Japan - February 2023

S P OT L I G H TSavills Research

Japan Hospitality

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

Japan Hospitality

Despite challenges ahead, the resumption of
inbound tourism has brought robust recovery
Summary• Visa-free inbound tourism
resumed in Japan in October
2022, and there has been asigniﬁcant uptick in overseas
arrivals.
• The ADR index has increased
signiﬁcantly due to strong
demand, while occupancy has
improved at a slower rate. Many
hotels have prioritised raisingroom rates over occupancy due
to labour shortages.
• There has been notabledisparity in recovery between
different hotel types, withresorts and luxury fullservice hotels set to performbetter than limited-service
counterparts.
• New supply forecasts arelimited over the next few years,
so room rates will likely remain
elevated for the time being.
• Investment volumes in 2022 in
the hotel sector are expected tohave notably surpassed those of2021. More deals are expected
as prices have risen close to
pre-pandemic levels.

has also shifted focus toward per-person
spending rather than the number of inboundtourists in order to promote more sustainable
tourism going forward.
Overall, the rebound in hotel demand
over the past half-year has been signiﬁcant.
The Average Daily Rate (ADR) has recovered
completely for most hotel J-REITs, and in manycases has exceeded pre-pandemic levels by anotable amount. Occupancy still has some room
for recovery, despite having increased over thepast half year, but RevPAR has improved tolevels exceeding pre-pandemic times.
Nonetheless, there are several hurdles
facing the hospitality sector. One factor
contributing to the relatively sluggish
occupancy rates is the labour shortage in thehospitality industry, made even more severeby the trauma induced during the pandemic.
Next, rising operating costs from utilities
and food will also create more challenges
for hotels. In addition, high airfares andthe lack of low-cost carriers, together withthe worldwide economic slowdown, arelikely to make it more diﬃcult for budget
tourists that wish to come to Japan. As such,recovery within the industry is expected to bedisproportionate.
HOTEL SUPPLYNew hotel supply increased signiﬁcantly inthe run up to the Tokyo Olympics, and peakedin 2020. However, the hotel market saw a
sharp decline thereafter, with only around38,000 and 28,000 new rooms added toGRAPH 1: Hotel Guest Room Supply Forecast, 2018 to 2026
70,00060,00050,000NO. OF ROOMS• However, the high cost of
air travel, overall increasing
operating costs stemmingfrom labour shortages, utility
and food price hikes in thehospitality industry, and global
economic slowdown might
moderate future growth.

INTRODUCTION
Throughout 2022, Japan has transitioned
toward an endemic state, and domestic
tourism has made a notable recovery overthe past year. In October 2022, the Japanese
government resumed visa-free inboundtourism, further strengthening the prospectsof the hospitality industry. Since the borders
have reopened, many tourists have returned
to Japan, and optimism remains high in thehospitality industry.
Japan experienced a signiﬁcant uptick
in foreign visitors, with nearly 1.4 million
entering in December 2022. This is well overhalf the number seen in December 2019,
although it must be noted that this recovery
essentially excludes Chinese tourists. Further
growth in inbound demand is expected, andJTB Corporation, the largest travel agency
in Japan, predicts that around 21 million
inbound entries will be made in Japan in
2023, which would equate to around a 66%
recovery to the peak levels in 2019. This will
oﬀer a much-awaited boost to hotels locatedin inbound tourism-dependent areas, andwill be a lifeline for hospitality industries
more widely. Moreover, because the average
economic proﬁ le of current inbound travellers
appears to be much higher than the prepandemic average, spending by inboundtourists should see much stronger recovery.
Indeed, the average per-person spendingof inbound tourists in Q4/2022 was almost
25% greater than that of Q4/2019, according
to Japan Travel Agency. The government

40,00030,00020,00010,000

0
2018

2019

2020

2021

2022

2023

2024

2025 2026~

Undecided

Source Hoteres, Savills Research & Consultancy

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

Japan Hospitality

the market in 2021 and 2022, respectively,
according to data from Hoteres. As Graph
1 demonstrates, upcoming hotel supply isexpected to be low in the coming years, andis therefore unlikely to disrupt the operating
performance of hotels due to the moderatecompetition in the market.
Domestic restrictions on internal
movement and business activity in Japan,
as well as the havoc caused to global supply
chains by the pandemic, likely contributed
to delays in hotel completion. Meanwhile,labour shortages in the constructionindustry have pushed up construction costs
and have also likely caused further delays tohotel construction. All things considered,room rates will likely remain elevated for thetime being due to the limited supply.
Elsewhere, Japan has fewer luxury

