Japan - August 2021

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

Hospitality sector awaits the recovery• Rising vaccination rates indicatethat global travel demandshould start returning, albeit
slowly.
• The path to recovery for theinbound tourism industry is
expected to be complex withmany stakeholders involved.
• While inbound tourism should
return, considering the
problems that over tourism
brought prior to the pandemic,
Japan might need to reconsider
its old strategy that had astrong focus on quantity, notquality.
• The domestic leisure segment
is expected to be the prime
contributor to early recovery,
driven by pent-up demand,excess household savings, andthe potential return of the “GoTo” campaign.

GRAPH 1: International arrivals and annual growth, 2007 to 2020

Other Nations

40
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: Share of vaccinated population in Japan and other countries weighted by
the number of visitors to Japan in 2019, January 2021 to July 2021
Weighted Average excl. China

Japan

45
% OF PEOPLE WHO RECEIVED AT LEAST ONE• Strategic and opportunistic
investors are eyeing
opportunities to take advantageof the anticipated recovery.

South Korea

Global 2011 Tohoku
Financial Earthquake
Crisis and Tsunami

50• New work styles and theprevalence of online meetings
indicate that demand forbusiness travel may not fully
recover.
• If lodging demand increases
rapidly, some hotels may
struggle to rehire laid-off
staff, imposing strains on theiroperations as a result.

China

60

MILLIONS OF PEOPLE

Summary

Asia clearly lags its European and North
American counterparts (where rates havealready well surpassed 50%), there are reportssuggesting that China and South Korea areplanning to vaccinate 80% and 70% of theirrespective populations by Q3/2021. It isalso worth noting that these countries havecontained the pandemic relatively better.
Given that this region has recently accounted
for over 70% of all international visitors,
vaccination rates in East Asian countries
will be an important indicator of recovery
for Japan’s tourism industry. Furthermore,with Japan’s potential introduction of vaccine
passports across some regions to allow greater

INTRODUCTION
While the long-awaited 2020 Tokyo Olympics
ﬁnally began in July, it was certainly not what
everyone had hoped it would be. With thecountry’s borders remaining closed, and thegames subsequently held without spectators,
the hospitality sector, which was already indesperate need of tourists, did not receive theboost that the industry was looking forward to.
As a result, there appears to be no immediate
let-up of the grim predicament.
Against this gloomy backdrop, however,
the ongoing vaccination rollout is gatheringpace worldwide, particularly in Japan. Even
though, when it comes to vaccination rates,

40
35
30
25
20
15
10
5
0
Jan

Feb

Mar

Apr

May

Jun

Jul

Source Our World in Data, Savills Research & Consultancy*China is excluded form the original data souce due to limited data. However, as of 10 June 2021, China
reportedly had a 43% vaccination rate, which is higher than the latest weighted average.

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

Japan Hospitality

international travel, there is some hope that
inbound tourism is inching closer to a recovery.
Nonetheless, uncertainties abound. Firstly,
there will be bottlenecks in the vaccine
rollout due to its limited supply, as alreadydemonstrated in countries like South Korea.
Additionally, some vaccines used in other Asian
countries appear to be less eﬀective comparedto some prevalent in the west, presenting
a complicated, and even diplomatic hurdle
regarding the proposed vaccine passports.
Meanwhile, even with a successful vaccination
program, the risk posed by the virus will stillneed to be handled cautiously.
Here, Japan may still be hesitant to reopenborders on two fronts. Politically, memories ofthe backlash it received against the Olympics
remain fresh while ﬁnancially, it may haveto weigh up the beneﬁts given the limited

As more people get vaccinated,
the return of travel demand is on
the cards. Even so, considering
the technical complexities inrestarting global travel, and theuncertainties it brings, the path tonormalcy is expected to be eventful.
Nonetheless, this presents a great
opportunity for well-preparedmarket participants.

