After a three-year struggle during the pandemic, Japan’s tourism industry rebounded in 2023, with the government accelerating the normalization of business and social activities.
A major driving force for the industry was the reopening of the border, which has sparked a renewed influx of international tourists.
In October, Japan saw 2.51 million foreign visitors, exceeding the comparable figure in pre-pandemic 2019 for the first time. The figure was achieved even though the number of Chinese visitors, who had accounted for the largest share in October 2019, was still down about 65%.
Backed by that trend, Japan is set to see an influx of new accommodation offerings in the coming years as both domestic and foreign players ratchet up investments.
France-based Accor, one of the leading international hotel chains, has seen a recovery of guests in Japan mainly due to the return of foreign travelers, with all of its hotels exceeding the 2019 business levels since June last year, said Dean Daniels, the firm's vice president of operations and the head of Accor’s Japan business.
“What we find exciting ... is that that's without China having a major impact on demand for any region,” he said.
Since Japan was slow to reopen its borders, there seems to be robust pent-up demand to visit the country, which has also been helped by the historically weak yen over the past year, making Japan a more cost effective destination, Daniels said.
Accor believes that Japan will continue to attract more inbound tourists, with the government setting a goal of attracting 60 million foreign visitors annually by 2030. Prior to the pandemic, Japan’s record high was 31.8 million in 2019.
“To have a target of 60 million by 2030, it's a huge statement,” Daniels said.
“If the trend continues the way it is and the growth pattern continues the way it is trending, 60 million is definitely an achievable target.”
The French firm, which first entered Japan in 2000, just opened a new hotel under the Mercure brand in Tokyo’s Hibiya district last month but it intends to stretch its business further.
Last July, Accor and Daiwa Resort announced that Accor will be rebranding and managing the operation of Daiwa Resort’s 23 hotels in Japan starting this spring. The move will double the number of hotels operated by Accor in Japan.
Accor has focused mostly on major cities such as Tokyo, Osaka and Sapporo, but the partnership with Daiwa Resort will allow the firm to expand its presence to more nature-oriented tourist destinations, such as Nasu in Tochigi Prefecture, a well-known ski resort, and Beppu in Oita Prefecture, a popular hot-spring spot.
On top of that, Accor will also be rolling out its first luxury hotel under the Fairmont brand in Japan in fiscal 2025.
“There is a strong push for us to provide more luxury experiences within the Japanese market, which will be a focus moving towards 2030,” Daniels said.
Hyatt, another global hotel chain, also sees opportunity in Japan.
“The weak yen trend is a primary contributing factor (for the recovery of inbound tourism), but we believe that’s not the only factor,” said Sam Sakamura, who represents Hyatt’s Japan operation, during a media briefing last month.
“We feel that the attention and presence of Japan as a tourist destination has been rapidly increasing.”
He pointed out that Japan ranked first in the top 10 ranking of the Travel & Tourism Development Index in 2021 by the World Economic Forum with its cultural resources and infrastructure scoring high. Meanwhile, Tokyo, Kyoto and Osaka each made the top 25 favorite cities by Travel + Leisure magazine.
With the expectation that travelers’ interest in Japan will continue to grow, Hyatt is planning to introduce several more hotels in the coming years as well.
The U.S.-based hotel chain opened Hotel Toranomon Hills in Tokyo last month and two more hotels are scheduled to debut in Tokyo and Osaka this year. In addition, it is also set to launch a new brand named Atona for traditional ryokan-style accommodations starting in 2026.
Hyatt claimed that it is a “unique attempt” for a global hotel chain to produce ryokan-style accommodations, adding that the firm will be partnering with Kiraku, a Kyoto-based company that produces projects to utilize natural and cultural resources of local areas in Japan.
Foreign hotel operators keen to cultivate the Japanese market are not only major players from Western countries — operators from other parts of Asia are also looking to raise their profile.
Thai-based Dusit International made a foray into Japan by opening two hotels last year and Singapore’s Capella Hotel Group is planning to roll out its first hotel in Japan in Kyoto in 2025.
“We find (the entrants of these Asian players) quite alarming,” Sakamura said.
Amid intensifying competition, hotels need to be able to provide their own unique experiences while taking advantage of reputation and trust as a global hotel operator, he said, adding the launch of the Atona brand is in line with that strategy.
Although the potential of Japan’s hotel market is drawing more foreign chains, some domestic players are also betting on tourism growth.
Tokyo-based Nippon Steel Kowa Real Estate decided during the pandemic to make a foray into the hotel market with a belief that inbound tourism would come back once COVID-19 subsided.
It would be too late to shift to tourism “after inbound (tourism) has recovered, since It would take a couple of years to prepare the business,” said Takayuki Suetsugu, who is overseeing the hotel business at Nippon Steel Kowa Real Estate.
The firm is planning to invest about ¥50 billion in the next five years so it can open hotels to offer a total of about 1,000 rooms.
Under the brand name of &Here, its first hotel is scheduled to open in March in Tokyo’s Ueno district.
The new hotel is designed to accommodate group tourists, as past data has shown that the majority of foreign tourists arrive in groups of three or more people. Despite such data, Nippon Steel Kowa Real Estate found out from its own research that less than 5% of hotel rooms in Tokyo are designed to accommodate three or more people.
“We’ve realized that there is this huge gap,” Suetsugu said.
Running hotels with full scale services would be challenging for a new entrant without much know-how, but “if our hotel business mainly provides rooms for four people and specializes in lodging services, the operational hurdle is not that high.”
“(With this business model,) we think there are chances for latecomers like us,” Suetsugu said.
About 70% of the 145 rooms will accommodate three or more guests and be equipped with a mini kitchen and dining table. The standard room will be about 40 square meters and is expected to be priced at around ¥40,000 per night.
With lofty expectations for inbound tourism growth, the real estate firm thinks its strategy to fill the demand gap will work, but one risk is that competition will get more intense in the coming years.
“What we are rather concerned about is that there would be more hotel suppliers that would provide similar products like ours,” Suetsugu said.
The barrage of planned openings of accommodations by foreign and domestic hotel operators are in line with investors’ growing appetite for hotels since last year.
According to property consultancy Jones Lang LaSalle (JLL), the average annual transaction volume in Japan that JLL tracked in the past decade or so was roughly ¥350 billion to ¥400 billion, but the figure for 2023 will likely top that average range.
“During the pandemic, many investors were hesitant to (put funds into hotel deals). Although property owners were facing tough times, they were concerned about being beaten down. So, both sides were taking cautious stances,” said James Yukio Abe, managing director of the hotel and hospitality unit at JLL.
Yet investments have rebounded thanks to steady inbound travel demand along with the weak yen and ultralow interest rates that have made it more appealing to invest in Japan.
Some outside factors, such as the outlook of monetary policies, remain uncertain, but JLL has been talking to various clients and it seems “owners and buyers are positively looking at deals for 2024, so I think it will be a quite bright year,” Abe said.
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