Japan - September 2020

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

Japan’s landmark year disrupted
but not lost

19%

30

9%

2%

22%
47%

20
10

24%
27%
14% 0%-19%-28% 34%

29%
-88%

0

Source Japan Tourism Agency (JTA), Japan National Tourism Organisation (JNTO),
Savills Research & Consultancy

GRAPH 2: Hotel Guest Room Supply, 1982 to 2023*
Annual Room Supply (LHS)YoY Change in Total Stock (RHS)

Historic Average Room Supply

2%

0

0%
2018
2019
Est. 2020
Est. 2021
Est. 2022
Est. 2023

10,000

2016

4%

2012

20,000

2014

6%

2010

30,000

2008

8%

2006

40,000

2002

10%

2004

50,000

1998

12%

2000

60,000

1996

14%

1992

70,0001982• Hotel investment volumes
for 1H/2020 fell 19% YoY toaround 214 billion yen. While
this is a relatively modest drop
considering 2019’s recordhigh investment into thesector, volumes appear to havebeen supported by existingcommitments entered into prior
to the pandemic.

South Korea

40

1994

• Occupancy has fallen to the
20-30% range, while ADRs havecompressed to less than halfof what they were pre-COVID.
Rural and suburban hotels are
performing markedly better thantheir urban counterparts.

China

Global 2011 Tohoku
Financial Earthquake
Crisis and Tsunami

50

1988

• J-REIT price performanceindicates divided sentiment
within the hotel sector, withmore upmarket hotel REITs
outperforming those with aheavier reliance on limitedservice hotels.

Other Nations
60

1990

• Unemployment in Japan remains
among the lowest in the world,
meaning local residents still havesome spending power to travel
domestically.

GRAPH 1: International Arrivals And Annual Growth Rates, 2007 to 1H/2020

1986• Domestic travellers accounted
for 84% of overnight stays in2019 and their spending hastrended upward.

1984• Prompted by the Olympic
tailwind, record supply is
expected for 2020. Fortunately,
new supply will cool signiﬁcantly
in 2021 and beyond.

MILLIONS OF PEOPLE• After eight consecutive years ofgrowth, the number of overseas
tourists is ﬁnally set to see acontraction in 2020, with only
four million visitors entering thecountry in the ﬁrst half of theyear.

June. Indeed, Japan is eﬀectively as closed oﬀ
as it was during the isolationist Edo Period,
creating an unprecedented challenge forhoteliers.
Moreover, with record room supply entering
the market in 2019 and 2020, the COVID-19
crisis has arguably come at the worst possible
time (Graph 2). Soaring inbound tourism andthe upcoming Tokyo Olympics prompted aspate of new developments from 2017 to 2020,
mostly in the budget and limited-service
hotel subsectors. Fortunately, supply looks
set to cool signiﬁcantly in 2021 and beyond.
Operators capable of weathering the storm
until then may ﬁnd themselves in a more

INTRODUCTION
2020 was a year of high hopes for the Japanesehospitality market. Emboldened by the Tokyo
Olympics and the rapid growth of tourism
since 2013, the national government hadoriginally aimed for 40 million overseas
visitors for the year. These hopes haveundoubtedly been dashed by the COVID-19
pandemic, with just four million visitors
entering the country in the ﬁrst half of theyear – a 76.3% decline over the ﬁrst half of 2019.
As would be expected, the vast majority ofthese visitors entered the country in January
and February, prior to any signiﬁcant borderclosures, with only 2,600 recorded entries in

GUEST ROOMS

Summary

Source Hoteres, the Ministry of Health, Labour and Welfare (MHLW), Savills Research & Consultancy*As completion data provided by Hoteres is as of 1 May, total supply in 2020 includes hotels expected to becompleted thereafter.

