Troubles continue for Japan’s hotel industry

Several bumper years of growth for Japan’s hotel and tourism industry were brought to a swift end this year as foreign tourists were locked out by international travel bans. Domestic tourism also remains sluggish despite some efforts by the government to subsidize travelers.

According to research carried out by the Mainichi Shimbun’s Weekly Economist publication, 30 of the 40 major hotel openings this year have been delayed as of August 17. That includes four hotels with openings delayed indefinitely. Both the Four Seasons Hotel Tokyo Otemachi and Tokyo Edition Toranomon, pushed their scheduled opening back several months until this September. Many hotels had planned their opening to coincide with the start of the Summer Olympics this past July, but the postponement of the Olympics has some hotel operators unsure when they can feasibly open.

Before the pandemic, the government had a goal of attracting 40 million foreign tourists in 2020, and 60 million by 2030. Japan welcomed 31.88 million inbound visitors in 2019, a three-fold increase from 2013. The growing number of foreign tourists in recent years had led to a rush in the construction of hotels in Japan’s major cities. A relative shortage in luxury hotels, too, had encouraged then-Chief Cabinet Secretary and now-Prime Minister Yoshihide Suga to announce a plan in late 2019 to support the opening of 50 world-class hotels across the country.

Hotels that have been heavily reliant on foreign guests, including luxury branded hotels, have been suffering the most this year. Fellow Research Head of Mitsubishi UFJ Trust and Banking Corporation’s real estate consulting division Hideo Omizo said there has been little talk of luxury hotel brands departing, but it may become a possibility if they cannot achieve enough revenue to pay rent to the building owners. 

Compact-hotelier ‘the b hotels’ closed four hotels over the past few months in Asakusa, Kyoto Shijo, Kyoto Sanjo, and Sapporo Susukino due to the tourist downturn. Over 90% of hotel guests in the Asakusa hotel had been foreigners. Operating ratios in the remaining hotels are currently between 30 ~ 70%, but remain low for hotels that were once popular with foreign guests. 

The government’s employment subsidy provided to employers to defer layoffs is set to expire this month, while the rental support subsidy application deadline is mid-January 2021. Without further support measures, hotel closures could start to mount. Hajime Takada, executive economist of Okasan Securities, suggests that the current environment is weeding out the smaller, poor-performing hotels and ryokans, and hotels not normally offered for sale could soon hit the market. 

Source: Weekly Economist, September 14, 2020.

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