 sq m, which
would typically be too small to host threeor more people. Furthermore, a majority of
hotels with rooms larger than 40 sq m could
be categorised as luxury or upper upscale,and therefore price out a large number offamilies, especially when considering thecurrent market of heightened ADRs.
Therefore, apartment hotels could provea viable alternative, oﬀering spacious rooms

catered for family units or groups at a more
aﬀordable rate. Such hotels would typicallyhave rooms larger than 40 sq m, that canhost between four and eight people. Whilethey would not usually come with thewide range of services that luxury hotels
provide, simple amenities such as a kitchen
and dining area, and multiple bedrooms,
could create an atmosphere of “home”
and encourage longer stays. Given the low
stock of such hotel rooms in the market, an
ADR premium per sq m could arguably beachieved over smaller units with the proper
services and marketing.
Indeed, the new supply of apartment hotels
has remained relatively ﬂat, although therising demand for such units might change
this. For example, the residential hotel

1 About 25% travel alone, 20% with friends, and 20% as acouple.

business “&Here” announced the opening of“&Here TOKYO UENO” in March 2024. With
70% of the rooms above 40 sq m, the hotel isdesigned to cater to families and larger groups
seeking longer-term stays, citing the limited
number of hotels that are capable of doing
so in the market, and the growing demand
from families, both inbound and domestic.
Room rates for a typical 40 sq m family room
range between JPY40,000 and JPY60,000.
The operator also aims to add a total of 1,000
such rooms in the next ﬁve years. Hence, someplayers in the market have already begun to
fulﬁl this potential gap in the market.
Overall, apartment hotels have thepotential to cater to an underserviced
part of the market; the typical size of theupper upscale and above segment but withmore aﬀordable amenities and services. A
statistical majority of tourists in Japan comeas families, suggesting that there is ample
demand for such products in the market,
some of which is being fulﬁ lled by private
lodging. Players able to overcome hurdles ofidentifying suitable land, rising construction
costs, and labour shortages, should be able
to take advantage of the current gap in themarket if they are nimble enough.

GRAPH 5: Travel Spending per Foreign Traveller in Japan, 2011 to 2023
250,000

200,000

JPY

150,000

100,000

50,000

0
2011

2012

2013

2014

2015

2016

2017

2018

2019

2023

Source Japan National Tourism Organization, Savills Research & Consultancy

GRAPH 6: Limited-service Hotel Performance, 2014 to 1H/2024
Occupancy (RHS)

ADR Index (LHS)

RevPAR Index (LHS)
100%

140

90%
120

70%
60%

80

50%
60

40%

OCCUPANCYINDEX (1H/2014=100)

80%
100

30%

40

20%
20
10%
0
2014

2015

2016

2017

2018

2019

2020

2021

2022

1H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

0%
2023 2024

Source J-REIT disclosures, Savills Research & Consultancy
Note Occupancy is calculated based on the total number of rooms each monthsavills.co.jp/insight-and-opinion/

4

HOTEL MARKET PERFORMANCE
Savills tracks the performance ofapproximately 100 hotels owned by four
J-REITs2 to analyse market trends. Our
analysis focuses on limited-service hotels;
full-service and resort properties are
excluded due to limited data. Given thatmost of the existing hotel stock is in thelimited-service category, this should provide
a good proxy for the overall budget segment
market trend in Japan3 .
J-REIT hotels continue their growthtrajectory in the ﬁ rst half of 2024, withnotable improvements seen in the ADR
and RevPAR indices. Graph 6 shows the
ADR index for limited-service hotels
strengthened by 6.9 percentage points(ppts) half-year-on-half-year (HoH), and17.3ppts compared to the same period in
2019. Similarly, the RevPAR index also
experienced an increase of 5.8ppts HoH,
and 9.3ppts from 1H/2019. A majority oflimited-service hotels posted evidently
higher ADRs in 1H/2024 compared to thesame period of last year. Inbound visitors
in 2024 have so far surpassed pre-pandemic
levels, and are forecast to continue doing so.
Hotel performance is expected to continue
improving, especially considering that atpresent, mainland Chinese inbound tourist
numbers are still below pre-pandemic levels 2 The four J-REITs consist of Japan Hotel REIT, Invincible
Investment, Hoshino Resorts REIT, and Ichigo Hotel REIT.
Since new samples are added when J-REITs acquire hotels,
the sample size and composition may change marginally
between survey periods.
3 In this report, Tokyo accounts for over 30% of the sample
hotels while other Kanto prefectures and Kansai account for
about 15% each.

