From Tokyo’s frenetic neon-lit streets to the traditional tea houses of Kyoto, Japan’s unique culture is attracting increasing numbers of tourists – and driving change in the hospitality sector.
This year, Japan is on target to beat the record 13.4 million visitors who flocked to sample its sights in 2014, thanks to the weak yen, visa deregulation and the convenience of low-cost flights from neighboring countries in Asia, according to the Japan National Tourism Organization. Indeed, half year arrival figures currently sit at 9.14 million, representing an increase of 46 percent from the previous year.
If this momentum continues, Japan could reach the government’s 20 million visitor target before the 2020 date initially penciled in. And with the influx of tourist yen comes a much needed potential boost to the Japanese economy suffering the effects of natural disasters, demographic decline, the global financial crisis and the Lost Decades.
According to the Japan Tourism Agency, foreign tourists spent over 2 trillion yen in 2014, or 43 percent more than they did the year prior.
However, the tourism boom is putting Japan’s accommodation supply under pressure. Tokyo, currently has around 100,000 hotel rooms, and in the next three years only a further 7,600 rooms are planned, according to STR Global, a research firm for the hotel industry. Furthermore, the cost of construction has risen sharply due to the ongoing labor shortage and the expense involved in importing primary materials.
Making more of what’s available
Developers are therefore getting creative – either by maximizing occupancy capacity in hotels by increasing the number of beds per room, or converting existing buildings into hostels and possibly hotels, says Tom Sawayanagi, JLL Japan’s Managing Director of Hotels and Hospitality.
And the government could also have a role to play, he adds. “Another possible solution is for the government to think about how to incentivize developers. If you look at the Mandarin Oriental or the Ritz Carlton in Tokyo, both are on top of high-rise mixed use complexes. That’s because the Tokyo Metropolitan government provided developers of these hotels with a bonus floor, provided they didn’t use it for office space.”
In Tokyo’s real estate market, office spaces are twice as profitable as hotels. As a result, “the 4-star sector in Tokyo is shrinking,” says Sawayanagi. “There’s plenty of luxury hotels as a part of large-scale mixed-use complexes, thanks to the above-mentioned government incentives, but few stand-alone 4-star hotels.”
Even the residential market is more profitable than hotels although as Tokyo’s population decreases it’s likely that hotels will overtake the residential housing in terms of profitability, he adds.
Opening up to international travelers
As few foreign tourists can understand Japanese, the infrastructure of the country’s cities will also need to adapt to the needs of international travelers.
Sawayanagi says: “That means making the city more accessible for non-Japanese speakers such as a Narita Express ticket in English, providing electric outlet adaptors embedded into walls in hotel rooms, better ATM capabilities, and just in general creating awareness.”
But despite these challenges, he believes the hospitality industry is strong and well-prepared for the upcoming Olympics. “Greater Tokyo has 140,000 guestrooms, more than Greater London when they held their Olympic Games. Development right now is modest due to construction cost hike, but hotel performance stands to do very well.”