Spotlight Japan Hospitality February 2018
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Savills World Research Japan Spotlight Japan hospitality February 2018 savills.com.jp/research Spotlight | Japan hospitality February 2018 Savills World Research Japan Spotlight Japan hospitality February 2018 Spotlight Japan hospitality savills.com.jp/research “The hospitality sector remains popular among investors as increasing tourism continues to SUMMARY support sound demand fundamentals. High supply levels may concern hoteliers, but new The number of overseas visitors to Japan in 2017 reached 28.7 million, a 19.3% increase over 2016. regulations on minpaku and strong demand fundamentals could mitigate the negative impact Total spending by overseas tourists in 2017 amounted to 4.4 trillion yen, up 17.8% from 2016. of heightened competition.” Hotel performance continues to improve due to tighter occupancy. Average daily rate (ADR) Introduction compared to the same period in 2016. growth is essential to absorb the negative impact of In 2017, the number of overseas If growth continued at the same rate increasing labour-related costs on cash flows. tourists to Japan increased by 19.3%, through the year end, Tokyo would to 28.7 million, from 24.0 million in have seen 13.5 million overseas A glut of supply worries hoteliers, but demand 2016. While Asian countries such as tourists in 2017. Over 11.1 million fundamentals appear solid. South Korea, China, and Hong Kong overseas visitors travelled to Osaka in 2017, an 18.1% increase from 2016. led this growth, the US, Canada, and New regulations surrounding peer-to-peer According to a survey conducted Australia recorded double-digit growth accommodations (minpaku) may reduce supply by the Osaka Convention & Tourism as well. Increases in tourism from pressure on hotel operators. these western countries help reduce Bureau, Dotonbori, Osaka Castle, and Japan’s reliance on Asian countries Universal Studios Japan ranked as the Investment interest in the hotel sector remains and build a strong foundation for long- most popular destinations in Osaka. strong. Although the total transaction volume fell due term tourism growth. Total spending by to limited opportunities for acquisition, a few large overseas tourists was 4.4 trillion yen, a An unprecedented supply of lodging transactions were recorded in 2H/2017. 17.8% increase from the previous year. space is expected to come into the market in 2018 and beyond, a Inbound tourism to Tokyo and Osaka worrying sign for hotel operators. In also continues to set records. In some cities, the number of hotels is 1H/2017, the number of overseas estimated to increase by over 20% However, unlike the surge in supply visitors to Tokyo grew by 3.6% within the next few years. preceding the 2008-2009 financial crisis, solid demand fundamentals lie GRAPH 1 at the heart of recent supply growth. International arrivals to Tokyo and Osaka, 2006– Following rapid growth in the inbound 2017* tourism industry, the annual number of overseas visitors has increased by Tokyo Osaka 16,000 over 20 million since 2012. According to the Japan Tourism Agency (JTA), 14,000 room night demand accommodated by hotels1 increased by 60 million 12,000 room nights during the same period. 10,000 Hotel occupancy increased by about 5 percentage points (ppts) as a result 8,000 of demand outpacing supply. 6,000 Thousand visitors Additionally, with the aging of 4,000 Japan’s lodging stock, new hotels are necessary to provide quality 2,000 accommodation for high-spending tourists. A survey conducted by 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (Est.) 2017 the Japanese government in 2012 * Tokyo’s arrival figure in 2017 is estimated based on 1H/2017 and 2016 data. Osaka’s 2017 figure is actual. 1 Hotels include resort hotels, business hotels, and Source: Tokyo Metropolitan Government, Osaka Prefectural Government, Savills Research & Consultancy city hotels based on the JTA’s definitions savills.com.jp/research 02 Spotlight | Japan hospitality February 2018 revealed that about 40% of surveyed accommodation days of each minpaku Recruit. Airbnb also plans to expand hotels were built over 30 years ago location to ensure that annual operation its operations and become a one- and 43.5% of ryokan (Japanese-style does not exceed 180 days, the limit stop provider of minpaku services, inns) were built over 50 years ago. imposed by the new minpaku law. from providing support for starting minpaku to managing their day-to- Furthermore, in 2017, the Tokyo office These changes are likely to dampen day operations. These companies are market outperformed the expectations the explosive growth of minpaku likely to drive the development of the of market participants, despite initial services and lay the groundwork for industry and consolidate currently concerns over large supply. If macro fair competition, which could be a fragmented markets. Savills will trends remain positive, the hotel market welcome breather for hotel operators. continue to monitor the impact of the may continue to see growth similar to Airbnb has already announced that new regulation to discern whether that of the office sector, where demand it will remove listings of incompliant minpaku services become a real kept pace with increases in supply. accommodations. Additionally, a threat to hoteliers. comparison of overseas visitor and Minpaku regulations foreign lodging guest trends indicate Japan hotel market In Q3/2017, the JTA conducted its first that some demand returned from Savills tracks the performance of over survey of peer-to-peer accommodation 2 minpaku to hotels in 2017. 