Industrial Report
(c) JETRO, 2007
Japan’s Hotel Industry
Japanese Economy Division
Summary
Hotels continue to grow both in scale and number in the Japanese market. In response to
growing numbers of both domestic and overseas travelers, hotels of varying purposes and
prices have appeared since around 2000. The hotel market has reached a turning point now
that the markets for luxury and accommodation facilities have begun to polarize.
1. Market Overview
Japanese lodging facilities can be broadly divided into hotels, traditional inns, family-run
guesthouses, pensions and membership resort clubs. The market earned ¥3.33 trillion in profits in
2005, a 0.5% increase over 2004, and hotels accounted for one third of this. Japanese-style inns
and guesthouses continued to decline, but hotels grew in scale and number (figs. 1 & 2).
Fig. 1 Lodging Facility Market Size
6,000
5,000
4,000
3,000
2,000
1,000
Traditional inns
Hotels
Pensions
Guesthouses
Membership
resort
clubs
Total
4,944 4,698
4,673
4,463 4,3274,376
4,534
3,762
4,185
3,980
3,982
3,518
3,313
3,643
986
1,012
3,411
3,328
3,328
933
1,014
1,063
967 990
844
1,056 1,021
1,025
1,018
1,000
1,023
1,016
1,013
1,041
3,502
3,011
2,605
2,208
3,152
3,202
2,019
2,844
1,970
2,324
2,776
2,071
3,155
1,979
2,831
2,446
2,142
(¥ billion)
0
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
Source: Japan Productivity Center for Socio-Economic Development
Fig. 2 Number of Lodging Facilities
120,000
100,000
(Number of facilities)
Hotels
87,927
77,269
73,033
40,000
20,000
Lodging facilities
101,494 99,176 97,267
94,908 92,744
90,343
80,000
60,000
Traditional inns
108,032
104,046 102,854
112,071
68,982 67,891
66,766 64,831 63,388 61,583 59,754
58,003
55,567
4,970
6,633
7,769
7,944
8,110
8,220
8,363
8,518
8,686
8,811
8,990
89
93
97
98
99
00
01
02
03
04
05
0
Source: Ministry of Health, Labour and Welfare
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Industrial Report
(c) JETRO, 2007
Generally recognized hotel categories include city hotels, location-based resorts, luxury
hotels and medium-priced facilities, along with “business hotels” for business travelers (Fig. 3).
The market for hotels that focus purely on lodging facilities has expanded in recent years.
Fig. 3 Hotel Categories
Luxury, High-priced Hotels
Luxury hotels
Park Hyatt Tokyo
Conrad Tokyo
Mandarin Oriental Tokyo
Grand Hyatt Tokyo
Ritz-Carlton Osaka
Single-use Hotels
Imperial Hotel
Hotel Okura
Hotel New Otani
Four Seasons Hotel Tokyo at Chinzan-so
The Westin Tokyo
Daiichi, Hilton,
Prince, Tokyu
Community
hotels
Accommodation
Specific hotels
Toyoko Inn
Route Inn
Super Hotel
Villa Fontaine
Keio Presso Inn
Nishitetsu Inn
Choice Hotels
Accor
R&B
Solare Hotels
City hotels
Business hotels
Washington
Sun Route
Tokyu Inn
Multi-use Hotels
Luxury hotels
Growing polarization
Accommodation
hotels
Capsule
hotels
Casual, Low-cost Hotels
Source: Yano Research Institute Ltd.
2. Industry Trends
A notable trend in recent years has been cases in which Japanese or foreign entities bought
out and revived slumping urban hotels, etc. in regional markets (Fig. 4). According to Thomson
Financial, there were 25 hotel and other lodging facility M&A transactions with a declared value
of $341 million in the 1990s. However, much faster growth took place between 2000 and 2006,
with 173 transactions and a declared value of $2.79 billion. The majority consisted of mergers and
acquisitions between Japanese companies, but cross-border (out-in) transactions rose from six in
the 1990s to 29 from 2000 onward, accounting for around 20% of all transactions from 1990 to
2006.