GRAPH 3: Total room nights sold to domestic and inbound guests, 2007 to 2020
Domestic

InboundMILLION ROOM NIGHTS SOLD

600

500

400

300

200

100

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source JTA, Savills Research & Consultancy

GRAPH 4: Annual change of total room nights sold (2020 vs 2019) and share of
inbound demand by prefecture (2019)
TOTAL ROOM NIGHTS SOLD (2020 VS 2019)

0%

-10%

-20%

-30%

-40%

-50%
Kyoto

Okinawa

-60%

Tokyo
Osaka

-70%
0%

10%

20%

30%

40%

50%

SHARE OF INBOUND ROOM NIGHTS SOLD IN 2019
Source JTA, Savills Research & Consultancy

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

3

contribution inbound tourism makes tothe country’s GDP1. At the same time, there
are likely to be other obstacles facing eager
consumers as the airline industry is likely toraise ticket prices in the short to mid-term, andtravellers may need to incur additional costs
such as travel insurance covering COVID-19
related medical expenses. Overall, therefore,
the recovery looks to be a slow process withmany potential roadblocks along the way.
Indeed, a survey conducted among UNWTO’s
travel experts in May 2021 resonates with thisview, with most experts expecting international
tourism’s full recovery only after 2024.
This report will focus on the mid-term
prospects of the hospitality sector andattempt to shed some light on demand
dynamics in the post-pandemic world.
Through our analysis, we aim to identify theopportunities and risks that lie ahead.
BUMPY RECOVERY EXPECTED
While the recovery of the hospitality sector
is within sight as more of the population is
vaccinated every day, lodging demand is
expected to return at varying rates depending
on diﬀerent demand segments. Given theunique aspects of this downturn, especiallythe freeze on international travel alongside
workstyle changes, our analysis of lodging
demand will be broken down into thefollowing three segments: inbound, domestic
leisure, and domestic business.
Inbound demand was the primary driving
force behind the growth of Japan’s hospitality
sector for over a decade until 2019. When the
pandemic hit in 2020, lodging demand fromthis segment virtually vanished (Graph 3).
However, considering how much the country
has transformed to become a global tourist
destination, lodging demand is expected toreturn strongly once the pandemic passes.
Graph 4 compares each prefecture’s shareof inbound tourism using total lodging
1 According to the Ministry of Economy, Trade and Industry,the economic impact of inbound tourism was only 0.9% of
GDP in 2019.

Japan Hospitality

demand with the change in total roomnights sold between 2019 (pre-COVID)
and 2020 (mid-COVID). As expected, themost popular prefectures experienced thelargest drops in lodging demand in 2020,highlighting how the challenges faced by thesector are by no means uniform.
However, this means that the prefecturesthat experienced the largest falls in inbounddemand are likely to see large rebounds once
international travel returns. In particular,Tokyo and Osaka should see strong demand
from the inbound segment because thesecities are gateways to the majority of
inbound tourists and are home to themost popular attractions and landmarks.
Established tourist destinations such as
Kyoto, Okinawa, and Hokkaido should
expect a strong comeback as well.
One new trend that could emerge during
the recovery is the shift in focus fromthe quantity to the quality of tourists
on the accommodation side. Before thepandemic, Japan saw an inﬂux of tourists
on a shoe-string budget, and in response,
many limited-service hotels and minpaku
lodgings opened to accommodate thissurge in demand. However, the explosive
growth of tourists has led to some cities
facing problems of over tourism, andthe limitations of increasing revenue by
encouraging greater tourist numbers has
become apparent. In a post-pandemic world,heightened cost pressures from additional
travel insurance and higher airline ticket
prices could discourage mass budget travel.
As such, the future growth model may
witness a transition from budget travellers
to middle-income earners and the wealthy,
especially as physical distancing introduced
during the pandemic is expected to stay inplace to some extent.

GRAPH 5: Lodging demand of domestic guests by segment, 2019

Business, 30%

Leisure, 70%

Source JTA, Savills Research & Consultancy*Travels to visit families/friends were excluded.