Japan Hospitality

May 2024 inbound mainland Chinese tourist
ﬁgures only at 70% of May 2019 levels.
Occupancy rates remained relatively
stable at 81.5% over the past year, whichis still slightly below pre-pandemic levels.
While the accommodation industry has
continued to suﬀer from the chronic labour
shortage, which has been a bottleneck foroccupancy rates, the situation has been
gradually improving. The industry appears
to attract more workers via higher wages
and better work conditions. For example,
Hoshino Resorts conducted an induction
training camp this spring to welcome arecord 750 new employees, which took
place in Hokkaido, Aomori, Nagano, andOkinawa, aiming to educate the new

employees about the unique appeal ofeach region and strengthen their ability toserve customers better. In particular, more
successful recruitment has been observedin urban areas, though resorts and remoteareas will likely continue to experiencelabour shortages to a large extent, whichmight necessitate more drastic measures.
Given the low productivity in the hospitality
industry, both relative to other industries
in Japan and to the hospitality industry
overseas, there should be ample room for
growth, which could subsequently lead tobetter working conditions.
Overall, the elevated ADR trend should
continue with robust demand, while
improving occupancy should bolster

GRAPH 7: Hospitality Sector Investment Volumes by Investor Type, 2007 to 1H/2024
Equity & Institutional
Unknown

Listed Companies & REITs
Other
1.0

90%

0.9

80%

0.8

70%

0.7

60%

0.6

50%

0.5

40%

0.4

30%

0.3

20%

0.2

10%

0.1

0%

0.0

JPY TRILLIONPROPORTION OF INVESTMENT (%)

Overseas
PrivateTotal Investment
100%

Source MSCI Real Capital Analytics, Savills Research & Consultancy

TABLE 1: Selected Investment Transactions Announced in 1H/2024

PROPERTYNAME

APPROX.
PRICE(JPY BIL)

Hotel Portfolio(4 properties)

56.2

RevPAR. According to the Japan National
Tourism Organization, monthly inboundvisitors exceeded three million for threeconsecutive months between March and
May 2024, and is forecast to reach 35 million
people by the end of the year, surpassing therecord in 2019. As such, the hotel market
is primed for further growth. Elsewhere,
the recovery of banqueting and MICE has
been mixed, with some hotels reportingstrong performance, while others remain
at a fraction of pre-pandemic levels.
Performance has largely been dependent
on each respective hotel’s ability tomaintain relationships with clients, andto the extent that each respective client
was impacted by the pandemic and how
much they have recovered. For instance,in July 2024, Imperial Hotel announced an
upward forecast revision, citing stronger
demand from inbound tourists and businesstravellers. Sales per person at banquets
increased by 4%.

PRICE PERROOMCAP RATE LOCATION(JPY MIL)

BUYER

-

3.6%-5.3%

VariousJapan Hotel
REIT

Unizo Holdings
31.5
Portfolio(Preferred Equity(14 properties)
Capital)-Undisclosed

Various

SPC of KKR

Omo7 Osaka

29.0

67

4.5%

Osaka

Hoshino Resorts
REIT

Hommachi
Garden City
(Hotel portion)

21.4

133

3.6%

Osaka

BentallGreenOak

Sankei Building
Portfolio(3 properties)

16.9

-

3.9%-4.6%

VariousSankei Real
Estate REIT

Source J-REIT disclosures, MSCI Real Capital Analytics, Savills Research & Consultancy