Buyers, sellers and governments were the underlying factors propelling increased M&A in
hotels and other lodging facilities. Among sellers, two key motivations were, first, to qualify for
impaired asset accounting from as early as March 2004 (such accounting would become
mandatory from March 2006) and, second, to dispose of non-core operations. Buyers sought to
realize improved profits as asset prices declined, and new mechanisms became possible to link
financing and real estate, such as securitized real estate products and Japanese REITs. These
developments coincided with the government’s interest in using tourism to energize local
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Industrial Report
(c) JETRO, 2007
economies. They were also linked to efforts by the Industrial Revitalization Corporation of Japan
and Development Bank of Japan to stimulate regional tourism.
Fig. 4 Hotel/Lodging Facility M&A with Japanese Firms (completed deals)
(Number, US$ million)
Total
Number Declared value
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
1990-1999
2000-2006
1990-2006
1
1
0
1
1
1
4
1
2
13
11
23
17
20
43
34
25
25
173
198
0
229
9
1
102
47
793
249
830
278
375
217
341
2,789
3,130
Cross-border
Between domestic firms
Number Declared value Number Declared value
1
0
0
0
0
1
0
0
0
0
0
0
1
1
229
0
0
1
9
0
0
0
0
4
1
0
0
0
0
2
1
2
33
11
68
1
10
47
4
147
19
646
0
0
17
249
4
808
16
23
12
220
31
59
4
22
30
353
4
21
217
6
271
19
69
29
1,196
144
1,594
35
1,467
163
1,663
Data as of February 2, 2007. Includes membership lodging facilities, campsites, apartments and boarding houses,
as well as hotels and motels. Announced values are totals of figures that have been released and do not include
amounts that have not been publicized.
Source: Thomson Financial
International
hotel
Fig. 5 Change in Room Occupancy Rates by Districts
chains rushed to build and
operate luxury hotels once the 85.0 (%)
Greater Nagoya 83.0
Japanese economy began to
Greater Tokyo Southern Kanto
expand in 2002. As other 80.0
79.7
78.9
79.8
77.5
companies moved to increase
Greater Osaka
Hokkaido
76.9
the value of their properties
75.7
75.1
73.5
75.0
All-area average
and surrounding areas by
74.5
74.1
incorporating luxury hotels as
72.7
Southern Kyushu
anchors for the redevelopment 70.0
Northern Kyushu
of urban centers, foreign hotel
Chugoku
Tohoku
operators moved in to fill the
Shikoku
65.0
vacuum in luxury hotels.
Koshinetsu
Existing hotels prepared for
Northern Kanto
the increased competition 60.0
through major refurbishing,
2002
2003
2004
2005
which played a key role in the
Source: Ohta Publications Co., Ltd.
expansion
of
demand.
Occupancy rates of around
80% were achieved at hotels in the greater Tokyo, Nagoya and Osaka areas in 2005 (Fig. 5).
New market entrants operating hotels with limited functions focused on overnight stays have
increased. Domestic and foreign investment funds, realties, rail companies and other firms have
purchased business hotel chains that ran into trouble after they over-diversified during the bubble
period. They have employed franchising and other methods to rapidly expand locations and raise
brand recognition, attempting to grow their markets by attracting longer-staying non-corporate
guests.
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Industrial Report
(c) JETRO, 2007
3. Market Entry Process
The construction and operation of hotels requires careful attention to relevant laws and
regulations, including the Building Standards Law, Hotel Business Law and Food Sanitation Law
(Fig. 6). Hotels offering lodging and services for foreign guests can receive fixed asset tax breaks
and other favorable tax treatment by registering under the Law for Improvement of International
Hotel Facilities (Fig. 7).
