Japan - February 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

New highs attained,
but labour shortage problems persist
Summary• The number of inbound touristsin Q4/2023 surpassed theprevious peak of Q4/2019, evenwith the number of Chinese
tourists at less than half of prepandemic levels, showing strong
potential for further growth.
• The ADR and RevPAR indiceshave surpassed 2019 levels,
although occupancy levels stilllag behind.
• H otel supply is forecast to beat its lowest since 2015, andpredominantly consisting ofbudget hotels.
• Average spending per inboundtourist has increased notably,
aided by the weak yen. Whilea stronger yen might dampen
spending levels, the improved
services and facilities in the
country should help to keepthem elevated.
• Investment volumes in 2023
have hit a two-decade high, withoverseas investors playing asignificant role in the market.
• The luxury hotel segment has
been the focus of many large
deals announced in 2023, and is
expected to see greater levelsof attention going forward as
the country looks to lure morehigh-spending tourists.

INTRODUCTION
2023 was a standout year for the hospitality
sector with the full reopening of borders,
helping to pump growth to beyond prepandemic levels. Aided by the persistent
weak yen, the number of inbound tourists
has recovered rapidly. In fact, the number offoreign visitor arrivals in Q4/2023 was higher
than that of the same period in 2019, evenwith only fractional recovery from Chinese
tourists, showing that there is large potential
for further growth.
Hotels have thus been able to continue on
their path of strong growth in the second
half of 2023, with hotel Average Daily Rates(ADRs) and Revenue Per Available Room
(RevPAR) having increased considerably.
Most hotels have attained levels equivalent
to those of pre-pandemic times, and withmany having surpassed them, even in termsof RevPAR. At the same time, occupancy
rates still remain below pre-pandemic times,
highlighting the labour shortage issue facedby many hotels, especially new ones withsome service lines.
Nonetheless, all regions in Japan havereported stronger ADRs compared to a year
ago, especially in inbound-tourist heavy areas.
Tourists from South Korea and Taiwan haveseen a particularly large resurgence, which
has led to notable growth in their favourite
Kyushu region. On this note, Fukuoka Airport
is undergoing expansion work that looks
to double the capacity of its internationalterminal by the end of 2025, gearing it up for
greater levels of inbound tourism, meaningthat the region should see more growth in the

future. This is the case especially with moreinvestment activity in Kumamoto, where
TSMC is developing new plants, which is
attracting multiple related businesses.
Luxury hotels have seen a large amount ofattention and interest from investors, due tomore high spenders visiting Japan, and therelative dearth of such hotels in the country.
While there are definite opportunities within
this sector, there are also challenges thatmust be addressed in order to succeed andcompete.
HOTEL STOCK AND SUPPLYIn FY2022, the total stock of hotel andryokan rooms was around 1.8 million, having
increased by 13,000 from the previous year,
according to data from the Ministry of
Health, Labour and Welfare (MHLW). This
increment was considerably smaller thanthose of pre-pandemic times, and it was evennoticeably smaller than figures observed
during the peak of the pandemic - FY2020
and FY2021 saw increments of 32,000 and
19,000 rooms, respectively. Supply has indeed
been slowing down significantly, further
confirmed by a survey conducted by Hoteresin 2023 forecasting the lowest supply of newhotels since 2015.
Indeed, the development of new hotels
has been more selective through two main
bottlenecks, with the first being skyrocketing
construction costs, on top of increased
land prices. According to the Construction
Research Institute, construction costs forreinforced concrete hotels have risen byaround 30% since 2017, and by around 10%

GRAPH 1: Hotel* Stock as of 2023 vs Upcoming Supply for 2024 Onwards by Region
Supplyfor 2024
onwards(LHS)
Estimatedtotal stock
as of2023 (LHS)

Estimated
as of(LHS)2023 (LHS)
Supply forTotal
2024stockonwards% Increment in supply vs 2023 stock (RHS)
14%

GUEST ROOMS

250,000• The labour shortage is
improving, albeit slowly, andmay dampen hotel supply plans.

12%200,000

10%
150,000

8%

100,000

6%
4%

50,0002%
Okinawa

KyushuKyushu(ex Okinawa)

Shikoku

Chugoku

Kinki

Tokai and
Chubu
Chubu

Koshintesu andHokuriku
Hokuriku

Tokyo

Kanto
Kanto
(ex Tokyo)