GRAPH 6: Consumer conﬁdence by income level, January 2007 to June 2021
<JPY3 million

JPY3 to 4 million

JPY4 to 5.5 million

JPY7.5 to 9.5 million

JPY9.5 to 12 million>JPY12 million

JPY5.5 to 7.5 million

60

CONSUMER INDEX

50

40

30

20

10

0

Source Cabinet Offi ce, Savills Research & Consultancy

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

4

While the COVID-19 pandemic has
aﬀected the inbound segment most
severely, domestic lodging demand was
also hampered by restrictions on domestic
travel. Up until the onset of the pandemic,
domestic lodging demand was rising byaround 2% annually between 2010 and 2019
(Graph 3). However, the pandemic abruptly
halted growth, and domestic demand
plummeted 37% in 2020. Whether this lostdemand comes back, and how quickly, will
likely diﬀer depending on the subcategoryof demand, namely leisure and business (in2019, leisure and business made up about
70% and 30%, respectively).
Although there is inconclusive evidence
to prove that the pandemic has severely
aﬀected one more than the other,
considering post-COVID scenarios, thedomestic leisure segment should see
a stronger recovery than the domestic
business segment. This prediction assumes
that people will likely resume leisure travelwith the pandemic under control andeconomic conditions improving, whereas
the workstyle shifts introduced during the
pandemic are likely to have long-lasting oreven irreversible eﬀects on business travel.
Speciﬁcally, the prevalence of online
meetings has lessened the need for inperson interactions, which has subsequently
aﬀected business lodging demand, especiallyfrom overseas. This change was expected
to take place eventually, considering thegrowing push towards digitisation, increasing
propensity to cut costs, and Japanesecompanies’ shift to overseas markets.
However, the pandemic has forced companies
to immediately adapt to the circumstances,
accelerating the move to digitalisation.
Domestic business travel, on the other
hand, is unlikely to see a drastic decline.
The importance of face-to-face meetings
is still highly regarded. Even now, amidst
the pandemic, some people travel to meet
important clients and visit regional oﬃces,
albeit with some restrictions. However, as
more communication moves online, lesstime is needed for travel, which should resultin less lodging demand. Additionally, Japan’s
size and advanced transportation systems
make day trips easily feasible.
It is encouraging that although the
pandemic has yet to pass, consumer
conﬁdence has started to return (Graph
6). Additionally, throughout the pandemic,
Japan has recorded a relatively low
unemployment rate, and households havemaintained their spending power. As aresult, the combination of these factors has
resulted in some pent-up demand for leisure,which should subsequently support lodging
demand post-COVID.

Japan Hospitality

likely diﬀer depending on lodging type,building quality, location, and management
ability. Inconveniently located, limitedservice hotels that used to rely heavily on
customers with tight budgets are likely toexperience hard times ahead because theirmodel that relies on high volumes and low
rates may no longer work.
On the other hand, upscale hotels ingateway cities, such as Tokyo and Osaka,or other popular destinations, such as
Kyoto and Okinawa, should see a moreassured recovery due to strong pent-up
demand. Upscale hotels should also have an
opportunity to raise rates or upsell rooms
by providing additional services. In order
to execute these strategies eﬀectively,
management quality becomes particularly
important.

Furthermore, Japanese people spent
about JPY3.7 trillion on leisure travel
overseas in 2019. While borders remain
predominantly closed, a part of thisunmaterialised demand is likely to be spenton domestic travel, boosting domestic
lodging demand during the recovery. It
is also worth noting that the Japanese
government budgeted an astonishing JPY2.7
trillion for the “Go To” Travel campaign.
Although the campaign is currently on
hold, half of the budget remains unused.
If the government restarts the campaign,
the domestic leisure segment will almost
exclusively beneﬁt from it.
We believe that overall lodging demand
will start to recover at a steady pace as moreof the population gets vaccinated towards
late-2021. However, the recovery pace will

GRAPH 7 : Hotel staff wages vs. job-to-applicant ratio for the hospitality industry,
1H/2015 to 1H/2021
Job-to-applicant ratio (RHS)

Hotel front desk (LHS)

Hotel staff (LHS)

1,150

10.0x
9.0x
8.0x

JPY/HOUR

7.0x
1,050

6.0x
5.0x

1,000

4.0x
3.0x

950

2.0x

JOB-TO-APPLICANT RATIO

1,100

1.0x
900
1H

2H

1H

2018

2019

1H

2017

2H

1H

2H

1H

2016

2H

2015

2H

1H

2H

1H

0.0x
2020

2021

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

GRAPH 8: Limited-service hotel performance, 2014 to 1H/2021
Occupancy (RHS)

