Tokyo remains the most popular destination for visitors to Japan, however regional cities are growing in popularity.
Japan received 28.7m visitors last year, up 19.3% from 2016 and 13.5m of them visited Tokyo, however future growth might be limited, says Tetsuya Kaneko, head of research and consultancy, Japan, at Savills.
“Tokyo’s Narita and Haneda airports are operating at almost full capacity, which should restrict growth in visitor numbers. In contrast, Osaka has capacity and also a big low cost carrier terminal which has huge potential as a point of entry for inbound tourists from emerging Asia.”
Japan’s hospitality market is maturing as well as growing, which means that visitors are now looking outside the core tourist destinations of Tokyo, Kyoto and Osaka. Some regional cities have seen robust year-on-year growth in tourism, says Kaneko. Next year’s Rugby World Cup will offer a boost to regional cities, as the tournament takes place in 12 different venues across the country.
Often these cities are undersupplied with hotels or the hotels they offer are dated; a survey in 2012 found that 40% of Japan’s hotels were more than 30 years old. The popular tourist city of Nara (pictured above) will see a JW Marriott hotel open in 2020, its first luxury offering.
Most investors in Japanese hotels have focused on the budget hotel market, for example UBS’s $400m Japanese hotel fund is targeting limited-service hotels. Kaneko suggests looking at the upmarket or luxury market might also prove fruitful.
“Tokyo has fewer than 20 five star hotels and there are cities which do not have any luxury properties, or where there is only one, fairly old luxury hotel.”
The threat from the apartment sharing market seems to have dissipated. In June, a new law was introduced which, while legalising services such as Airbnb, requires the licensing of all properties. Following the law’s instruction, thousands of listings for unlicensed apartments were taken off the Airbnb site. Local authorities are reported to be taking their time over licensing, which will be good news for hotel owners, as an estimated 1m visitors used home-sharing services last year.
The big challenge for hotel investors in Japan will be supply, which will be well above the long-term average this year and next. However, if tourist numbers hit the Japanese government target of 40m by 2020, well-positioned hotels should keep thriving.