Spotlight Japan hospitality - August 2018 Savills World Research Japan
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Savills World Research
Japan
Spotlight
Japan hospitality August 2018
savills.co.jp/researchSpotlight | Japan hospitality August 2018
Savills World Research
Japan
Spotlight
Japan hospitality August 2018
Spotlight
Japan hospitality savills.co.jp/research
“Demand for hotels has kept pace with robust
supply, as inbound tourist numbers grow SUMMARY
strongly and steadily. Hotel performance is likely
The number of overseas visitors to Japan has
to improve due to stricter minpaku1 regulation. risen 15.6% YoY over 1H/2018, to 15.9 million.
Hotel players with different strategies are
Inbound tourist spending in 1H/2018 was 2.2
increasingly entering the industry, leading to trillion yen, up 9% YoY.
a more mature, competitive landscape with
reduced risk premiums.” Marketing initiatives to increase tourism from
outside Asia should have a positive impact on
hotels for both diversification and profitability.
Introduction With a series of events such as the
In 1H/2018, the number of overseas 2019 Rugby World Cup, the 2020 Strong occupancy levels and reduced
tourists to Japan reached 15.9 Tokyo Olympics, and possibly the minpaku supply raise expectations of long-awaited
million, an increase of 15.6% year- World Expo 2025 in Osaka in store, improvements in hotel performance.
on-year (YoY), and their spending the country is not short of ammunition.
over the same period rose 9% YoY Integrated resorts are also expected to New players are entering the hospitality
to 2.2 trillion yen. The 2020 goal be built at three locations and should industry, and many operators are adopting different
of 40 million annual visitors looked induce further arrivals. roles and taking different risks, making the industry
ambitious when first announced more mature and reducing risk premiums.
years ago, but now appears Additionally, Japan is aiming to attract
achievable. Even the goal of 60 more tourists from diverse regions Investment interest in the hotel sector remained
million visitors by 2030 seems more and reduce its heavy reliance on Asian strong in 1H/2018. New supply is likely to help
realistic. Given the size of Japan’s visitors, who currently account for
increase future volumes.
population and economy, and its 85% of overseas tourists. Potential
extensive and reliable transportation increases in non-Asian tourists
system, there appears to be capacity should have a positive impact on
for further growth.1 hotels since they tend to spend
more on accommodation per trip
1 Minpaku is the Japanese term for peer-to-peer than their Asian counterparts (Graph
accommodation, such as those provided by Airbnb.
GRAPH 1 GRAPH 2
Overseas visitors to Japan, 2003 – 1H/2018 International tourist arrivals and % of
international tourists vs population, 2016
Of which China Total Estimate Intl. arrivals Intl. arrivals vs population
70 90 140%
80
60 120%
70
Intl. arrivals vs population
50 100%
60
Intl. arrivals (million)
Million intl. arrivals
50 80%
40
2030 target
40 60%
30
30
2020 target
40%
20
20
20%
10 10
0 0%
0
≈
≈
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2020 2030
Source: Japan Tourism Agency (JTA), Japan National Tourism Organisation (JNTO), Savills Research &
Consultancy Source: World Bank, Savills Research & Consultancy
savills.co.jp/research 02Spotlight | Japan hospitality August 2018
GRAPH 3 4). According to the World Tourism
International tourism revenue and international Organization, the number of European
tourists who visited the Asia Pacific
tourism revenue vs GDP, 2016 region amounted to 32 million in 2016,
Intl. tourism revenue Intl. tourism revenue vs GDP while the number of visitors from
300 2.5%
Europe to Japan in the same year was
only a fraction of this at 1.4 million. The
Intl. tourism revenue (US$ billion)
250
2.0% government has earmarked a large
Intl. tourism revenue vs GDP
budget for marketing, which should
200 further support the effort to attract
1.5%
European visitors. Moreover, a new
150 exit tax of 1,000 yen per person is
1.0% projected to generate over 50 billion
100 yen of revenue annually and will
be used, for instance, on multiple
0.5% language services and increasing the
50
number of Wi-Fi hotspots, in addition
0 0.0%
to marketing.