Inbound tourism has strongly
rebounded with the border reopening,and optimism is high overall.
Hotel performance has improved
signiﬁcantly, and room rates have seen
notable increments. Nonetheless, there
are still hurdles facing the hospitality
sector going forward, such as labour
shortages, higher costs from utilities
and food, and the potential impact
from the global economic slowdown.

hotels than many other developed nations,and upcoming supply is not expected tosee considerable increments. While prepandemic times revolved around budget
tourism, the post-pandemic era will
likely see some shifts toward more highend tourism. Indeed, there is some newaccommodation with room rates of over
JPY1 million per night, even in regional
areas. As such, some market participants
have begun exploring opportunities in theluxury and high-end market due to therelative scarcity of such hotels.

GRAPH 2: J-REIT ADR Performance by Hotel Type, 2019 to 2022

Full-Service

Limited-Service

Resort/High-end Ryokan

1301202019 = 100110
100908070

201920202021

DecNov

2H

1H

2H

1H

2H

1H602022

Source J-REIT disclosures, Savills Research & Consultancy

GRAPH 3: J-REIT RevPAR Performance by Hotel Type, 2019 to 2022

Full-Service

Limited-Service

Resort/High-end Ryokan

140120806040

20192021

Dec

Nov

2H

1H

2H

2H
2020

1H

20
1H

2019 = 1001002022

Source J-REIT disclosures, Savills Research & Consultancy

3COMPARISON OF HOTEL TYPES
Overall, while the hospitality industry
has been recovering and is projected tocontinue doing so, this has not been
evenly distributed amongst all hoteltypes. Speciﬁcally, the ADRs of resorts
and high-end ryokans have signiﬁcantly
recovered and surpassed 2019 levels evenduring the pandemic, and the improving
occupancy rates have also allowed RevPAR
to steadily grow. Resorts and high-end
ryokans have performed strongly as theirtarget demographic of wealthy tourists
has generally been less impacted by thepandemic. Many current inbound tourists
into Japan are also on the relatively higher
end of the income spectrum, and they havefurther propped up demand for resorts andhigher-end accommodation.
Meanwhile, full-service hotels have also
improved, with ADRs in November andDecember surpassing 2019 levels. However,occupancy levels still lag pre-COVID times,
which has slowed RevPAR recovery. It
appears that many full-service hotels arepushing a strategy of increasing ADR rather

Japan Hospitality

GRAPH 4: J-REIT Occupancy by Hotel Type, 2019 to 2022
Full-Service

Limited-Service

Resort/High-end Ryokan

90%

80%

70%

60%

50%

40%

2019

2020

2021

DecNov

2H

1H

2H

1H

2H

1H

2H

1H

30%

2022

Source J-REIT disclosures, Savills Research & Consultancy

GRAPH 5: Hotel Staff Wages vs. Job-to-applicant Ratio for the Hospitality Industry,
1H/2015 to 2H/2022
Job-to-applicant ratio (RHS)

Hotel Front (LHS)

Hotel Staff (LHS)

1,250

10.0x
9.0x

1,200

JPY/HOUR

1,150

7.0x
6.0x

1,100

5.0x
1,050

4.0x
3.0x

1,000

2.0x

JOB-TO-APPLICANT RATIO

8.0x

950
1.0x

2016

2017

2018

2019

2020

2021

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

1H

2H

2H

2015

1H

0.0x
1H

900
2022

Source Ministry of Health, Labour and Welfare, Jobs Research Center, Savills Research & Consultancy

GRAPH 6: Limited-service Hotel Performance, 2014 to 2H/2022

Occupancy

ADR Index (LHS)

RevPAR Index (LHS)

140

100%
90%

120

70%
60%

80

50%
60

40%

OCCUPANCYINDEX (1H/2014=100)