Tohoku0%
Hokkaido0

Source Hoteres, MHLW, Savills Research & Consultancy* excludes Ryokan

savills.co.jp/insight-and-opinion/2

Japan Hospitality

since 2022. This has likely underminedprevious underwriting assumptions of many
hotel projects, consequently resulting in the
delay or outright cancellation of some, andstifling new supply arriving to the market.
Secondly, labour shortages have been
persistent, and have also likely played a rolein constricting the supply of new hotels,
especially in full-service hotels. While thehotel sector is booming now and eager tohire new employees, the recruitment andtraining of staff may be lengthy processes
that will take time. As such, significant
increments in near-term supply are unlikely
for the time being.
Presently, about a third of Japan’s hotel(excluding Ryokan) stock is concentrated inTokyo, and Greater Osaka or Kinki, wheremultiple tourism hotspots such as Osaka,
Kyoto, and Nara are located. However,supply forecast for 2024 onwards suggeststhat Okinawa will see the largest incrementin the number of hotel rooms, with anadditional 6,000 rooms currently in thepipeline, amounting to about 12% of its
stock. Other regions that have a noticeable
amount of upcoming stock are Chugoku,
where Hiroshima is located, and Hokkaido.
In contrast, the supply forecast for Tokyoand the rest of Kanto is below average,
suggesting that some attention might haveturned to areas beyond Tokyo. Elsewhere,
Kinki looks to usher in a considerable
amount of supply over the next few years,
adding to the considerable amount ofstock, especially budget hotels in Osaka.
Budget hotels typically run on master-lease
contracts and are more favoured by domestic
owners and banks, which is likely one reason
for their large upcoming supply.

The hotel market has hit a new high
ADR level, and the luxury hotel
sector is thriving with more highspending inbound tourists. However,the labour shortage is proving
persistent, and further improvements
look to be gradual, particularly for
full-service hotels. Nonetheless, thelimited supply, especially that ofhigh-end hotels, bodes well for thehigher-end segment.

TRENDS IN INBOUND TOURISM
Until the 2000s, Japan was not on the radaras the global tourism hub at all. Entry into
the country by many foreign travellers wascumbersome and prices were prohibitively
expensive due to the strong currency.
Japan was not geared towards the needs ofinternational travellers, with foreign-language
support scarcely available. However, thatrhetoric has flipped, with inbound tourists
having become an essential pillar supporting
the tourism industry in the country.
Japan has seen a large rebound in inboundtourism, with the number of international
visitors not only at around record levels as

GRAPH 2: Construction Costs for Hotels in Tokyo, 2015 to 2023
140

INDEX: 2015 = 100

130

120

110

100

90

80

Source Construction Research Institute, Savills Research & Consultancy

3of Q4/2023, but also with the post-pandemic
era seeing the average amount spent per
visitor hit significantly higher levels thanthose observed over the past decade. A
myriad of factors have contributed to thisremarkable growth. For instance, Japanwas ranked as a top destination to visit bymultiple institutions, including the World
Economic Forum in 2021, which contributed
to building a substantial amount of pentup demand to visit the country, which
was released when the country opened its
borders to visa-free inbound tourism in
October 2022.
Secondly, the yen has significantly
depreciated against most currencies as
many countries, most notably the UnitedStates, have increased interest rates,in contrast with Japan sticking with its
monetary easing policies. The weak yen
has undoubtedly provided a considerable
amount of additional purchasing power tomost international visitors to the country.
In this vein, with the Bank of Japan looking
to end its negative interest rate policies,
consequently strengthening the yen, there
have been some concerns that the impactthat spending trends will take a hit.
However, while currency fluctuations arecertainly an important factor, a considerable
proportion of growth is likely organic andunrelated to currency. For instance, visitorsfrom Asia and the west (who represent mostof the inbound tourists) generally saw over a
50% increase in spending, while the yen had
only depreciated by around 30% compared
to 2019. Indeed, Japan ran extensive
marketing campaigns promoting higher-end

Japan Hospitality

inbound tourism in the country leading up
to the 2020 Tokyo Olympics, and has also
seen infrastructural improvements like anincreased number of duty-free shops, andgreater frequencies of direct flights into thecountry. In the private sector, examples ofrefined services to inbound tourists include
Isetan Mitsukoshi doubling the numberof staff that exclusively serve high-end
customers, and also developing foreignerfriendly membership apps, which partly
contributes to the record revenues. These
activities can be quantified when looking at
the budget of the Japan Tourism Agency andthe amount of funds dedicated to improving
and promoting inbound tourism (Graph 4).
These factors have also played a significant

role in improving Japan’s status as a popular
tourist destination and increasing thenumber of visitors, especially high-spendingones, and have likely assisted in increasing
spending as well.
Japan’s inbound tourism market is in its
prime, and momentum looks strong withfurther room for growth. Admittedly, theaverage amount spent per visitor is unlikely
to see significant increments in the shortterm, especially when the yen appreciates.
Nonetheless, there are multiple tailwinds for
inbound tourism as a whole. Tourists frommainland China have yet to see a meaningful
return, and events in the pipeline suchas World Expo 2025 should help to prop
up demand. Further down the road, the

GRAPH 3: Average Amount Spent by Each Inbound Tourist* vs US$/JPY Exchange
Rate, 2014 to 2023
Amount Spent

US$ to JPY

250,000

160
140

200,000

120
100

JPY

80
100,000

60

US$/JPY

150,000

40

50,000

20
0
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

0
2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Source Japan Tourism Agency, Savills Research & Consultancy* Data points during the pandemic are either unavailable or omitted.

