Japan - August 2022

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 on track for gradual recovery• Domestic tourism has recovered
notably over the past few
months and will continue torecover.
• At this stage, most of therecovery is driven by leisuretravellers, whereas theprospects of MICE recovery arestill uncertain.
• B order restrictions are likely
to be eased soon due to theabsence of nationwide elections
for the next few years and thecontributions that inboundtourism makes to stabilising thetrade balance.
• All regions in Japan haveexperienced recovery, butprospects for further recovery
will vary depending on inboundtourism and overall travel
demand.
• H otel occupancy has increased,
while the ADR index has
remained flat, implying thatdemand remains lukewarm.
• Investment volumes in thehotel sector are comparable
to the previous year, withsome notable upscale hoteltransactions. Both domestic
and overseas investors havebeen active.
• The BOJ may revise its
monetary policies by nextspring. The hotel sector withlarger room for growth should
become more attractive thanother sharply priced asset
classes such as logistics andresidential.

restrictions on travelling have been lifted.
This has helped hotels to see a gentle recovery
over the past few months. The Revenue Per
Available Room (RevPAR) for some hotel
J-REITs has been steadily recovering, andhas been able to reach breakeven points evenat the J-REIT level. Indeed, occupancy rates
across all regions have increased, although
the recovery of Average Daily Rate (ADR) hasbeen slower.
Nonetheless, summer is the peak travellingseason in Japan and the high demand fortravel should provide some relief to allhotels. Indeed, the soaring costs of travelling
propelled by high energy prices, the weakyen, and cumbersome procedures forinternational travel are likely to incentivise
Japanese nationals to stay domestic. Inaddition, business travel should also continue
improving, albeit slowly. The improving
prospects of the hotel industry are likely tostrengthen the attention of investors.
REGIONAL ANALYSISThe pandemic severely impacted thehospitality industry in all regions of Japan.
While all regions have experienced recovery
over the past two years, there is certainlysome way to go before achieving a similarlevel of demand seen during 2019. Indeed, thenumber of hotel stays of all regions in 2022
are around 65-85% of 2019 levels, although
it must also be noted that 2019 was the peakyear for tourism in Japan, with events such as
the Rugby World Cup further boosting travel
demand.
Nonetheless, there is some disparity

GRAPH 1: Total Number of Hotel Stays by Region, 2016 to May 2022*
Hokkaido
120Tohoku

Kanto

ChubuKansaiChugoku

Shikoku

Kyushu100

INDEX 2019 = 100

Summary

INTRODUCTION
In June 2022, the Japanese government
started to open its borders to tour groups.
While the number of tourists entering thecountry is still a far cry from the tourism
peak experienced in 2019, it is nonetheless areason for the hospitality industry to be more
optimistic.
The government has been highly cautious
about reopening Japan’s borders because of
the large demographic of ageing voters thathave understandably been very sensitive topotential pandemic-related risks. However,with the summer election of 2022 over, theKishida administration now has a few yearsof breathing room until the next nationalelection. Hence, the government appears
more willing to expedite the revival ofinbound tourism to leverage the weakened
yen and stabilise the trade balance. Indeed,
the coalition government with reform-minded
Taro Kono as the chairman is reportedly
discussing ramping up efforts to attract highend inbound tourists, which is a promising
sign of potential action.
With Japan being ranked as the top tourist
destination by international entities like theWorld Economic Forum, and many potential
tourists eager to take advantage of the weakyen, Japan appears poised for some tourism
rebound as early as autumn 2022, althougha full recovery is expected to be around late
2023. Indeed, even a fraction of the numberof inbound tourists seen in 2019 would makea sizable difference to the hospitality industry.
In Japan, the pandemic has graduallytransitioned into an endemic state, and many

80

60

40

200
2016

2017

2018

2019

2020

2021

JanFebMar

AprMay

2022

2022

2022

2022

2022

Source JTA, Savills Research & Consultancy* The index is calculated by taking the number of hotel stays of each region in 2019 as 100. Jan – May 2022 are
calculated in comparison with the monthly average of 2019.