80%
100

30%

4020%
2010%
0201420152016

20172018

2019

2020

2021

Dec

2H

Nov

1H

2H

1H

2H

1H

2H

1H

1H

2H

1H

2H

2H

1H

2H

1H

1H

2H

0%

2022

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

savills.co.jp/insight-and-opinion/4

than occupancy. Indeed, labour shortages
are a proliﬁc problem in the hospitality
industry, and many hotels are struggling
to recruit suﬃcient staﬀ. Some hospitality
employees may be unwilling to return tothe industry unless working conditions see
noticeable improvements, and the labour
shortage may be exacerbated by the ageing
population in Japan.
As Graph 5 demonstrates, hourly wages
for hotel employees have risen to new peaklevels since the brief drop in 2020, in order
to attract workers. However, despite theincreased wages to lure new workers, hotelshave still been unable to ﬁnd suﬃcient staﬀ.
Indeed, the hotel job-to-applicant ratio
has grown from 2.8x in 1H/2022 to 3.4x in
2H/2022, demonstrating the severe shortageof labour in the industry. This labour crunch
is more likely to disproportionately aﬀectbudget hotels, as their thinner proﬁt margins
will make wage increments more diﬃcult.
Nonetheless, the industry is indisputably inbetter shape and on track for recovery despite
these challenges, and should look to improvefurther when Chinese tourists return.
HOTEL MARKET PERFORMANCE
Savills tracks the performance ofapproximately 100 hotels owned by ﬁ ve
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 Japan2 .
Japan has transitioned toward an endemic
state over the past year. Domestic tourism
has largely returned in 2022, and inboundtourism looks set to rebound further in
2023. As expected, Graph 6 indicates that
hotel J-REITs have recovered even furtherin 2H/2022. The ADR index increased
signiﬁcantly over the past half-year, and is 7.5
points higher in 2H/2022 than in 1H/2022.
RevPAR index experienced an increment of
17.8 points half-year-on-half-year (HoH),and notably an increment of 28.0 points
year-on-year (YoY). Furthermore, it should
be noted that the performance in December
has already outstripped pre-pandemic times.
Overall, occupancy levels of limitedservice hotels still lag behind those of prepandemic times. Indeed, many operators
no longer have high occupancy targets, due
to labour shortages. Also, global energy
price hikes have led to international travel
becoming unaﬀordable for a large number
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 In this report, Tokyo accounts for over 30% of the sample
hotels while other Kanto prefectures and Kansai account for
about 15% each.

Japan Hospitalityof average households in the Asia Paciﬁcregion. Furthermore, the number of more
aﬀordable Chinese LCC ﬂights, which played
an outsized role in the pre-pandemic inboundtourism boom, is currently just a fraction of2019 levels. This has led to notably higher
airfares that look to remain throughout theyear. This imposes limitations on potential
mass inbound arrivals to Japan, which has
prompted market participants to focus on
mid-market or higher-grade hotels.
INVESTMENT
Both the reopening of Japan’s borders tovisa-free inbound travel and the anticipatedstrong performance of domestic travel havesigniﬁcantly boosted the prospects of thehotel industry going into 2023. According
to RCA, investment volumes in 2022 werecomparable to those of 2021. However, real
volumes in 2022 are expected to be muchlarger than those of 2021, which should
be reﬂected once more transactions areconﬁ rmed. Overseas investors remained
keen on hotel assets in Japan in 2022, withcross-border transactions accounting for
42% of total transactions.
Overseas investors in particular carriedout some substantial transactions overthe past half-year. For instance, it wasannounced that Bentall GreenOak wouldpurchase the Rihga Royal Hotel in Osaka
for JPY55 billion in March, and commit
an estimated JPY15 billion towards its

