A rapid tourism recovery in Japan, bolstered by the return of Chinese visitors and the highest level of inflation in four decades, is fueling a boom in hotel investment in the island nation.

Foreign investors, including Goldman Sachs Group, KKR & Co. and Blackstone, have spent a combined $2 billion on hotel deals in Japan so far in 2023, the most compared with any other sector in Asian commercial property, according to MSCI Real Assets. That's already more than the $1.4 billion seen for all of 2022.

Robust demand for lodgings by visitors together with rising prices create an ideal scenario for investment. In an inflationary environment, hotels have the ability to change room rates in real time to adjust pricing — making them more attractive than apartments, offices or warehouses where lower rental prices may be locked in for years. On top of that, a weak yen makes Japan more attractive for tourists, and investors, seeking good deals.