GRAPH 4: Budget of Japan Tourism Agency*, FY2011 to FY2024
Inbound tourism related

80,000

Other budget

70,000JPY MILLION

60,00050,00040,00030,00020,00010,0000

Source Japan Tourism Agency, Savills Research & Consultancy* Budget for the Go-To Japan campaign is not included.
Note: Inbound tourism-related budget calculated based on budget items explicitly dedicated toinbound tourism.

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Integrated Resorts in Osaka could be a gamechanger for Japan and attract significantly
higher spenders. Overall, the full potential
of inbound tourism appears yet to have been
unleashed, and still has greater business
opportunities that can be explored.
HOTEL MARKET PERFORMANCE
Savills tracks the performance ofapproximately 100 hotels owned by five
J-REITs1 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 Japan 2 .
J-REIT hotels saw considerable growth in
the second half of 2023, having benefitted
from the lifting of restrictions on inboundtravel. As seen in Graph 5, the ADR index
for limited-service hotels has improvedby 14.0 percentage points (ppts), and the
RevPAR index by 8.5ppts, compared to thesame period in 2019, with both attaining
record levels since 2014 when this index
was created, far outstripping pre-pandemic
levels, with ADR levels remaining ahead. On
a half-year-on-half-year (HoH) basis, theADR index increased by additional 6.8ppts,
and the RevPAR index increased by 5.6ppts,
exhibiting the continued growth over theyear. At the property level, those owned
by Invincible REIT in particular appear
to be performing exceptionally well on
average, and seem to have made significant
contributions to pushing the index to a new
high. With inbound tourism looking to haveeven greater room for growth, especially inthe case of Chinese tourists, hotels could seeeven better performance ahead, especiallyin the upcoming cherry blossom season.
Meanwhile, occupancy rates have madesome progress in recovery, increasing by
3.3ppts over the past half-year to 81.8%,
albeit remaining somewhat lower thanpre-pandemic levels. The labour shortageis a chronic problem, and will take moretime for solutions in place to be realised, as
the training of staff is expensive and timeconsuming. Nevertheless, the situation isslowly improving, and optimism is still high.
Furthermore, the high ADRs are able tocompensate for this shortfall in occupancy,
meaning that hotels are in good shapeoverall.
Full-service hotels were generally
performing better than limited-service
hotels throughout the pandemic, and this
1 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.
2 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

rang true even into 1H/2023. However,the second half of 2023 has bridged thegap between these two hotel classes, withthe recovery in RevPAR of limited-service
hotels even surpassing those of full-service
hotels for some months. Indeed, the labour
shortage problem is likely impacting fullservice hotels harder, given the additional
hurdle of training a larger number of staff
to higher levels of service in line with the
hotel branding, and the impact of this canbe observed - the average occupancy offull-service hotels is notably lower thanlimited-service ones. Full-service hotels
have also yet to see meetings, incentives,
conferences, and exhibitions (MICE) andbanqueting return in full. On the other

hand, resorts have continued with theirstrong performance, with ADR and RevPAR
having improved even more, and appear tohave caught the attention of some investors.
INVESTMENT
Hotel transaction volumes in 2023 haveincreased considerably, attaining the highest
levels observed since 2019, reaching over
JPY500 billion. This was more than 20%
higher than levels in 2022, and almost 40%
higher than the 10-year average between
2013 and 2022. Most interestingly, 2023
saw the highest proportion of overseas
capital since 2008, hitting almost 60%.
International investors have indeed been
active in the second half of 2023 with

GRAPH 5: Limited-service Hotel Performance, 2014 to 2023
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

2H

2H

1H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

0%
2023

Source J-REIT disclosures, Savills Research & Consultancy
Note: Occupancy is calculated based on the total number of rooms each month.

GRAPH 6: Hospitality Sector Investment Volumes by Investor Type, 2007 to 2023
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, Savills Research & Consultancy