Geopolitical ructions in 2018
highlight the benefits of diversifying
Source: World Bank, Savills Research & Consultancy
Japan’s sources of tourism. China,
which makes up one of the largest
GRAPH 4
proportions of international arrivals,
Average accommodation spending per trip by saw its current account surplus flip to
nationality, Q2/2018 a deficit in Q1/2018 for the first time
in almost two decades (Graph 5). On
Accommodation spending Region average
120,000 top of decreased exports, increased
international travel by Chinese nationals
100,000 has widened the services deficit since
2010. In addition, an escalating trade
80,000
war with the United States continues to
Yen
60,000 soften the outlook for China’s balance
of payments. Continued trade war
40,000 rhetoric or an increasing services deficit
could further weaken the renminbi,
20,000
which has depreciated against the yen
0 by more than 5% year to date, and
Vietnam
Thailand
Italy
Malaysia
Canada
China
India
UK
Taiwan
Hong Kong
Germany
France
USA
Indonesia
Spain
Australia
Singapore
South Korea
Philippines
Russia
possibly impact outbound tourism to
Japan.
Asia (Major) Asia (Other) Ex-Asia Also, the risks posed by uncontrollable
external events became apparent
Source: JTA, Savills Research & Consultancy
in 1H/2018: heavy rains in areas of
western Japan are estimated to have
GRAPH 5
impacted tourist spending by 8.6
Chinese current account, Mar 2008 – Mar 2018 billion yen, and a measles outbreak
between March and June drove an
Current Account Goods Services Travel
estimated 3,500 tourists to cancel
200 trips to Okinawa. The Japan market
is large enough to accommodate a
150 diversification strategy that could
mitigate such risks. Nevertheless,
100
these risks and volatility events are
embedded in the hospitality industry.
US$ billion
50
The main concern of hoteliers
continues to be a high level of
0
upcoming supply. As illustrated in
Graph 6, total sq m of new lodging
-50 construction starts in Tokyo and Osaka
rapidly increased between FY2015
-100 and FY2017. Based on the volume of
Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Mar 15 Mar 16 Mar 17 Mar 18
press releases, hotel developments are
Source: State Administration of Foreign Exchange, Savills Research & Consultancy still being proposed, though forecasts
tabulated by industry publication
savills.co.jp/research 03Spotlight | Japan hospitality August 2018
Hoteres show that total planned new in nights stayed by overseas tourists GRAPH 6
rooms only grew by 2.6% between markedly diverged from the YoY New construction starts of
December 2017 and June 2018, well change in international arrivals.
below the average of 24.6% over
accommodation buildings, FY2011 –
the last four semi-annual periods. As of 13 July, the government registry FY2017
In addition, stable hotel occupancy showed approximately 4,400 approved Tokyo (# of hotels) Osaka (# of hotels) Tokyo (sq m) Osaka (sq m)
indicates that supply appears to have minpaku providers and just under 250 600,000
grown somewhat in line with demand 1,500 pending approval, far fewer
so far. than the 50,000 to over 60,000 listings 500,000
available on Airbnb’s website before 200
New regulation in the minpaku industry June. Stricter legislation appears to
400,000
appears to have partially alleviated have cooled enthusiasm for the sector,
# of lodgings
150
supply concerns among hoteliers. The evidenced by a return to growth in
sq m
300,000
new regulation significantly reduced nights stayed in Q2/2018, which should
the number of Airbnb listings and benefit budget hotels in particular. 100
appears to have opened up some 200,000
breathing room for budget hotel Facing stiff resistance from local
50
operators. This could even lead to a residents, minpaku listing portals 100,000
hotel supply shortage in the future are looking for new approaches.
and trigger long-awaited increases in Airbnb, the largest minpaku listings 0 0
hotel room rates. provider in Japan with about 27,000 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017
listings on its website as of late June, Source: Ministry of Land, Infrastructure, Transport, and Tourism, Savills Research
& Consultancy
With the hospitality market growing, has announced a US$30 million
various investors are adopting advertising budget for its Japanese
GRAPH 7
different strategies. While J-REITs operation. Motivated by bookings of
are shuffling their assets, there is still any sort rather than being dependent Annual growth in international arrivals*
strong acquisition appetite, especially specifically upon minpaku, Airbnb versus growth in nights stayed, Jul
from new players. Some companies is also soliciting hotels to list rooms
on its website at a fraction of the
2017 – Jun 2018
now focus on operating hotels
without purchasing the underlying cost typically charged by online Intl. arrivals Nights stayed
30%
real estate. As various investment travel agents, which may contribute
options become available, the hotel to an improvement in the operator 25%
market is becoming more liquid and cash flow. Rakuten Lifull Stay, which
mature, reducing risk premiums and expects 1,600 rooms to be available 20%
on its platform once all pending
YoY % change
thereby lessening downside risk from
15%
potential market adjustment. applications are approved, has entered
into partnerships with Tujia and 10%
Minpaku regulation HomeAway, both of which have long-
On 15 June, registration under the term interests in Japan themselves. In 5%
Private Lodging Business Act became addition, stricter minpaku regulation
0%
mandatory for operators falling under has changed major minpaku providers
its jurisdiction. The registration process from individuals to corporates and -5%
is lengthy, and calls for significant setup made the competitive landscape fairer Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
costs such as installing expensive fire for budget hotel operators. 2017 2018
safety systems. Operating days are Source: JTA, JNTO, Savills Research & Consultancy
restricted to 180 per year and violators Japan hotel market * International arrivals numbers for May and June are preliminary estimates by the
Savills tracks the performance of over JNTO.
