Metrics align to support Japan’s hotel growth
 
Metrics align to support Japan’s hotel growth
19 OCTOBER 2015 8:06 AM
Overall fundamentals look good for Japan, and most people in the industry expect strong performance ahead.
SINGAPORE—Most main stakeholders in the Japanese hospitality industry remain positive about market conditions across the nation, and it’s difficult not to agree. The past three years have seen a continued strong growth in most of the contributing factors, something that clearly stands out when comparing other Asian and global countries.



A perfect storm
During the Deloitte Hotel Executive Forum in Tokyo recently, sentiments were positive. During a panel with global hotel groups, Guy Langford, vice chairman and U.S. travel, hospitality and leisure leader at Deloitte, described it as a perfect storm with a multitude of contributing factors:
 
  • A surge in international arrivals mainly due to:
    • a devalued yen making Japan even more affordable in recent times;
    • visa deregulations that have enabled more Asian countries to come to Japan;
    • Japan is a great destination, and the pent-up demand has been sitting there a while; and
    • everybody’s trying to capture the Chinese travelers, and at the moment Japan is seeing a sharp increase.
  • A limited supply—with such demand growth, occupancy is reaching new peak levels.
    • Due to not only high construction cost but also expensive land, Japan has one of the smaller pipelines of new hotels compared to the existing supply.
  • Logistics and diversity:
    • There is now a larger diversity in the offering in Japan, but the already strong domestic travel situation has taken another big step in recent years with low-cost carriers enabling more affordable travel in the country. It used to be cheaper to travel to Japan than to travel inside the country. 


 
Hopeful horizon
Overall fundamentals look good for Japan, and most people in the industry expect strong markets ahead. Not only is it expected to continue to see an increase in tourist arrivals, but from a supply and demand balance standpoint, it would seem that any construction ahead of both the Olympics and the Rugby World Cup is a welcome addition, considering the expected demand growth.
 
It will remain important that Japan continues to invest in airport capacity upgrades but also an increase in airlift into secondary markets. The majority of tourists still are staying in the main cities where compression is quite high. 
 
It also remains to be seen what the Japanese tourism boards can do to entice more foreigners to stay in ryokans, the traditional Japanese bed-and-breakfasts. After all, there are approximately 50,000 ryokans in Japan and only 10,000 hotels.
 
Ryokans play a big part domestically, but still foreigners are not using this segment as much. 



Technology
What quickly strikes most people in Japan is how this technology-driven society still has a selective adoption to using systems and tools available. This is seen throughout the hospitality ecosystem, with many still using fax or printing emails—but also that so much travel research is done online but bookings often done offline. So even in a society that is testing robots as hotel staff, a personal and human touch is frequently still needed.
 
Perhaps this is what will make Japan succeed with technology introductions, if it stays with the core values and tries not to use technology for the sake of it, but rather to make it easier to serve customers better.
 
The hotelier’s view on disruption and technology
On the topic of Airbnb and other similar services, Craig Smith, president and managing director of Asia/Pacific for Marriott International, highlighted that “competition is good, and it makes us work harder.”
 
“It raises the game the way Uber is challenging and improving traditional taxi services. One example is how hotels now publically show reviews online,” he said.
 
Smith also mentioned that Internet speed is critical to guests as no pain points are accepted. Underperforming Internet speed can diminish all other great experiences achieved throughout the property.
 
Rajit Sukumaran, senior VP of acquisitions and development in Asia/Pacific at Starwood Hotels & Resorts Worldwide, echoed this sentiment. He said Airbnb is not only likely to increase further in Tokyo (it is estimated to have about 14,000 units available), but that in light of the demand growth overall there is space for this channel. He said it is “not a true competitor to Starwood, which controls the entire guest experience in a different way.” 
 
It also should be mentioned that Airbnb is a hot topic in Japan and the government is likely to introduce legislation next year to make it easier for the practice to grow. Today there are plenty of grey zones where local councils can rule on whether certain buildings are allowed to use Airbnb.
 
Investment climate tight but positive
There are 51 real estate investment trusts in Japan. Consonant Investment Management has seen strong growth since inception. Naoki Fukuda, president and CEO, called out the great timing the company has had when it started investing in hotels in May 2014. Hotels now represent 55% of the company’s portfolio, and as a comprehensive REIT it wants to push another 5% to 10% into hotels, and keeping a third in other assets.
 
Relationships with financial institutions would seem softer these days, as they were traditionally more negative to investing in the hospitality sector.
Toshitaka Ishido, director and senior GM of the investment division at Japan Hotel REIT Advisors, feels the environment has  improved a lot with now also regional banks offering more support and lending conditions more favorable. We’re now also seeing more variable rents. The visible structural changes in the hotel industry and tourism are appreciated by banks, who are looking more at this investment vertical.
 
Overall, many owners are holding on to assets in Japan, but there are sellers around and regionally it is quite active, according to Ishido. One challenge in the current acquisition phase that Fukuda calls out for Consonant is that it wants to buy directly and not be part of the bidding process.
 

No Comments

Comments that include blatant advertisements or links to products or company websites will be removed to avoid instances of spam. Also, comments that include profanity, lewdness, personal attacks, solicitations or advertising, or other similarly inappropriate or offensive comments or material will be removed from the site. You are fully responsible for the content you post. The opinions expressed in comments do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Please report any violations to our editorial staff.