APAC Hotels & Hospitality Market Update: Japan

Despite being one of the last markets to fully re-open its borders to visitors following the end of the COVID-19 pandemic, the large number of foreign visitors and durable domestic demand have seen Average Daily Rates (ADRs) across all cities and categories increase significantly. STR data show aggregate daily rates reached JPY 18,403 as of February 2024 y-t-d, 35% higher than the same period of 2019.

Although occupancy was down 11% as of February 2024 y-t-d compared to the same period of 2019, CBRE expects an improvement over the course of this year on the back of further foreign tourism gains. The Japanese government estimates that international tourist arrivals will hit a record 33 million this year, with authorities setting a goal of 60
million annual foreign arrivals by 2030. CBRE is therefore confident about the outlook for further hotel operational growth in 2024, driven by an occupancy recovery in well-managed assets in core locations.

Business and city hotels are expected to register an improvement in operating performance in 2024, with accommodation nights for these assets already up 16% and 13%, respectively, when comparing 2024 y-t-d to 2019 y-t-d.

Despite the Bank of Japan’s (BoJ) recent decision to raise the central policy rate to a 0% - 0.1% range, hotel investment remains extremely robust. Hotel investment volumes in Japan surpassed JPY 500 billion in 2023, with overseas buyers accounting for 46% of this figure, the highest proportion since 2007. Whilst international investors will remain active in 2024, domestic investors have been gradually increasing their activity since H2 2023, heightening expectations that they will be busy in 2024.
Institutional investors will continue to drive purchasing in 2024, with J-REITs also expected to be more acquisitive.

Luxury and upscale assets remain keenly sought after by these groups, with investors also looking to increase their exposure to the co-living sector.