face a fine up to one million yen if
caught, though local governments 100 hotels owned by five J-REITs2 to
are permitted to enforce their own analyse market trends. Our analysis room (RevPAR) increased slightly as
restrictions which have generally been focuses on limited-service hotels; occupancy rose by 0.7 percentage
stricter. Kyoto, for example, in principle full-service and resort properties are points (ppts) YoY to an impressive
only permits operation during the excluded due to limited data. Given 87.5% (Graph 8). Minpaku supply
low season and for a maximum of 60 that a majority of the existing hotel may have had some influence here:
days a year in residential areas. These stock is in the limited-service category, analysis by Smith Travel Research
additional burdens discourage both this should provide a good proxy for (STR) demonstrates that, globally,
existing and new operators. the overall market trend in Japan3. ADRs tend to suffer from a reduced
number of compression nights4 as a
Japan is no exception, as Airbnb has Though average daily rates (ADR) result of the presence of minpaku. With
been met with regulation in many were marginally lower YoY across the apparent contraction of minpaku
our sample, revenue per available supply, ADRs should have upward
markets, ranging from restrictions
2 The five J-REITs consist of Japan Hotel REIT, momentum in the future.
on the number of operating days Invincible Investment, Hoshino Resorts REIT, Ichigo
to fines for unlicensed operators. Hotel REIT, and Mori Trust Hotel REIT. Since new
samples are added when J-REITs acquire hotels, the According to JTA data, which covers
Strict regulation has a marked effect sample size and composition may change marginally a wider universe than our sample,
on appetite to operate minpaku. between survey periods.
3 As of this report, Tokyo accounts for over 30% 4 Compression nights occur when occupancy
Fluctuations in minpaku usage can be of the sample hotels while other Kanto prefectures and exceeds a certain level, typically 95%. Hotels are able to
seen in Graph 7, as the YoY change Kansai account for about 15% each. temporarily raise ADRs in these circumstances.
savills.co.jp/research 04Spotlight | Japan hospitality August 2018
occupancy in Tokyo averaged 85% Port in Osaka and Rihga Royal Ogura GRAPH 8
through 1H/20185, with Shibuya in Kyushu, though multi-property Trailing-twelve-month limited-service
occupancy particularly strong at 90% portfolio acquisitions also made up
thanks to its popularity as a tourist a reasonable portion of transaction
hotel performance, 2014 – 1H/2018
destination and limited supply. Similarly, volume as investors snapped up
Occupancy (RHS) ADR Index RevPAR Index
Osaka and Kyoto recorded occupancy opportunities to diversify in one fell 115 100%
of 86% and 79%, respectively, as swoop. According to the Japan Real
tourists continued to visit in droves. Estate Institute (JREI), estimated cap
95%
110
rates on budget hotels in April were 90%
The nationwide labour shortage is 4.5%, 0.2ppts lower YoY, showing
Index (1H/2014=100)
acutely apparent in the physically 85%
the compressing trend. 105
Occupancy
demanding hospitality industry.
80%
According to the Bank of Japan’s June
Multiple major property developers
Tankan survey, the short-term outlook 100
75%
have announced or expanded on
for hospitality labour supply conditions
intentions to enter the hotel business 70%
was the tightest out of all industries.
