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Japan - February 2021
S P OT L I G H T
Savills Research
Japan Hospitality
Retail sales in Beijing were up 4.4% year-on-year to RMB539.8 billion in 1H 2018Japan Hospitality
Tough times persist
INTRODUCTION In response, in July 2020 the government
Summary The second half of 2020 brought only a little offered an economic lifeline to the industry
more hope to the hospitality sector than in the form of the “Go To” Travel campaign,
• International borders are still the first half. International borders have with a total of 1.1 trillion yen initially allocated
essentially closed to tourists, and remained effectively closed to tourists, and as to the program aimed at supporting the
the second half of the year saw a result, the number of visitors has not seen hospitality industry. The campaign was
only a small number of foreign any change from the first half of the year, further bolstered with up to an additional
arrivals. with fewer than 170,000 visitors entering the 1.6 trillion yen, including the additional and
country in 2H/2020. This figure is certainly not supplementary budget for fiscal year 20201,
• While a second state of expected to see any meaningful increase while possibly providing up to a 2.7 trillion yen
emergency has been enacted, international borders are closed and is unlikely boost in total. The stimulus helped to curtail
the Japanese government to rebound if COVID-19 cases worldwide do widespread layoffs in the industry especially
increased the “Go To” Travel in regions where they would have caused
not subside.
campaign funding to up to a extensive harm to the economy.
The first state of emergency enacted in April
total of 2.7 trillion yen, extending 1 The Japanese 2020 fiscal year began in April 2020 and ends
2020 devastated the domestic tourism market. in March 2021.
the initial support provided to
the industry.
GRAPH 1: International Arrivals and Annual Growth Rates, 2007 to 2H/2020
• Bankruptcy rates kept low due
to emergency loans will likely
increase as banks re-evaluate Other Nations China South Korea
60
forbearance.
Global 2011 Tohoku
Financial Earthquake
50
• Although the second half of Crisis and Tsunami
MILLIONS OF PEOPLE
2020 saw some recovery, the
40
number of hotel nights stayed
should see a decrease in 9% 2%
30 19%
early 2021 due to the state of 22%
emergency. 47%
20
29%
• As of December 2020, Hotel 14% 0% 27% 24%
10 -19% -28% 34%
J-REIT ADRs were 80% of pre- -88%
COVID levels, and RevPAR was 0
down almost by half. Japanese-
style hotel (Ryokans) and resort
hotels are faring better than
business and city hotels.
Source Japan Tourism Agency (JTA), Japan National Tourism Organisation (JNTO),
Savills Research & Consultancy
• The spread between the unit
prices of Hotel J-REITs and the
TSE REIT index narrowed in the GRAPH 2: Hotel Guest Room Supply, 1982 to 2023*
second half of 2020, implying
that J-REIT investors have
Annual Room Supply (LHS) Historic Average Room Supply
priced-in further recovery. YoY Change in Total Stock (RHS)
70,000 14%
• Hotel investment volumes
plummeted with few loans 60,000 12%
available, and the second half of
50,000 10%
2020 accounted for only 13% of
GUEST ROOMS
the yearly volume. 40,000 8%
30,000 6%
20,000 4%
10,000 2%
0 0%
2000
2002
2004
2006
2008
Est. 2019
1990
1992
1994
1996
1998
Est. 2020
Est. 2021
Est. 2022
Est. 2023
2010
2012
2014
2016
2018
1982
1984
1986
1988
Source Hoteres, the Ministry of Health, Labour and Welfare (MHLW), Savills Research & Consultancy
*As completion data provided by Hoteres is as of 5 December, total supply in 2020 includes hotels expected
to be completed thereafter.
savills.co.jp/research 2Japan Hospitality
The program subsidises domestic travel
for residents, and according to the Japan
Tourism Agency (JTA), its usage saw the
overall number of hotel stays recover to about
60% of 2019 levels as of December 2020. The
There is some hope for domestic
recovery has extended to mainly Japanese- tourism with increased funding from
style hotels and resort hotels, while business
hotels and city hotels have also showed some the “Go To” Travel campaign and
level of improvement. Unsurprisingly, these
recovery rates were the most obvious in less
extra savings from self-quarantine.
urban prefectures, whereas prefectures like Increasing bankruptcy figures
Tokyo and Osaka still had significantly lower
occupancy rates compared to previous years, and a substantially lower supply
which was also to be expected due to the
lower number of business trips.
pipeline should prove favourable
However, as the hospitality industry for operators who can weather the
seemed to be on the road to recovery, it
once again entered uncertain waters as storm.