5

INVESTMENT
Hotel transaction volumes in 2023 exceeded
JPY750 billion, eclipsing the peak recorded
in 2019 and marking the highest levels
since 2007. This was more than 50% higher
than levels seen in 2022, and is almost 80%
higher than the 10-year average between
2013 and 2022. A large proportion oftransactions appear to have been carried out
by international investors - approximately
50% of the transactions in 2023 and in theﬁ rst half of 2024, which is the highest level
since 2008.
Indeed, hotel assets have been popularamong international players and are actively
traded due to the dramatic recovery of
the tourism sector in Japan. For instance,
Sega Sammy Holdings sold all equity of its
Phoenix Seagaia Resort in Miyazaki City,
which comprises three accommodation
facilities, two golf courses, and a convention
facility on a 2.5 million sq m site, to Fortress
Investment Group for a proﬁt of JPY8.5
billion. Fosun International will sell Hoshino
Resorts Tomamu, a ski resort in Hokkaido
for JPY40.8 billion, having acquired it for
JPY18.3 billion in 2015. Elsewhere, an SPC
of KKR acquired all 14 Unizo hotels with a
total of 3,600 rooms throughout Japan in
April 2024 with a preferred equity capital of
approximately JPY31.5 billion. Meanwhile,
Sekisui House REIT sold the entire
mixed-used Hommachi Garden City to
BentallGreenOak, with the hotel portion of
the sale property hosting The St. Regis hotel
amounting to JPY21.4 billion, translating to
JPY133 million per key.
Domestic investors including J-REITs
have also shown increased activity in the
hotel market in 1H/2024. In June 2024, Japan

Japan Hospitality

Hotel REIT acquired four hotels in Japan: two in
Okinawa and two in Tokyo, totalling over 1,000
rooms for JPY56.2 billion. In the same month,
Hoshino Resorts REIT acquired Omo7 Osaka, ahotel in Osaka for JPY29.0 billion. Furthermore,
Sankei Real Estate REIT acquired three hotels
across Japan for JPY16.9 billion.
The hotel sector has been garnering strong
attention from investors, evident from the steady
growth of hotel transaction volumes during the
pandemic and the sector should continue to witness
large transactions given the optimistic outlook.
OUTLOOK
The hotel sector continues to perform well, with
ADRs and RevPAR continuing to rise. Domestic
travel has also largely recovered, with thenumber of hotel stays in most prefectures close

to pre-pandemic levels, or even higher in cases.
Furthermore, the number of inbound visitors has
continued to hit new highs, and 2024 looks to set
a new annual record. Roughly 30% of inboundvisitors to Japan travel as families with threeor more people, and the large number of suchgroups has sparked greater demand for larger
hotel rooms, or apartment hotels that are able tocomfortably host larger groups, of which there are
relatively few in Japan at present.
With strong inbound tourist growth, there
are multiple instances of overtourism in popular
tourist destinations. However, only a handful ofareas are presently experiencing overtourism,
whereas Japan has a large number of under
explored areas that could greatly beneﬁt from
more inbound tourists and should contributeto the revitalisation of depopulated areas. Aslong as relevant organisations are able to takeproper measures to diversify tourists to diﬀerent
regions, Japan should be able to comfortably
welcome more tourists and transform thehospitality industry into a signiﬁcant sustainableeconomic pillar.
The hotel sector reached a new peak and has
the potential to continue growing. At the sametime, there are still challenges such as labour
shortages, especially in resorts or remote areas
further away from major cities, though recent
extensive recruiting and training drives show
some glimmers of hope. Increasing labour costs
and inﬂation also bite hotel’s operating margins.
Nonetheless, hotels that are able to overcome
these problems should greatly beneﬁt from thestrong demand present in the market.

For more information about this report, please contact us

Savills JapanJon Salyards
Managing Director,
Institutional Investment
Advisory+81 3 4330 3266
jsalyards@savills.co.jp

Savills Research
Andy Hurfurt
Managing Director,
Institutional Investment
Advisory+81 3 4330 3328
ahurfurt@savills.co.jp

Tetsuya Kaneko
Managing Director, Head of
Research & Consultancy,Japan+81 3 4330 3103
tkaneko@savills.co.jp

Savills Hotels
Simon Smith
Regional Head of
Research & Consultancy,
Asia Paciﬁc+852 2842 4573
ssmith@savills.asia

Hirofumi Matsunaga
Director, Head of Japan
Hotel Advisory,Japan+81 3 4330 3064
hmatsunaga@savills.co.jp

Savills plc: Savills plc is a global real estate services provider listed on the London Stock Exchange. We have an international network of more than 600 offi ces and associates throughout the Americas, the UK,continental Europe, Asia Paciﬁc, Africa and the Middle East, offering a broad range of specialist advisory, management and transactional services to clients all over the world. This report is for general informative
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