savills.co.jp/research2Japan Hospitality

advantageous position when the dust settles.
Indeed, despite these grim statistics, there
are bright spots for the market, even in the
short term. Domestic tourists accounted for
84% of overnight stays in 2019 and spending
amongst this group actually grew at a higher
rate than overseas tourists during the year.
The country emerged from lockdown in
mid-May and domestic travel has seen somerecovery, providing a buﬀer for operators.
This should be further bolstered by thegovernment’s “Go To” travel campaign
implemented on 22 July, which is subsidisingnationwide travel.
In the end, hoteliers are in for a long slog to
get through the crisis and there have alreadybeen some casualties within the budget hotel
subsector, with weakly-capitalised, newer
operators such as WBF and First Cabin ﬁ ling
for bankruptcy. Larger, more-establishedplayers appear to be faring better and somehave even doubled down on the current
market. APA Group, for instance, has
indicated that it would aim to more thandouble their hotel market share. We cantherefore expect to see further consolidationin the hospitality market, which shouldpresent lower-risk opportunities to investors
once the market recovers.
DOMESTIC DEMAND OFFERS ALIFELINE
Although inbound tourism has been an
important catalyst for the growth of Japan’s
hospitality sector, domestic travellers stillclaim the lion’s share of demand, accounting
for 84% of total nights stayed in 2019.
Domestic tourist spending grew by 3.6
trillion yen from 2014 to 2019, with year-onyear (YoY) growth actually outpacing that of
the inbound segment in 2019 (Graph 3). Thatsaid, inbound tourists tend to stay longer
and spend more money. As such, the absenceWith national borders largely closed
worldwide, inbound tourism to Japanhas plummeted. Although overseas
visitors are a key driver of growthin the hospitality sector, domestic
tourism still accounts for mostdemand. A short-term rebalancing ofassets could help mitigate some ofthe damage to the sector, whilst longterm inbound tourism trends could
lead to opportunities for those withenough capital to weather the storm.
of inbound demand is more impactful on a
per capita basis.
Meanwhile, the number of outboundtravellers has been increasing since 2015,
reaching a historic high of 20 million in 2019
(Graph 4). More than 70% of these travellers
reportedly did so for leisure purposes.
Given that global travel restrictions will
likely remain in place for the time being,a signiﬁcant portion of this demand –potentially equivalent to the total spendingof inbound tourists – should be redirected
towards domestic travel. Indeed, according
to a survey conducted by Travelzoo Japan in
May 2020, 65% of respondents indicated thatthey would travel domestically during thethree months after Japan’s soft lockdown.

GRAPH 3: Domestic And Inbound Tourist Spending, 2012 to 2019
Domestic Overnight Spending (LHS)

Inbound Tourist Spending (LHS)

Domestic YoY (RHS)

Inbound YoY (RHS)

25

80%
70%

20

60%

15

40%
30%

YOY

JPY TRILLION

50%

20%

10

10%
0%

5

-10%
0

-20%
2012

2013

2014

2015

2016

2017

2018

2019

Source JTA, Savills Research & Consultancy

savills.co.jp/research

3

Although Japan’s economy has taken asigniﬁcant hit through the ﬁrst half of theyear, the national unemployment rate is still
very low compared to regional peers – even
edging downward from 2.9% to 2.8% from
May to June (Graph 5). The country’s soundjob security should give residents someﬁ nancial leeway to travel domestically, in
addition to supporting the relatively nascent“workcation” trend. That said, the recent
uptick in new coronavirus cases may becausing some to reconsider travel plans forthe time being.
Regardless, the government’s “Go To”
travel campaign should serve to drum
up some demand. The program provides
subsidies of up to 50% of the costs fordomestic transportation, hotels, restaurants,
tourist attractions and shopping fortrips made after 22 July, with the amountcapped at 20,000 yen per person per night.
However, with a sudden increase of newcoronavirus cases in the capital, it wasannounced that travel to and from Tokyo
Prefecture would be ineligible for the
program just days before its implementation.
Despite the exclusion of Japan’s largest
market, the government has announced that
two million travellers have taken advantageof the program during its ﬁ rst month. The
campaign is scheduled to end in January
2021, or earlier if the 1.7 trillion yen allocatedfor the program is fully utilised before
then. In the meantime, the government is
discussing whether to add Tokyo to the listof eligible locations as early as September.
This now appears likely given that new
COVID-19 cases have begun declining in thecapital. Tokyo’s addition should signiﬁcantly
boost the impact of the campaign.