ADR Index (LHS)

RevPAR Index (LHS)

140

100%
90%

120

70%
60%

80

50%
60

40%

OCCUPANCYINDEX (1H/2014=100)

80%
100

30%

40

20%
20
10%

2018

2019

1H

2H

1H

2H

1H

2H

2017

1H

2016

1H

2H

1H

2H

2015

2H

2014

1H

2H

0%
1H

0
2020

2021

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/

5

POTENTIAL RISE IN LABOUR COST
Another point which market participants
should pay attention to during the recovery
is the prospect of hiring or re-hiring staﬀ.
According to a labour force survey by thegovernment, employment in the hospitality
industry (including food and beverage) fell
from 4.1 million in 2019 to 3.6 million in 2020.
While it is not surprising that hotels had tolay oﬀ employees to survive the pandemic,
this practice may negatively aﬀect future
performance during the recovery phase as
some hotels struggle to secure suﬃcient staﬀ
to meet increases in guest numbers.
Up until the pandemic, wages for hotel staﬀ
were steadily increasing against a backdropof tight labour conditions. While their wages
dropped in 1H/2020, they started edging up
soon after. Even if previously laid-oﬀ staﬀ
return to hotel work, the increase in wages
may dent hotels’ proﬁts. However, it is also
possible that some decide not to return to theindustry due to the frustrations faced andthe fears of infection. The industry was not
popular because of its long hours and irregular
shifts even before the pandemic. In this case,
hotels may have to further increase wages
to attract talent and incur additional staﬀ
training costs.
The labour shortage is expected to beparticularly serious for upscale hotels where
customer expectations for quality service arehigher. These hotels have to be stringent withhiring talent, and it requires time to train new
staﬀ to meet certain service standards. This
concern is especially large given that many
developments in the pipeline are four-star or
upscale hotels. As such, potential investors
need to pay particular attention to the
management company’s size, reputation, andtrack record, all of which will help it to navigate
the volatility expected during the recovery.
HOTEL MARKET PERFORMANCE
Savills tracks the performance of over 100
hotels owned by ﬁve J-REITs2 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 Japan3 .
As the pandemic continues to wreak havocon the economy, hotel performance remains
weak. Unlike 2H/2020, there was no demand
induced by the “Go To” campaign, whichfurther weakened performance. In 1H/2021,
average daily rates (ADR) and revenue
per available room (RevPAR) indices havefallen by 19.6 points and 36.6 points YoY,
respectively.
2 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.
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

INVESTMENT
Despite the expected long recovery process
and the remaining uncertainties, someinvestors continue to buy hotel properties inJapan, although transaction volumes havedeclined by 52% in 1H/2021 compared to thesame period last year (Graph 9). In contrast
to the pre-pandemic periods when overseas
investors ﬂocked to this sector, recently
active players have been strategic domestic
investors.
As an example, Samty acquired Aloft
Osaka Dojima, which was originallyowned by Goldman Sachs, from Mitsubishi
UFJ Lease & Finance in April 2021. Thisacquisition is in the context of Samty’s plan
to launch a hotel REIT, which was positioned
as one of its post-pandemic strategic pillars
in its renewed mid-term management plan.
The company also acquired 32% of Wealthor sound ﬁ nancial standing. Lenders appear
willing to lend based on operator credit.
Although prices are still elevated as many
hoteliers are holding up by borrowing shortterm, the prolonged pandemic will likely
force some to exit, which may lead to moreacquisition opportunities. For instance,
Seibu Holdings is planning to sell someof its hotel and leisure facilities portfolio
for around JPY100 billion. In terms ofdevelopment opportunities going forward,
many are likely to be upscale hotels overfour stars which can take advantage ofthe potential growth of wealthy tourists.
Challenges include the fact that thissegment has a higher entry barrier while
the potential labour shortage may also limit
rapid increases in supply in the upscalesegment.