100 hotels owned by five J-REITs to (minpaku) usage by overseas tourists. According to the survey, 12.4% of all 2 The five J-REITs consist of Japan Hotel REIT, tourists and 14.9% of leisure tourists Despite the above, the minpaku Invincible Investment, Hoshino Resorts REIT, Ichigo Hotel REIT, and Mori Trust Hotel REIT. Since new samples are used minpaku services during their sector remains popular, as illustrated by recent entries of major players added when J-REITs acquire hotels, the sample size and stays. Of the 29 million overseas composition may change marginally between survey visitors who travelled to Japan such as Rakuten LIFULL Stay and periods. in 2017, 3.6 million (12.4%) are estimated to have used minpaku. GRAPH 2 Airbnb also reported that it reached 4 Hotel guest room supply, 1982–2020 million users in Japan in 2016. According to the same survey, over a Guest room supply Historical avg. % change (RHS) quarter of leisure visitors from countries 60,000 14% such as Singapore, France, Indonesia, 12% and Australia used minpaku. The 50,000 survey also noted that minpaku users 10% tend to stay 1.7 days longer but spend 40,000 % change about 17% less on lodging. 8% 30,000 Although the home lodging business 6% (“jutaku shukuhaku jigyo”) legislation Guestrooms 20,000 4% passed in June 2017 has set a legal 10,000 foundation for minpaku businesses, 2% many municipalities are imposing their own regulations on the industry. 0 0% Ota in Tokyo passed a new regulation 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 stipulating that the minpaku practice Est. 2018 Est. 2020 Est. is not permitted in residential and industrial areas. Shinjuku prohibits Source: Hoteres, news articles, Ministry of Health, Labour and Welfare, Savills Research & Consultancy minpaku operations in residential districts on weekdays. In an extreme GRAPH 3 example, the Town of Karuizawa is Trailing-twelve-month limited-service hotel seeking an outright ban on minpaku operations within its jurisdiction. performance, 2014–2H/2017 However, the central government Occupancy (RHS) ADR Index RevPAR Index may push back against overly strict 115 100% regulations if enforcement of the 95% national minpaku law is weakened as 110 a result. 90% 85% Occupancy The Japanese government is also 105 tightening the reins on minpaku 80% 100 to facilitate fair competition. As, 75% according to a government survey, over 85% of minpaku locations (1H/2014=100) Index 70% 95 are unregistered, the government 65% issued a notification stating that minpaku listing websites must delist 90 60% unregistered minpaku locations by 15 1H 2H 1H 2H 1H 2H 1H 2H June 2018. The government is also 2014 2015 2016 2017 making it mandatory to report the Source: J-REIT disclosures, Savills Research & Consultancy savills.com.jp/research 03 Spotlight | Japan hospitality February 2018 MAP 1 Lodging occupancy in Japan and Tokyo, 2017* Occupancy data is based on the data between January and November 2017. Japan’s average occupancy is based on limited-service hotel performances. Source: JTA, © OpenStreetMap (www.openstreetmap.org/copyright), Savills Research & Consultancy analyse market trends. Our analysis GRAPH 4 focuses on limited-service hotels; Lodging staff hourly wages, 2013–2017 full-service and resort properties are excluded due to limited data. Given that a majority of the existing hotel Kanto Kansai 1,100 stock is in the limited-service category, this should provide a good proxy for 1,050 the overall market trend in Japan3. In 2H/2017, the revenue per available 1,000 room (RevPAR) index of sampled limited-service hotels continued to 950 grow modestly and stood at 111.8, 1.1 points up from 2H/2016. While 900 average hotel occupancy further tightened from 86.2% in 2H/2016 to 850 87.4% in 2H/2017, the average daily rate (ADR) index slightly softened 800 from 111.1 to 110.9 during the same 2013 2014 2015 2016 2017 period. Facing an influx of new supply, Source: Recruit Jobs, Savills Research & Consultancy some hotels in major cities appear to be focusing on maintaining occupancy demand, limited supply in Shibuya total revenue, a 10% increase in rather than raising rates. In contrast, keeps market occupancy very tight.