Hotels in Japan, along with all other tourism partners and industry friends, are looking ahead towards the fulfilment of one of tourism’s biggest prospects: the Olympics to be held in Tokyo in 2020.
As with all cities that win sought-after hosting rights, Tokyo has long started up its tourism engine, just as the sporting fraternity is doing. In fact, the tourism industry has already begun to reap some benefits. In January 2016, the Japan National Tourism Organisation announced that a record 19.73 million foreign tourists visited the country in 2015, up a staggering 47.3% from the previous year.
For a country that traditionally depended heavily on domestic tourism, this is all new, and no doubt, exciting.
Soon after those numbers were reported, the government announced it will double its initial target of 20 million inbound tourists by the Olympic year 2020 to 40 million. It also said it will target ¥8 trillion in spending by overseas visitors by 2020 — more than double last year’s record ¥3.48 trillion. After the Olympics, the government’s aim is to attract 60 million foreign visitors a year by 2030, with the hope they will spend ¥15 trillion annually by that year.
“Tourism is an important pillar of our country’s growth strategy, and a trump card for regional revitalisation. It is also an engine to boost growth to achieve the ¥600 trillion GDP goal,” said Japan’s Prime Minister Shinzo Abe.
Hotel occupancy figures support these numbers. According to figures from STR, Japan’s occupancy rates were at 85.7% year-to-date, holding steady from 2016 figures at 84.5%.
With these healthy figures and projections, Japan hotels are probably seeing some disconnect. ADR is sitting below those of most other big cities including New York, London, Singapore and Sydney.
The Hotel Price Index for 2016 distributed by Hotels.com shows that the ADR for hotels in Japan sat at ¥14,514, while New York hotels commanded ADR of ¥28,780. Even within Asia, Singapore registered an ADR of ¥18,244 and Sydney was at ¥17,230.
Some analysts have suggested that a possible reason could be the anticipated glut of rooms that will hit Tokyo right around the time of the Olympics and definitely after. According to CBRE’s recent figures, by 2020, eight major Japanese cities will have a combined increase of 65,000 rooms, 26% more than the current. That, it says, could lead to a supply glut.
Tokyo city itself is expected to get 25,000 more rooms by 2020 or shortly thereafter, up 25.6%; in Osaka, there will be 18,000 rooms added, an increase of 34.9%; and in Kyoto, 8,000 rooms will join the current inventory representing an increase of 36.1%.
Mizuho Research Institute estimated Tokyo only needs an additional 16,700 rooms than in 2016 to meet expected demand in 2020. Osaka needs 13,300 more.
The fear of this glut appears to be spilling into the hotel real estate market. Yasokazu Terada, a senior official at real estate firm JLL was quoted in the media saying many funds believe “now is the time to sell hotel properties out of fear of future uncertainties”.
So an unusual play of optimism and healthy expectation of a tourism boom and a fear of a glut is creating an interesting business environment for Japanese tourism stakeholders.
In light of this, what should be the focal point for Japanese hotels right now, three years from the Olympics? CBRE senior director Naoki Yoshiyama was reported in Nikkei Asia saying hotels will soon have to differentiate themselves to win bookings.
Hotels in Japan have come from a tradition and culture where they operated without any official standards of classifying hotels in Japan. According to a report by Arthur Andersen, this resulted in Japanese hotel owners and operator companies having not “clearly distinguished developments by brands, grades or characteristics of products”.
This, along with a very young industry in revenue management, means that moving forward, hotels that are willing now to invest in revenue management practices that can help them better negotiate demand and supply curves and movements, and of course, that can also find ways to differentiate their products and services from those of their competitors, will stand themselves in good steed to take the winner’s podium during and after the Olympics.