Management, which has a strong focus
on the development and management ofhigh-end hotels, for JPY3.9 billion. Similar
to Samty, strategic investors such as
Hoshino Resort with a long commitment
horizon should be able to seize acquisition
opportunities.
Going forward, however, opportunistic
overseas investors, such as Blackstone, could
return once the market starts showing moresigns of recovery and the availability ofloans improves. Considering the nature ofthis downturn, the recovery could progress
rapidly once the economy starts moving
towards normalcy, which presents excellent
opportunities for investors who seek large
returns.
To further help acquisitions going
forward, lending opportunities appear
available for those with proven track records

GRAPH 9: Hospitality sector investment volumes by investor type, 2007 to 1H/2021
Institutional

Listed/REITs

PrivateUnknown

User/Other

Total
0.9

90%

0.8

80%

0.7

70%

0.6

60%
0.5
50%
0.4
40%
0.3

30%
20%

0.2

10%

0.1

0%

0.0

JPY TRILLIONSPROPORTION OF INVESTMENT

Cross-Border
100%

Source RCA, Savills Research & Consultancy

OUTLOOK
The situation facing the hospitality sector
has not improved much since our last reportin February 2021. As new variants of the
COVID-19 virus continue to spread, Japan
has seen another surge of new cases, nothelped by the delayed start of vaccinations.
Although the 2020 Tokyo Olympics began
in July, it commenced amid a public outcry
and a boon for hotels did not materialiseas previously hoped. In addition to thecomplexity of normalising global travel,
unexpected changes in travel patterns
may also emerge. Given that many hotel
employees were laid oﬀ, whether suﬃcientlabour can be secured to meet increasing
demand is another concern.
However, with progress in the vaccination
rollout and the number of those vaccinatedincreasing in both Japan (where about
40% of the total population had received atleast one dose by July 2021) and overseas,
the recovery phase appears to be coming
closer. Although this is expected to be

TABLE 1: Selected investment transactions announced In 1H/2021

PROPERTY NAMEAPPROX. PRICE(JPY BIL)

PRICE PER ROOM(JPY MIL)CAP RATE

LOCATION

BUYER

Kintetsu Group Hotel Portfolio

60.0

26

Undisclosed

Various locations

Blackstone

Tokyu Plaza Akasaka (50%)

11.8

N/A

4.3%

Minato, Tokyo

Tokyu Land

Grand Hyatt Fukuoka

7.7

21

4.6%

Fukuoka, Fukuoka

Hoshino REIT

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

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

6

Japan Hospitality

complex given the multitude of economic,
social, and political factors involved, the pace ofrecovery could pick up quickly once the necessary
arrangements are in place.
Japan’s tourism industry was experiencing
an unprecedented level of growth prior to
the pandemic with strong support from thegovernment. With so much invested in hardand soft infrastructure for tourism, the country
was poised for further transformation. Inboundtourism should come back strongly boosted
by substantial pent-up demand. As suggested
by a large budget earmarked for the “Go To”
campaign, the government also appears highlycommitted to facilitating the industry’s return.

We believe that circumstances present an
excellent opportunity for investors despite theelevated risks involved in investing in this sector.
While prices for quality assets are still elevated,
there could be more opportunities going forward
if the pandemic persists, forcing more owners tosell. Investors with a sound ﬁ nancial standing
and proven track record should be able to act fast
since lenders are more willing to lend to such
entities or hotels with high credit operators.
In order to mitigate risk, investors should pay
heed to factors such as lodging types, building
quality, location, and management aptitude. In
particular, with a turbulent recovery expected,
selecting an experienced management company

is more important than ever. While the numberof management contracts has not increased asmuch as previously expected, lease contracts
with variable rents have become more common.
Investors who can manage these more volatileterms should see more opportunities for the time
being, although ﬁ xed-rent leases should become
popular again once the market stabilises.

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
Yoshihiro Kanno
Manager, Research &Consultancy, Japan+81 3 6777 5275
ykanno@savills.co.jp

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

Michael Roberts
Director, Asia Paciﬁc+65 6415 7589
michael.roberts@
savills.com.sg
Tomotsugu Ichikawa
Director,Japan+81 3 6777 5184
toichikawa@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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