Japan was hit by a third and largest wave
of COVID-19, prompting the government
to introduce a second state of emergency
in major prefectures this January. While be expected, the number of bankruptcies support to distressed companies, including
this second state of emergency had a pre- has accordingly increased to an all-time no-interest loans backed by public credit
determined end date of 7 February 2021, the high since 2011, with 127 bankruptcies guarantees: and secondly, the “Go To” Travel
high rates of COVID-19 hospitalisation cases reported in the lodging industry (including campaign gave additional spending power to
have prompted its extension by an additional hotels, Japanese-style hotels, and other domestic consumers. As of December 2020,
month and will likely keep occupancy rates accommodation facilities) according approximately 500 billion yen of the “Go
low. In addition, the “Go To” campaign will to Teikoku Databank. Out of those To” Travel budget had been spent and has
be suspended across Japan until the rate of bankruptcies, 72 were reported to have been helped to fund more than 80 million hotel
hospitalisation cases falls. as a direct result of COVID-19, proof that the stays, which marks a notable boost to the
pandemic has taken its toll on the industry. approximately 6 trillion-yen Japanese lodging
LODGING BANKRUPTCIES IN JAPAN On another hand, despite the direct market. These factors provided much-needed
The hospitality industry has certainly not negative impact that the pandemic has had cash flow to hotels that might have otherwise
seen grimmer times in living memory. With on the industry and record-low occupancy had to declare bankruptcy.
residents being strongly recommended rates, bankruptcy levels have remained While much of the hospitality industry
to avoid large gatherings and traveling relatively contained, albeit they are higher has been kept afloat largely due to available
unnecessarily, on top of a drastic decrease than previous years. The number of financing and the boost from the “Go To”
in revenue from accommodation, other bankruptcies appears to have been supressed campaign, hotel demand is still a fraction of
revenue streams from corporate events probably due to two main factors: firstly, the what it was previously, and because hotels
and banqueting have also been cut. As to Japanese government has provided financial run on thin profit margins, many hotels
are still deep in the red. The suspension
of the “Go To” campaign in combination
with the prevailing COVID-19 wave signal
persisting tough times for the hospitality
GRAPH 3: Hotel Bankruptcies in Japan, 2013 to 2020
industry, and 2021 is likely to see increasing
numbers of bankruptcies given the
Number of bankruptcies (LHS) Bankruptcies due to COVID-19 (LHS) challenging operational environment, and
Amount of debt (RHS)
140 140,000
that moratoriums currently granted by
banks will gradually be reconsidered as time
120 120,000 passes.
However, the “Go To” campaign
100 100,000 offers some hope. Despite its temporary
suspension, over 1.6 trillion yen of additional
MILLION YEN
80 80,000 funding for the campaign is available
until June, just before the peak travel
60 60,000 season in summer. Hotel room supply is
NO. OF
expected to cool significantly beyond 2020,
40 40,000 and hotel bankruptcies are expected to
increase, meaning that hotels that are able
20 20,000
to overcome the worst of the pandemic
will likely fi nd themselves in a more
0 0
2013 2014 2015 2016 2017 2018 2019 2020
advantageous position. Nonetheless, the
imminent priority for hotels is to survive the
Source Teikoku Databank, Savills Research & Consultancy
ongoing downturn and hope that demand
for tourism returns sooner than later.
savills.co.jp/research 3Japan Hospitality
GRAPH 4: “Go To” Travel Campaign Usage Based on Initial 1.1 trillion Yen Budget, HOTEL MARKET PERFORMANCE
October to December 2020 Savills tracks the performance of over 100
Total amount used (LHS) Go To budget remaining (LHS) Total hotel stays (RHS) hotels owned by five J-REITs2 to analyse
100% 90.0 market trends. Our analysis focuses on
limited-service hotels; full-service and resort
90%
UTLLIZATION RATE OF 1.1 TILLION YEN
80.0
properties are excluded due to limited data.
80% Given that most of the existing hotel stock is
70.0
70%
in the limited-service category, this should
60.0 provide a good proxy for the overall market
MILLION STAYS
60%
50.0
trend in Japan3 .
50% In the wake of the COVID-19 pandemic
40.0 that decimated demand for hotels, rental
40%
levels have unsurprisingly followed a similar
30.0
30% downward trend. Average daily rates (ADR)
20% 484.2 20.0 and revenue per available room (RevPAR)
406.3
indices have fallen 28.5 points and 56.8
10% 208.7 10.0
points YoY, respectively. These indices have
0% 0.0 seen an increase from their lowest points
Oct-20 Nov-20 Dec-20 in April and May 2020, although they are
Source Japan Tourism Agency (JTA), Savills Research & Consultancy still a far cry from levels of previous years.