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

Japan Hospitality

between different regions. Notably, Kanto,Kansai, Kyushu, and Hokkaido have been
underperforming due to their larger
dependence on inbound tourism. Theseregions have seen a sizable increase in
the number of international travellers
over the past decade, and the increased
hotel supply in response to the growth ofinbound tourism may have made the actual
present situation worse. At the same time,
when looking at Graph 2, all regions except
Kyushu have recovered close to 2019 levelsof domestic tourism. Therefore, the fullrecovery of the hospitality sector for theseregions appears to be dependent on the
return of inbound tourism.
In comparison, Chubu, Tohoku, Chugoku,
and Shikoku have traditionally had notably
lower proportions of inbound tourists.
While they are generally outperforming
their inbound-dependent counterparts
when looking at the total number of stays
and are around 75-85% of 2019 levels, they
are still underperforming when it comesto the number of hotel stays from Japanesetravellers. The recovery of these regions islikely to be dependent on the recovery of theoverall travel demand, perhaps especially by
the elderly.
The pandemic has also caused a shift indomestic tourism trends, although this islikely to reverse gradually. For instance,
all regions have seen a significant increase
in tourism within the same prefecture andto nearby prefectures since the pandemic
began. This trend is the most obviousin Hokkaido, likely due to the size of theprefecture and the relative distance fromother regions. Trips have also generally
become shorter in duration. The pandemic

Japan’s hospitality industry has
experienced encouraging recovery
as domestic tourism approaches
pre-pandemic levels. Japan is also
expected to open its borders more
to inbound tourists to capitalise on
the weak yen and stabilise the tradebalance. With the attention that thesector is generating, now might be
the last chance to acquire assets forinvestors with capital and conviction
for the sector.
negatively impacted many households
financially, and travellers on tighter budgets
are likely to have sought more affordable
options like travelling close-by, or for
shorter periods of time. Going forward,
however, there is likely to be greater demand
for trips that are longer in duration andfurther away, as indicated by a recent survey
by JTB.
Overall, demand is expected to keep
gradually recovering across all regions associety progresses towards an endemic
state, and as borders are steadily reopened.
While the dichotomy between regions islikely to remain for the time being, the gap

GRAPH 2: Total Number of Hotel Stays by Japan Residents by Region 2016 to May
2022*Hokkaido

Tohoku

Kanto

Chubu

Kansai

Chugoku

Shikoku

Kyushu120

INDEX 2019 = 100

10080

60

40

200
2016

2017

2018

2019

2020

2021

JanFebMar

AprMay

2022

2022

2022

2022

2022

Source JTA, Savills Research & Consultancy* The index is calculated by taking the number of hotel stays of each region in 2019 as 100. Jan – May 2022 are
calculated in comparison with the monthly average of 20193

should gradually narrow as more inboundtourists are allowed into the country andeconomic recovery ensues.
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 that mostof the existing hotel stock is in the limitedservice category, this should provide a goodproxy for the overall market trend in Japan 2 .
As the pandemic enters an endemic
stage in Japan, hotel performance has
improved and there are signs that recovery
is on the way. Occupancy rates haveincreased significantly half-year-on-halfyear (HoH), indicating that more people
are travelling. On the other hand, the ADR
index has remained relatively flat during thepandemic, inching up slightly by 3.4 points
HoH. The RevPAR index increased by 10.0
points HoH, primarily supported by the
improvement in occupancy.
Going forward, occupancy and ADR areexpected to improve further in the second
half of 2022, with Japan likely to experiencean uptick in both domestic and inbounddemand. Indeed, the elevated costs oftravelling overseas due to the weak yen andhigh energy prices are likely to see Japanese
tourists favour travelling domestically.
GOP margins especially for budget hotel
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 Hospitality

GRAPH 3: Limited-service Hotel Performance, 2014 to 1H/2022
OccupancyADR Index (LHS)

RevPAR Index (LHS)
100%14090%

12070%
60%

8050%
6040%

Occupancy

INDEX (1H/2014=100)80%
10030%

4020%
2010%0%2017201820192020

1H

1H

2H

2H

1H

2H

1H

1H

2H

2H

1H

2016

1H

2015

2H

2014

2H

1H

1H

2H

02021

2022

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

GRAPH 4: Hospitality sector investment volumes by investor type, 2007 to 1H/2022
Institutional

Listed/REITs

PrivateUnknown

User/OtherTotal
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

TABLE 1: Selected investment transactions announced in 1H/2022

PROPERTY NAMEAPPROX.
PRICE(JPY BIL)

PRICE PER
ROOM(JPY MIL)CAP RATE

LOCATION

BUYER

Seibu Portfolio

150.0-

Undisclosed

MultipleGIC

The Ritz Carlton
Kyoto (49%)

23.0

343

3.5%

Kyoto

Sekisui House

Hoshinoya Okinawa(77.5%)

