Japan’s tourism has surged since it dropped its COVID-19 restrictions and restarted a travel discount scheme.

On 11 October 2022, Prime Minister Fumio Kishida relaxed the national borders, reinstated visa-free travel and relaunched the travel discount scheme.

The market roared to life, and foreign visitors returned. On 29 April 2023, all travel restrictions were dissolved. Last year’s tourism figures surpassed their 2019 level, and they are on course to do the same this year.

The hotel investment market has also thrived over the last 18-24 months. The weaker Japanese yen (JPY), persistently low interest rates, and the uptrend in tourism have provided an ideal platform for inbound investment.

With Japan being one of the few markets offering a positive yield spread and evident inbound tourism growth, significant foreign capital has flowed into the country.

Hotel performance

Japan’s H1 2024 hotel performance showed Occupancy (OCC) at 74.4%, Average Daily Rate (ADR) at USD 129 and Revenue Per Available Room (RevPAR) at USD 96. 

In Tokyo, demand for luxury accommodation spearheads hospitality’s demand and performance growth. The capital is home to a growing concentration of luxury local and internationally-branded hotels. Key indices, particularly ADR and RevPAR, show remarkable growth, providing the impetus for more foreign brands to enter the market.

Tokyo experienced OCC at nearly 78%, slightly up from 76% YoY. ADR was at USD 188 (c. JPY 29,100), up from USD 167 (c. JPY 22,900). RevPAR was at USD 148 (c. JPY 22,900), up by more than 16% from H1 2023 RevPAR of USD 128 (c. JPY 17,500).

Regarding RevPAR improvement versus H1 2023 across the major Asia pacific (APAC) markets, Tokyo outperformed other cities to lead Ho Chi Minh, Bali, New Delhi, and Hanoi. In H1 2024, Tokyo’s RevPAR topped the main APAC markets, ahead of Hong Kong (USD 142), Sydney (USD 137) and Taipei (USD 127). 

Osaka also boasted strong H1 2024 results with OCC at 79%, ADR at USD 121 and RevPAR at almost USD 96, up more than 8% YoY.

The market shows immense potential

With the recovery of hotel demand in Japan’s post-pandemic era, performance indicators are improving, especially in areas that attract affluent domestic and international travelers, such as Tokyo, Kyoto and Niseko on Hokkaido.

Certain hotel revenues have been growing in line with ADR improvements. However, the market is not without its challenges, as access to labour and increasing development and operational costs take hold.

Domestic investors and developers are seeing more competition from foreign brands and operators. The interest in acquiring assets, including land for development, has increased while development costs are soaring.

Major and boutique International brands are looking to convert existing hotels in partnership with investors. While new hotel development can take around four to six years from site acquisition to opening, converting an existing hotel is faster and requires less capital. Both models continue to attract foreign capital albeit with a preference for conversion and rebranding of existing operational assets.

As more brands enter the market, there will be an even greater need for investors and operators to differentiate their hotels from the competition. The Japanese market has immense potential as it looks to attract 60 million inbound visitors annually by 2030.

This, coupled with the strong domestic market, presents an ongoing opportunity for investors and operators. On the outbound front, major Japanese hotel groups are also looking to expand further internationally as they look to bring the unique Japanese hospitality offering to a broader market.

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Shaman Chellaram
Senior Director | Asia, Valuation & Advisory Services, Hong Kong

Shaman has 20-years experience in strategic real estate investment and advisory and has transacted over USD 2bn.  He works closely with his hotel and commercial real estate clients to maximize the potential of their properties in Hong Kong and across key Asian / international urban and resort markets.   His advisory work includes local and cross-border acquitistion and disposal,  strategic partnerships,  operator selection, portfolio diversification, hotel & resort development, ESG advisory, transaction advisory and M&A.   

Advising from both an operational and investment perspective,  Shaman's clients include hotel and resort owners and investors, hotel operators, serviced apartment/co-living/multifamily groups, student accommodation investors and operators,  PERE funds, developers, REITs, family offices,  private investment groups and UHNWIs. 

By understanding and aligning with his clients' needs, Shaman  draws on Colliers' global platform to provide solutions to accelerate our clients' success in Hong Kong, Asia  or other overseas markets.