However, average rates and occupancy both
dipped again in December due to the “Go To”
GRAPH 5: COVID-19 Cases in Japan, February 2020 to January 2021 campaign having been suspended during the
year-end holiday peak period and because of
Daily cases in Japan Daily cases in Tokyo the spiking number of COVID-19 cases that
8,000 became increasingly apparent toward the
Nation-wide Lifting Go To State of
state of state of campaign emergency end of 2020. Average rates and occupancy
emergency emergency started declared in 11
declared 25 May 22 Jul prefectures
are expected to drop significantly again in
6,000
16 Apr 7 Jan early 2021 in line with the second state of
emergency and the industry’s seasonal low,
NO. OF CASES
so hotels need to continue to prepare for
hard times.
4,000
While all hotels are undergoing
the toughest of times, even amongst
the different hotel classes, city hotels
2,000
and business hotels have suffered
disproportionately. The pandemic has
caused many companies to move face-to-
0 face meetings online and reduce domestic
travel wherever possible, stifl ing demand
for business and city hotels. As such, with
Source Ministry of Health, Labour and Welfare, Tokyo Metropolitan Government,
Savills Research & Consultancy
historically low rates and occupancy levels,
many operators have been desperate to
fi nd new sources of revenue to improve
GRAPH 6: Limited-service Hotel Performance, 2014 to 2020 their bottom line. As an example, the
Imperial Hotel Tokyo recently reformed
Occupancy (RHS) ADR Index (LHS) RevPAR Index (LHS) part of the hotel to launch a full-service
120.0 100% rental apartment business. There are also
90% hotels that offer rooms to be used in the
100.0 day as remote offices, some in collaboration
80%
with local governments. In addition, an
INDEX (1H/2014=100)
70%
80.0 increasing number of even high-end hotels
OCCUPANCY
60%
are offering day-use hotel plans, where
60.0 50% customers can use the room and hotel
40% facilities for a few hours in the day without
40.0
30%
spending the night. Overall, these are trying
times for the industry but also times where
20%
20.0 innovation thrives, which will be a crucial
10% factor in helping hotels see the pandemic
0.0 0% through.
Jan
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
Aug
Oct
Nov
Dec
Feb
Mar
May
April
Jun
Jul
Sep
2 The five J-REITs consist of Japan Hotel REIT, Invincible
Investment, Hoshino Resorts REIT, Ichigo Hotel REIT, and
Mori Trust Hotel REIT. Since new samples are added when
2014 2015 2016 2017 2018 2019 2020 J-REITs acquire hotels, the sample size and composition may
change marginally between survey periods.
Source J-REIT disclosures, Savills Research & Consultancy 3 As of this report, Tokyo accounts for over 30% of the
*Note: 2014 – 2019 figures represent a trailing-twelve-month average. 2020 figures represent a simple sample hotels while other Kanto prefectures and Kansai
average for ADR and RevPAR, and occupancy is calculated based on the total number of rooms each month. account for about 15% each.
savills.co.jp/research 4Japan Hospitality
GRAPH 7: Hotel Nights Stayed by Month, 2016 to 2020 INVESTMENT
2020 was intended to be a stellar year
2016 2017 2018 2019 2020
for tourism in Japan but it has instead
70
seen a turbulent operating performance,
shaking investor sentiment, and squeezing
60 2H/2020 trading volumes. According to
data aggregated by Real Capital Analytics
MILLION NIGHTS STAYED
50 (RCA), investment volumes were down 53%
YoY to around 288 billion yen, following a
40 noteworthy 2019. Furthermore, only 13%
of the transaction volume occurred in
"Go To" Campaign Starts
30 2H/2020, the lowest half-year transaction
(22 July, Ex. Tokyo)
volume since 2009, dragged down by a
20 lacklustre fourth quarter. Whilst it may
Tokyo Added to
look like the sector has fallen into a trough,
Campaign (1 Oct)
10 looking at the yearly performance might
go some way towards easing concerns. In
0 this context, 2020 was only 10% shy of 2018
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
volumes and 8% below 2017 levels.
Source Japan Tourism Agency (JTA), Savills Research & Consultancy When the pandemic began, banks might
have hoped that forbearances would be
enough to usher the hospitality sector
GRAPH 8: Hospitality Sector Investment Volumes by Investor Type, 2007 to 2020 from crisis to recovery. However, with the
prolonged duration of the pandemic, more
Overseas Equity & Institutional Listed Companies & REITs distressed assets may begin to emerge in the
Private Unknown Other
Total Investment
fi rst half of 2021. More strategic investors
100% 1.0 who have the fi nancial wherewithal will
likely capture discounted asset prices, as
PROPORTION OF INVESTMENT (%)
90% 0.9
some have already done so. While fi nancing
80% 0.8
is more available than a few months ago,
70% 0.7 it is still limited to properties which can
JPY TRILLION
60% 0.6 demonstrate a stable performance and to
parties with a good track record and a strong
50% 0.5
balance sheet.