Japan Hospitality

GRAPH 4: Inbound And Outbound Travel, 1964 to 2020
Japanese Overseas Travelers

Visitor Arrivals to Japan35

MILLION TRAVELLERS

30
25
20
15
10
5

2018

2020

2016

2012

2014

2010

2008

2006

2002

2004

1998

2000

1996

1992

1994

1988

1990

1986

1982

1984

1978

1980

1976

1972

1974

1968

1970

1966

1964

0

Source JNTO, Savills Research & Consultancy

GRAPH 5: Regional Unemployment Rates, June 2020
12.0%
11.1%
10.0%

8.0%

7.4%
6.2%

6.0%
4.5%
4.0%
2.8%

2.9%

Japan

Singapore

2.0%

0.0%
South Korea

Hong Kong

Australia

United States

Source Statista, Savills Research & Consultancy

GRAPH 6: Limited-service Hotel Performance, 2014 to 1H/2020
Occupancy (RHS)

ADR Index (LHS)

RevPAR Index (LHS)

120.0

100%
90%
80%
70%

80.0

60%
60.0

50%
40%

40.0

OCCUPANCYINDEX (1H/2014=100)

100.0

30%
20%

20.0

10%
0.0

2014

2015

2016

2017

2018

2019 2020

Jun

May

Mar

April

Jan

Feb

1H

2H

1H

1H

2H

2H

1H

2H

1H

1H

2H

2H

1H

0%

2020

Source J-REIT disclosures, Savills Research & Consultancy*Note: 1H/2014 – 1H/2020 ﬁgures represent a trailing-twelve-month average, whilst year-to-date ﬁgures
represent a simple average for ADR and RevPAR, and a weighted average of occupancy for each month.

savills.co.jp/research

4

HOTEL MARKET PERFORMANCE
Savills tracks the performance of over 100
hotels owned by ﬁve J-REITs1 to analysemarket trends. Our analysis focuses onlimited-service hotels; full-service and resort
properties are excluded due to limited data.
Given that most of the existing hotel stock isin the limited-service category, this should
provide a good proxy for the overall market
trend in Japan2 .
On a trailing-twelve-month basis, ouraverage daily rate (ADR) and revenue peravailable room (RevPAR) indices fell by
19.8 and 33.1 points YoY, respectively, as of
1H/2020. Over the same period, occupancy
posted a decline of 16.7ppts. Of course,
these performance metrics have been evenmore bleak in recent months. In May 2020,
our ADR and RevPAR indices fell to a low of
50 points and 19 points, respectively, while
occupancy bottomed out at 23% in April(Graph 6). Although these indices have grownsomewhat as of June - and July appears to
be on track for even better performance- the limited-service hotel subsector
has undoubtedly been devastated by the
pandemic. Hoteliers are indeed facing thechallenge of a lifetime.
Some operators have adapted to thecoronavirus disruption by oﬀering teleworkvacation packages for those needing achange in scenery. Hoshino Resorts, forinstance, intends to apply this and othermarketing strategies to revive the struggling
hotels targeted by its 20 billion yen bailout
fund. Overall, famous higher-end hotels,
particularly those in resort towns on theoutskirts of major metropolitan areas,
appear to be performing relatively wellunder the circumstances, with a numberof such facilities posting occupancy rates
exceeding 50% in July. This may be a resultof the so-called “micro-tourism” trend
wherein travelers choose to remain in theirlocal areas. A hotel in Shirahama, Chiba, forinstance, is rumoured to have had occupancy
exceeding 80% for the month, nearly in linewith average pre-COVID occupancy levels.
INVESTMENT
According to data aggregated by Real Capital
Analytics (RCA), investment volumes were
surprisingly robust in the ﬁrst half of 2020,
falling only 19% YoY to around 214 billion yen– a relatively modest drop, particularly when
considering that 2019 saw a historically highlevel of investment into the sector (Graph 7).
As noted previously, some major domestic
players have doubled down during the
pandemic. However, as buyers have generally
honoured forward commitments signed prior
1 The ﬁve J-REITs consist of Japan Hotel REIT, Invincible
Investment, Hoshino Resorts REIT, Ichigo Hotel REIT, andMori Trust Hotel REIT. Since new samples are added when
J-REITs acquire hotels, the sample size and composition may
change marginally between survey periods.
2
As of this report, Tokyo accounts for over 30% of thesample hotels while other Kanto prefectures and Kansai
account for about 15% each.