5

multiple big-ticket announcments.
GIC is looking to sell the Hilton Fukuoka
Sea Hawk hotel in Fukuoka at an asking priceof JPY85 - 90 billion, working out to around
JPY81 - 86 million per key, with the Hilton’s
management agreement reportedly expiringsoon, which opens chances to introduce
new branding for the asset. Meanwhile,
one long-term project taking place is by
Patience Capital Group, which has plans fora JPY200 billion transformation of Niigata’s
Myoko region into a high-end ski resort thatfeatures luxury hotels. There are presently
no luxury hotels in Niigata, and if successful,
Myoko will be the first area in the prefecture
to host them.
Elsewhere, domestic players have also
made big strides in the market, for instance,with APA Holdings acquiring all shares of
Ooedo Onsen Asset Management, which
manages the listed Ooedo Onsen REIT.
APA Holdings reportedly has ambitious
plans, aiming to nearly triple the AUM of
the REIT to JPY100 billion by late 2026.
This expansion should create more avenues
for investors to gain exposure to the hotel
market. J-REITs have also been active, withStar Asia REIT acquiring seven hotels for
JPY45 billion from its sponsor Star Asia
Group, Japan Hotel REIT acquiring three
hotels for JPY19 billion from multiple sellers,and Ichigo Hotel REIT acquiring five hotels
for JPY15 billion from its sponsor Ichigo Inc.
The hotel sector has seen a large
amount of interest directed at it, and largetransactions are expected to continue going
forward. In particular, the luxury hotel
sector should gain even greater traction
given the relative lack of such hotels in the
country. Indeed, the country is rife withpotential to attract more high-spending
tourists, and ongoing deals and projects
surrounding luxury hotels appear to
anticipate this.
OUTLOOK
Hotel room rates have leapfrogged prepandemic levels to even greater new highs,
boosted by the weakened yen and thecontinued growth of inbound tourism.
According to the Japan Tourism Agency,
inbound tourists stayed an average of 1.3
nights longer in 2023 than in 2019, on top of
spending over 50% more on accommodations,
showing that spending was clearly on the rise.
Although demand is still at very high levels,
one potential headwind on the horizon would
be the Bank of Japan normalising monetary
policy, and consequently strengthening theyen. This could be a twofold blow for thehospitality sector, with inbound tourists losing
some purchasing power, and more JapaneseJapan Hospitality

TABLE 1: Selected Investment Transactions Announced in 2H/2023

PROPERTY NAMEAPPROX. PRICE(JPY BIL)

PRICE PER ROOM(JPY MIL)CAP RATE

LOCATION

BUYER

Okinawa Prince Hotel
Ocean View Ginowan*

22.0

64.7

4.1%

Okinawa

Kenedix Realty
Investment Corporation

Koko Hotel Ginza Itchome

17.8

58.4

3.7%

Tokyo

Star Asia REIT

CapitaLand Ascott Trust
Portfolio (3 Properties)

10.7

N/A

Undisclosed

Osaka

Undisclosed

La’gent Stay Sapporo Odori

10.0

46.0

4.3%

SapporoJapan Hotel REIT

Bespoke Hotel Osaka
Shinsaibashi

8.5

33.0

Undisclosed

Osaka

CDL

Source J-REIT disclosures, MSCI, Savills Research & Consultancy* This transaction was announced in January 2024

residents enticed to travel internationally insteadof domestically. Nonetheless, even under such a
scenario, demand should still remain elevated as
the average amount spent by inbound tourists was
already on a rising trend before the pandemic
due to improved infrastructure and services tobetter accommodate inbound tourists, partly in
preparation for the 2020 Olympics.
The labour shortage is another issue, capping
the occupancy rates of existing hotels andstrangling some development plans, especially inthe case of luxury hotels where staff are expected
to uphold world-class levels of service in catering
to both international and domestic travellers. Wage
growth in the sector will be a key determinant
in attracting and retaining talent, and some
operators could be incentivised to raise wages,
and may have greater financial capability to do sogiven the strong market. Given the relatively low

wage levels in Japan, especially in the hospitality
sector, wage growth is expected to see more
momentum gained. This is also in line with thenation-wise, as well as industry-wide trends, whichshould eventually strengthen the desirability of thesector as one to work in.
Upcoming hotel supply is expected to belimited, and concentrated in the budget segment.
As such, high-end hotels in the pipeline, as well as
those already on the market, have a bright outlook.
Indeed, Japan has begun to attract larger numbersof high-spending tourists over the years, manyof whom prefer to stay in higher-end hotels. As aresult, multiple luxury hotels have started to emerge
in major cities and resort areas. Due to the recent
development and rapid growth of inbound tourism,
Japan is beefing up the necessary infrastructure andservices to welcome high-end tourists.
Overall, the hotel sector has hit a new peak, andlooks to continue performing well on the back of
the return of inbound tourism, even taking into
consideration potential setbacks such as thelabour shortage and a stronger yen. Elsewhere,
average domestic spending has also increased
to around pre-pandemic levels, which is a goodsign for the market overall. The success andperformance of hotels in this sector will dependon each operator’s strategy for overcoming labour
problems.

For more information about this report, please contact us
Savills Japan

Christian Mancini
CEO, Asia Pacific(Ex. Greater China)+81 3 4330 3611
cmancini@savills.co.jp

Savills Research

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

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

Savills Hotels

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 offices 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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