40% 0.4
At the onset of the pandemic in 2020,
30% 0.3 Hotel J-REIT unit prices fell more heavily
20% 0.2 than the TSE REIT index. However, the
spread began to narrow from August 2020
10% 0.1
when the “Go To” campaign started and has
0% 0.0 narrowed further since. A forecast gradual
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
recovery appears to have already been priced
Source RCA, Savills Research & Consultancy into Hotel J-REIT unit prices, suggesting
that there is some hope for the industry, at
least from a J-REIT investor’s point of view.
GRAPH 9: Hotel J-REIT Performance, 2020 OUTLOOK
While the “Go To” Travel campaign has
Hotel J-REIT Average TSE REIT Index certainly served as an essential crutch for
105 the hospitality sector and appears to have
helped avert a large number of bankruptcies,
95 the short-term prospects for the industry as
a whole are not meaningfully brighter than
85 previous quarters. International borders
have been shut again after being opened
REIT INDEX
75
for less than three months, and urban
prefectures have again been placed on a
65
state of emergency, although cases in Japan
55
look to have hit their peak and are beginning
to decline. Public support for hosting the
45 already postponed Olympic games this year is
not strong, and the games themselves are also
35 on tenterhooks.
Nonetheless, there are positives for the
industry. The first is the progress made in
rolling out a COVID-19 vaccine. The Japanese
Source J-REIT Disclosures, Savills Research & Consultancy
savills.co.jp/research 5Japan Hospitality
TABLE 1: Selected Investment Transactions announced In 2H/2020
APPROX. PRICE PRICE PER ROOM
PROPERTY NAME CAP RATE LOCATION BUYER
(JPY BIL) (JPY MIL)
Ariake Properties TMK
Koto Ward,
Far East Village Hotel Ariake 8.0 26 Undisclosed (SPC of Far East Hospitality
Tokyo
Holdings)
Nagasaki City,
Candeo Hotels Nagasaki 3.1 15 5.3% Daiwa House REIT
Nagasaki
Hamamatsu City,
KAI Enshu 1.1 32 5.6% Hoshino Resorts REIT
Shizuoka
Source J-REIT disclosures, Nikkei RE, Savills Research & Consultancy
government has announced its plan to begin all-time high savings rates with sharp falls in numbers more than tripled from 2010 to 2019. As
vaccinations in February and should expedite the spending on travel and eating out, suggesting pent an example of the country’s growing popularity,
entire process if the prospects of early adopters up demand and a greater desire to travel in the a survey by the China Tourism Academy ranked
like Israel look promising. The second is the near future. Japan spends an estimated 3 trillion Japan in the top two destinations amongst
boost in domestic demand aided by expansion yen yearly on overseas travel, and some travel- Chinese tourists. To wit, the country maintains
of the “Go To” Travel campaign budget, which starved consumers could resort to domestic travel strong potential to attract inbound tourists while
should help keep afloat operators savvy enough given that overseas travel is still unfeasible. the longer-term prospects for domestic tourism
to adapt and capture opportunities to attract its Moreover, while 2020 was a terrible year for remain promising, and there is strong potential
utilisation. Third, increasing bankruptcies and the hospitality industry, this was almost entirely for a rapid turnaround once the COVID storm has
substantially less supply in the pipeline should due to external factors outside of the industry’s passed.
prove favourable for hoteliers who manage to control. Japan remains a popular tourist
weather the storm. Lastly, in 2020 Japan saw destination for international travellers whose
For more information about this report, please contact us
Savills Japan Savills Hotels Savills Research
Christian Mancini Michael Roberts Tetsuya Kaneko Simon Smith
CEO, Asia Pacific Director, Asia Pacific Director, Head of Research Senior Director,
(Ex. Greater China) +65 6415 7589 & Consultancy, Japan Asia Pacific
+81 3 6777 5150 michael.roberts@ +81 3 6777 5192 +852 2842 4573
cmancini@savills.co.jp savills.com.sg tkaneko@savills.co.jp ssmith@savills.com.hk
Tomotsugu Ichikawa Yoshihiro Kanno
Director, Manager, Research &
Japan Consultancy, Japan
+81 3 6777 5184 +81 3 6777 5275
toichikawa@savills.co.jp ykanno@savills.co.jp
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