Japan Hospitality

GRAPH 7: Hospitality Sector Investment Volumes By Investor Type, 2007 to
1H/2020
Equity & Institutional
Unknown

Listed Companies & REITs
Other
900

90%

800

80%

700

70%

600

60%

500

50%
400

40%

300

30%
20%

200

10%

100

0%

0

JPY BILLIONPROPORTION OF INVESTMENT (%)

Overseas
PrivateTotal Investment (RHS)
100%

Source RCA, Savills Research & Consultancy

GRAPH 8: Hotel J-REIT Performance, 2020
TSE J-REIT Index
Invincible Investment Corp

Hoshino Resorts REIT
Ichigo Hotel REIT

Mori Trust Hotel REIT

120

100

80

60

40

20

0
Jan-20Feb-20Mar-20

Apr-20May-20Jun-20Jul-20Aug-20Source J-REIT Disclosures, Japanese Exchange Group, Savills Research & Consultancy

to any lockdown measures or border closures,investment volumes appear to have been
supported by these existing commitments
rather than newly arranged deals.
Indeed, market rumour indicates thatdeal activity is tepid. Widespread distresshas yet to manifest and, other than thosetrying to oﬄoad the most hard-hit budget
hotels, sellers still appear to be targeting a
relatively low, if any, discount on pre-COVID
pricing. Further, Japan’s megabanks are now
hesitant to ﬁnance hospitality deals with nonrecourse loans – except in cases where mostof the property’s value is derived from theland – thereby requiring investors to makea 100%-equity commitment to buy into themarket. As a result, most buyers have opted toremain on the sidelines for the time being.
Distressed assets may begin to emerge
later this year, however, potentially drawing
out opportunistic buyers. High-credit
operators with alternative business lines haveenough ﬁnancial leeway to support their hotel
operations, allowing them to continue to
pay full rents. By displaying such resiliency,
these tenants should allow owners to enjoy
additional cap rate compression upon themarket’s recovery, opening up opportunities
for the more risk-averse buyer.
Hotel J-REIT unit prices are suggesting adivergence of sentiment within the hospitality
market based on both asset type and location.
To wit, the year-to-date performance of
Hoshino Resorts REIT and Mori Trust
Hotel REIT, which are more heavily invested
into upmarket hotels, have outperformed
Invincible Investment Corp and Ichigo Hotel
REIT, both of which are strongly-weighted
towards the budget-hotel subsector (Graph
8). Hoshino REIT speciﬁcally owns more
assets in resort towns and outside of city
centres, where domestic tourists are more
likely to frequent, including high-end ryokan.
This could partly explain why its unit prices
are outperforming those of Mori Trust,which, other than Hilton Odawara, holds
upscale assets in major city centres.