GRAPH 7: Hospitality Sector Investment Volumes by Investor Type, 2007 to 2022

Equity & Institutional
Unknown

Listed Companies & REITs
Other

100%

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

Source RCA, Savills Research & Consultancy

redevelopment. Anticipating the returnof overseas travellers to popular inboundhotspots, Morgan Stanley recently acquired
the 333-guestroom Hotel Unizo Osaka
Yodoyabashi, which will be reopened andoperated by Seibu Prince Hotels Worldwide,
and will be the ﬁrst Prince Hotel in Osaka.
One major corporate deal announced inDecember 2022 was Daiwa House Industry
deciding to sell its hotel operation subsidiary,
Daiwa Resort, to Japan Hotel REIT Advisors,
for approximately JPY56 billion.
Meanwhile, Minato-based Daisho
announced the acquisition of the large
Renaissance Okinawa Resort and sister
property Coco Garden Resort Okinawa
from Gaw Capital Partners. The properties
have 473 guestrooms combined and Daisho
invested between JPY25 and JPY30 billion
to purchase both properties. Meanwhile,
Activia Properties REIT acquired HOTEL
THE FLAG Shinsaibashi for JPY14.3 billionin October.
Overall, many large transactions took
place in the latter part of 2022, and there
are high expectations that a rebound ininbound tourism will improve the fortunesof the hotel industry. Moreover, many
anticipate that the BoJ may readjust interest
rates towards spring, which could shift
investor interest even further towards thehotel industry, given that hotels properties
are aﬀected signiﬁcantly less by interest
rate changes than tourism demand.
Furthermore, many hotel owners werereluctant to sell during the pandemic, andwith prices having recovered to levels only
a little shy of pre-pandemic prices, weexpect more signiﬁcant transactions tobe announced moving forward, given theTABLE 1: Selected Investment Transactions Announced in 2H/2022PROPERTY NAMEAPPROX. PRICE(JPY BIL)

PRICE PER ROOM(JPY MIL)CAP RATE

LOCATION

BUYER

Rihga Royal Hotel

55.0

53.0

Undisclosed

Kita Ward, Osaka

Bentall GreenOak

Renaissance Resort Okinawa& Coco Garden ResortOkinawa

25.0-30.0

52.9-63.4

Undisclosed

Okinawa

Daisho

HOTEL THE FLAG
Shinsaibashi

14.3

49.7

4.0%

Chuo Ward, Osaka

Activia Properties REIT

Source J-REIT disclosures, RCA, Savills Research & Consultancy

5Japan Hospitality

high level of demand for hotel properties and thestrong capital needs from old hotel owners inneed of signiﬁcant capex plans.
OUTLOOK
Bolstered by the resumption of inbound tourism,
overall, current circumstances have been robust
for the hospitality industry. ADR and RevPAR
levels have largely recovered, and even surpassed
pre-pandemic levels in many cases, although thehigh room rates, on top of labour shortages andincreasing operating costs from utilities and food,have hindered occupancy growth. Indeed, although
January is not a peak tourism month, January 2023
ﬁgures look as good as those of December 2022, aholiday season month. In 2023, there will be roomfor further improvements in hotel performancewith the return of some Chinese tourists. The

limited supply of new hotels in upcoming years
should also help to keep rates at elevated levels.
Whilst the overall mood is optimistic, the hotel
sector will likely experience some bifurcationin recovery. Wealthier travellers were relatively
unaﬀected by the pandemic and will likely
continue to comprise an outsized proportion of
inbound tourism demand in 2023. By contrast,
budget tourism may see lukewarm growth, andsome limited-service hotels in over-supplied areas
may continue to struggle.
In addition, Japan’s hospitality industry faces
several potential hurdles going forward. The
industry-wide labour shortage has prevented
many hotels from operating at full capacity,
making many focus on raising ADRs instead. Thislabour crunch will likely persist and aﬀect hotel
operations for some time. Another consequenceof the high room rates is that average domestic
travellers with more limited budgets might bepriced out. Furthermore, the global economy isexpected to experience some slowdown in 2023,
which might force some potential visitors to Japanto reconsider their travel plans. Also, the current
hotel performance may have been signiﬁcantly
boosted by domestic travel subsidy, which will
expire late March.
Overall, given the promising improvement in
the hotel sector, investor interest in the sector
has grown over the past half-year, which hasculminated in some high-proﬁ le transactions.
Hotel operating performance is likely to remainstrong and see further improvement, whichshould continue to be encouraging for market
participants. More deals should be observed giventhat prices have risen to near pre-pandemic levels.

For more information about this report, please contact us

Savills Japan

Savills Research

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

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

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

Hirofumi Matsunaga
Director, Head of Japan
Hotel Advisory, Japan+81 3 6777 5284
hmatsunaga@savills.co.jpSavills 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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