Luxury, Hotel Stocks Are All the Rage as Tourists Flock to Japan

As Japan's borders reopen and tourism surges, luxury and upscale hotel stocks are booming, attracting institutional investors and driving robust investment activity. The country's sizable population and steady domestic tourism, coupled with an increasing number of inbound travelers, have created a strong demand for accommodations, particularly in the high-end segment. This article explores the trends and investment opportunities in Japan's luxury hotel sector.



Occupancy Rates and Average Daily Rates (ADR)

Since the reopening of borders, luxury and upscale hotels in Japan have witnessed a significant increase in occupancy rates and average daily rates (ADR). According to CBRE's Market Update series, occupancy rates for these hotels have been on the rise, with business and city hotels expected to register an improvement in operating performance in 2024. Although occupancy was down 11% as of February 2024 year-to-date compared to the same period in 2019, CBRE expects an improvement over the course of this year due to 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. This increase in tourism is likely to drive an occupancy recovery in well-managed assets in core locations, leading to higher ADR.

Impact on Domestic Travelers and Local Communities

The surge in international tourists in Japan has led to several side effects for domestic travelers and local communities. As more foreign visitors arrive, there is increased competition for accommodation and other resources, which can drive up prices and make it more difficult for domestic travelers to find affordable options. Additionally, the influx of tourists can lead to overcrowding in popular destinations, causing inconvenience and discomfort for both locals and domestic visitors. Furthermore, the focus on luxury hotels catering to international tourists may lead to a lack of affordable accommodation options for domestic travelers and local residents.

To balance the needs of both international tourists and domestic travelers/local communities, the hotel industry can take several steps, such as diversifying accommodation options, promoting off-peak travel, engaging with local communities, and encouraging sustainable tourism practices.

Institutional Investors and Hotel Sector Growth

Institutional investors, such as J-REITs (Japan Real Estate Investment Trusts), play a significant role in the growth and development of the hotel sector in Japan, particularly in the luxury and upscale segments. Their investment strategies have a notable impact on the market, as seen in the following points:

1. Increased demand for luxury and upscale assets: Institutional investors, including J-REITs, are actively seeking to acquire luxury and upscale hotel assets. This increased demand drives up prices and encourages developers to build more high-end properties to meet the growing demand.
2. Expansion of co-living sector: Investors are also looking to increase their exposure to the co-living sector, which caters to a growing number of young professionals and digital nomads seeking affordable, flexible, and community-oriented housing options. This trend supports the development of new hotel concepts and services tailored to these target groups.
3. Robust hotel investment volumes: Despite the Bank of Japan's decision to raise the central policy rate, 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. This robust investment activity indicates the confidence institutional investors have in the Japanese hotel market.
4. Impact on hotel performance: The increased investment activity and demand for luxury and upscale assets have contributed to an improvement in operating performance for business and city hotels. Accommodation nights for these assets have already increased by 16% and 13%, respectively, when comparing 2024 year-to-date to 2019 year-to-date.
5. Influence on hotel supply: The surge in investment and demand for luxury and upscale assets has also led to an increase in new supply in these segments. This trend is expected to continue, as investors look to capitalize on the growing demand for high-end accommodations.



In conclusion, the luxury and upscale hotel sector in Japan is booming, driven by a surge in tourism and robust investment activity from institutional investors. As the country continues to attract more international visitors, the demand for high-end accommodations is likely to remain strong, presenting attractive investment opportunities for those looking to capitalize on this trend. However, it is essential to consider the impact of this growth on domestic travelers and local communities, and to promote sustainable tourism practices to ensure that the benefits of tourism are shared more equitably among all stakeholders.