TABLE 1: Selected J-REIT Investment Transactions Announced In 1H/2020

PROPERTY NAMEAPPROX. PRICE(JPY BIL)

PRICE PER ROOM(JPY MIL)CAP RATE

LOCATION

BUYER

Four Seasons Hotel &Hotel Residences Kyoto

49

398

Undisclosed

Kyoto City, Kyoto

GK Tigre(SPC of Tokyo Tatemono
Investment Advisors)

Onyado Nono Kyoto
Shichijo

24

51

Undisclosed

Kyoto City, Kyoto

hausInvest(Commerz Real)

Sotetsu Fresa Inn
Shimbashi-Karasumori

8

36

3.90%

Minato, Tokyo

Undisclosed

Source J-REIT disclosures, Nikkei RE, Savills Research & Consultancy

savills.co.jp/research

5Japan Hospitality

OUTLOOK
Without mincing words, the short-term outlook
for the hospitality sector is grim. Closed borders
and local lockdowns have crushed hotel demand,causing RevPARs to decline dramatically during
the ﬁrst half of the year. Japan’s hospitality
market is of course not alone in facing theseheadwinds, though the timing of this crisishas been particularly problematic. The 2020
Olympics have been postponed to 2021 and an
outright cancellation of the Games is certainly
possible unless viable vaccines are suﬃciently
distributed by then.
Gloom and doom aside, some relief may
be on the way. Domestic tourism is still thecornerstone of Japan’s hospitality market and,with outbound travel eﬀectively cut oﬀ, millions
of local residents may instead turn their attention
inward. The country is known for its dense
urban clusters and, given the virus’s prevalencein such locations, it is no surprise that manyare searching for an escape through microtourism and workcations. There are alreadysigns of a pickup in overnight travel through Julyand August, particularly in rural areas on theoutskirts of Tokyo. Hoteliers who can adapt andcapture this new type of demand will have a key
lifeline guiding them through the pandemic. As
for the longer-term, whilst signiﬁcant roadblocks
including scandals and local opposition persist,and depending upon the world’s post-pandemic
recovery, the push for Integrated Resorts (IR) in
Osaka and other candidate regions might gain
more traction as a much-needed boost for Japan’s
economy, especially in regional cities.
Indeed, Japan’s landmark year may have been
disrupted, but this should be seen as more ofa temporary setback than as a sign of inherent
weakness. The 2019 Rugby World Cup, forinstance, was widely hailed as a success. A survey

released by EY Japan reveals that around 60% of
all international spectators visited the country
for the ﬁrst time, and about 75% of that groupstated that they “absolutely want to come to[Japan] again in the future”. It is clear that thecountry has signiﬁcant potential to attract moretourists – only lacking a platform through whichto engage with them.
An optimistic scenario would see the Tokyo
Olympics held just in time to celebrate theworld’s liberation from the grip of COVID-19,
making the event all the more important. This,
unfortunately, appears to be a rather tenuous
hope at present. Regardless of what happens in
2021, the travel industry, with local and national
government support, will need to adapt andcontinue their eﬀorts to strengthen Japan’s
appeal into the 2020s and beyond.

For more information about this report, please contact us

Savills Japan

Savills Hotels

Savills Research

Christian Mancini
CEO, Asia Paciﬁc(Ex. Greater China)+81 3 6777 5150
cmancini@savills.co.jp

Raymond Clement
Managing Director,
Asia Paciﬁc+65 6415 7570
rclement@savills.com.sg

Tetsuya Kaneko
Director, Head of Research& Consultancy, Japan+81 3 6777 5192
tkaneko@savills.co.jp

Tomotsugu Ichikawa
Director, Japan+81 3 6777 5184
toichikawa@savills.co.jp

Matthew D’Elia
Manager, Research &Consultancy, Japan+81 3 6777 5179
mdelia@savills.co.jp

Simon Smith
Senior Director,
Asia Paciﬁc+852 2842 4573
ssmith@savills.com.hk

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