12.2

157

5.2%

OkinawaHoshino
Resorts REIT

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

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

are likely to become thinner, due to thelabour shortage and overall elevated costs.
Hence, an increase in room rates looks
inevitable. For instance, Toyoko Inn, a majorbudget hotel operator, is reportedly looking
to focus on ADR rather than occupancy.
Discounts to improve occupancy may not bethat common going forward.
While the hospitality industry is expected
to gradually recover, there is likely to benotable divergence in recovery. The crisisin Ukraine has driven up energy, food, andother material costs, and this cost-driven
inflation has particularly impacted average
households that have faced stagnant wage
growth. Coupled with the reduction inbusiness trips throughout the pandemic,
this is likely to further delay the recovery of
the budget hotel sector, while the market islikely to see an increase in the luxury hotel
sector catered toward both internationaland domestic high-end tourists. Therefore,
while budget hotels may still need to brace
for tough times, luxury hotel performance isexpected to improve, as seen from the risingroom rates of prime hotels. Savills prime
benchmark shows an increment of 11% for
luxury room rates in July 2022 compared tothe previous half-year.
INVESTMENT
Prospects look brighter for the hotel industry
in 2022, with both domestic and inboundtravel set for a resurgence in the second halfof the year. Although transaction volumes
have lagged so far, declining by 61% in
1H/2022 compared to the same period lastyear (Graph 4), this year has seen many largetransactions. Institutional investors havebeen active in the market, again comprising
the largest proportion of transactions so farin 2022 as in the previous year.
Both domestic and international players
have been active this year. For instance,
Kenedix acquired a 49% co-ownershipinterest in the hotel W Osaka, under
the W brand of Marriott International,
which features 337 guestrooms as well as
restaurants, a banquet hall, and spa. Looking
at international investors, KKR has been intalks with Odakyu Electric Railway over thepurchase of the Hyatt Regency Tokyo hotel.
Star Asia Group has also announced its
investment in Greens Co. and Washington
Hotel Corporation, becoming the large
shareholder in these hotel operators,
demonstrating the confidence in the sector.
Overall, 2022 has seen many notabletransactions, with confidence in the hotelindustry set to increase going forward.
Furthermore, as we explain in our 2022
“Investment Strategy” report, the BOJ
may revise its monetary policy by next
spring. Hotel properties, which areJapan Hospitality

affected significantly more by tourism demandthan interest rate changes, may become more
appealing to investors, especially given thecurrent transition toward a recovery phase.
The next few months may present an
opportune window for investors to acquire
hotels. Banks are still generally cautious aboutproviding loans for hotel acquisitions, and only
investors with sufficient capital and grit would
be able to capitalise on this opportunity. Indeed,
as inbound tourism recovers and banks become
more confident in providing funding, prices ofhotels will only increase, and may even exceed
pre-pandemic levels.
OUTLOOK
Prospects for the hospitality sector lookincreasingly optimistic as Japan progresses
towards an endemic state. The inflated costs oftravelling overseas due to the weak yen will urge

many travellers to seek domestic options instead.
Demand for hotels in Japan is therefore likely to
steadily increase and provide greater confidence
for the industry. Furthermore, with elections out of
the way, and with inflationary pressures stemmingfrom the weak yen, the government has greater
incentive to expedite the reopening of borders to
inbound tourists to help the trade balance, and islikely to do so soon.
All regions in Japan have seen considerable
recovery over the past few months. However, thehospitality sectors of different regions are likely
to see different rates of improvement depending
on how recovery proceeds.
Luxury tourism is likely to keep seeing aresurgence going forward, as we have observedin other sectors. Also, the government has been
making concerted efforts to attract wealthy
inbound tourists, although the lower numberof tourists expected from China due to its

zero-COVID policy may hinder this somewhat.
Meanwhile, rising inflation and stagnant wages
are squeezing the budgets of average households.
In addition, the recovery of business trips has
been much slower. Hence, it is likely that thebudget hotel sector needs more time to see therecover.
Nonetheless, border openings are limited
at present, and banks are still selective aboutproviding loans for hotel acquisitions. However,this presents a pristine opportunity to acquire
hotel assets for investors with sufficient capitaland conviction of recovery. Interest rates arelikely to see a moderate increment by next
spring, and this is likely to divert some attention
away from sharply priced sectors like logistics
and residential, and towards the hospitality
sector with large room for growth. Overall, thehospitality sector looks on track for gradualrecovery.

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 ofResearch & Consultancy, Japan+81 3 6777 5192
tkaneko@savills.co.jp

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

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

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

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