this year. NTT Urban Development 95
Hourly wages for lodging staff are 65%
plans to launch a hotel business
up 4.2% YoY6 according to Recruit
Jobs (Graph 9), continuing a trend targeting foreign tourists in Kyoto 90 60%
and Osaka. Mitsubishi Estate intends 1H 2H 1H 2H 1H 2H 1H 2H 1H
established back in 2013. Prolonged 2014 2015 2016 2017 2018
tightening of the labour market has to open multiple Royal Park Hotels
prompted the government to draft a law in Tokyo, Kyoto, and Osaka. Mitsui Source: J-REIT disclosures, Savills Research & Consultancy
to welcome 500,000 new workers from Fudosan has signed an agreement
overseas to help alleviate the situation. to open Japan’s first Bvlgari
Hotel in Tokyo. Tokyu Fudosan GRAPH 9
One way to counter rising costs is bought the Kyukaruizawa Kikyo in Lodging staff hourly wages*
through productivity improvements. Nagano and plans to open more
A 2017 study by the Research luxury hotels elsewhere in Japan. 1,200
Institute of Economy, Trade and Foreign companies are also making
Industry showed that an increased firm commitments. For example, 1,150
proportion of overseas guests, who Hilton is expanding its presence in
1,100
tend to use hotels at different times to Okinawa, having recently opened the
domestic guests, led to more efficient DoubleTree by Hilton Okinawa Chatan 1,050
utilisation of hotel rooms and improved Resort (cover photo).
labour productivity by as much as
Yen
1,000
7%. As more foreign tourists visit As the hospitality industry matures,
Japan, this effect should somewhat various players are taking different 950
counterbalance increasing costs. strategies and risks. Some are 900
interested in making new investments
Investments and divesting old properties, while 850
According to Real Capital Analytics others are keen to focus on
(RCA) data, hotel transactions management or operation without 800
June 2015 June 2016 June 2017 June 2018
amounting to 140 billion yen took place repositioning their balance sheets.
across Japan in 1H/2018, up 51% Minpaku operators can now enlist the Source: Recruit Jobs, Savills Research & Consultancy
YoY. The lion’s share was transacted services of corporate management * Average wage for lodging staff in the three major metropolitan areas in Japan:
in Tokyo and Yokohama, though Tokyo, Tokai and Kansai
agencies and specialise in niche
Sapporo, Osaka and Fukuoka also markets where they can add the
captured investor interest. Significant
most value. As the industry further
transactions included Hotel Universal
matures, risk premiums should
5 With regard to occupancy levels, 1H/2018 refers to
the period from January to May 2018. decline and the industry should
6 June 2017 to June 2018 become more resilient.
TABLE 1
Selected investment transactions, announced in 1H/2018
Approx. price Price per room Cap rate
Property name Location Buyer
(JPY bil) (JPY mil) (%)
Hotel Universal Port 34.0 57 4.3 Konohana, Osaka Orix J-REIT
Rihga Royal Ogura 16.6 56 5.5 Kita Kyushu, Fukuoka United Urban J-REIT
Hotel MyStays
5.3 32 4.5 Naka, Yokohama Invincible J-REIT
Yokohama-Kannai
Source: J-REIT disclosures, Savills Research & Consultancy
savills.co.jp/research 05Spotlight | Japan hospitality August 2018
OUTLOOK
The prospects for the market
Overseas tourist numbers competition. Labour related costs Buyers would like to take advantage
continue to rise and are expected continue to rise, slimming margins, of acquisition opportunities,
to fill rooms in popular city but there are avenues for improving while aggressive sellers refuse to
destinations. Hotel operators are productivity to compensate. compromise on price and operating
enjoying an improved outlook assumptions. Developers continue to
compared to six months ago: Sporting events such as the Rugby introduce fresh stock to the market,
the rate of increase in future World Cup and the Olympics are which should support volumes going
supply appears to have slowed likely to serve as catalysts for the forward. Unpredictable events in
and minpaku supply has greatly hotel market in coming years, topping 1H/2018 serve as a reminder of the
decreased, which should up already strong demand, as are risks inherent in the hotel business.
allow for better pricing power, integrated resorts once they come Additionally, if economic uncertainty -
especially for budget hotel online. Marketing initiatives to especially in the Asia Pacific region -
operators. Minpaku operators, increase tourism from outside Asia deepens, it could deal a blow to this
now mainly corporates, should have a positive impact on promising sector, at least temporarily.
must also be compliant with hotels in terms of both diversification
regulations, resulting in fairer and profitability.
Please contact us for further information
Savills Japan Savills Research
Christian Mancini Tetsuya Kaneko Simon Smith
CEO, Asia Pacific Director, Head of Research Senior Director
(excl. Greater China) & Consultancy, Japan Asia Pacific
+81 3 6777 5150 +81 3 6777 5192 +852 2842 4573
cmancini@savills.co.jp tkaneko@savills.co.jp ssmith@savills.com.hk
Savills Hotels
Raymond Clement Tomotsugu Ichikawa
Managing Director Director
Asia Pacific Japan
+65 6415 7570 +81 3 6777 5184
rclement@savills.com.sg toichikawa@savills.co.jp
Savills plc
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