Fig. 6 Main Hotel-Related Laws
Law
Hotel Business Law
Building Standards Law
Fire Defense Law
Amended “Heart Building” Law (accessible public transport for
aged/disabled)
Food Sanitation Law
Public Bath House Law
Entertainment Establishment Control Law
International Hotel Facility Improvement Law
Japan City Hotel Association standards
URL
law.e-gov.go.jp/htmldata/S23/S23HO138.html
law.e-gov.go.jp/htmldata/S25/S25HO201.html
law.e-gov.go.jp/htmldata/S23/S23HO186.html
www.mlit.go.jp/jutakukentiku/build/barrier-free.html
law.e-gov.go.jp/htmldata//miseko/S32HO026/H18HO091.html
law.e-gov.go.jp/htmldata/S22/S22HO233.html
law.e-gov.go.jp/htmldata/S23/S23HO139.html
law.e-gov.go.jp/htmldata/S23/S23HO122.html
law.e-gov.go.jp/htmldata/S24/S24HO279.html
hotel.nihon-kankou.or.jp
www.jcha.or.jp
Foreign
investors
should
Fig. 7 Government-Registered Hotels and Inns
understand the key roles of travel
agents, wholesalers and specialized
(Number of businesses)
wholesalers. Individual customers 2,500
2,050 2,045 2,022 2,010 2,011 2,007 1,996
generally use a travel agent rather than
2,000
making reservations directly with a
hotel. Using travel agents can mean
1,500
that hotels earn less profit, but can also
1,063 1,083 1,085 1,095 1,103 1,125 1,127
cut sales costs and attract a broad range 1,000
of customers. In recent years, more
Hotels
people have begun booking rooms
500
through the Internet, making it an
Traditional inns
important sales channel alongside
0
travel agencies. Diversification of sales
98
99
00
01
02
03
04
has become important due to the
Source: Tourism Department, Policy Bureau, Ministry of Land,
extreme difficult of individual hotels
Infrastructure and Transport
undertaking sales on their own.
Food procurement for facilities with their own restaurants can involve in-company
distribution, route sales and commercial wholesalers. The latter is the most common method
because it assures stable, efficient procurement, although it also necessitates the payment of
margins to middlemen and can limit the range of products sourced. Another Japanese business
custom involves the use of trading companies for the outsourcing of activities such as
merchandising and bill collecting.
4. Outlook
Excess accommodation has become a concern in view of new hotels scheduled to open in
central Tokyo by 2008, as well as existing hotels undertaking major facelifts. However, demand
from domestic leisure travel is already strong and is expected to remain so (Fig. 8). Baby boomers,
who will retire en masse starting in 2007, are interested in the environment and culture (Fig. 9), so
it should be possible to develop new demand from this group through strategies that strategically
emphasize location, target marketing and high-quality facilities and services.
Measures to waive short-term visas for travelers from China, Korea, Taiwan and other East
Asian countries are expected to help boost visitations (Fig. 10).
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Industrial Report
(c) JETRO, 2007
Fig. 8 Top 20 Preferred Leisure Activities
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
20
2003
2004
Domestic travel (hot spring, to escape heat
Domestic travel (hot spring, to escape heat
1
or cold, etc.)
or cold, etc.)
Dining out (not including everyday meals) 2 Dining out (not including everyday meals)
Going for a drive
3 Going for a drive
Overseas travel
4 PC (for games, hobbies, communications)
PC (for games, hobbies, communications)
5 Overseas travel
Movies (not including on TV)
6 Lottery
Lottery
7 Watching videos (including rentals)
Aquarium, botanical garden, museum, zoo 8 Movies (not including on TV)
Karaoke
9 Aquarium, botanical garden, museum, zoo
Watching videos (including rentals)
10 Karaoke
Hiking, picnics, strolling outdoors
Watching sports (not including on TV)
11 Listening to music (CDs, FM radio,
Concerts, recitals
records, cassettes)
Listening to music (CDs, FM radio,
13 Bars, drinking establishments, pubs
records, cassettes)
Gardening, yardwork
14 Hiking, picnics, strolling outdoors
Amusement park
15 Gardening, yardwork
Events, expositions
16 Concerts, recitals
Bars, drinking establishments, pubs
Video games (at home)
17
Swimming (at a pool)
Events, expositions
Watching sports (not including on TV)
19 Jogging, distance running
Jogging, distance running
20 Fishing
1
2
3
5
6
7
8
10
11
2005
Domestic travel (hot spring, to escape heat
or cold, etc.)
Dining out (not including everyday meals)
Overseas travel
Going for a drive
Movies (not including on TV)
Aquarium, botanical garden, museum, zoo
Concerts, recitals
PC (for games, hobbies, communications)
Karaoke
Lottery
Hiking, picnics, strolling outdoors
12 Gardening, yardwork
13
14
15
16
17
18
19
20
Listening to music (CDs, FM radio,
records, cassettes)
Amusement park
Watching videos (including rentals)
Events, expositions
Exercising (without equipment)
Swimming (at a pool)
Traveling back to home town
Theater (not including on TV)
Source: Japan Productivity Center for Socio-Economic Development
Fig. 9 Travel Styles Envisioned in Next Decade
0
20
40
60
Fig. 10 Foreign Tourists in Japan
80
100
%
82.0
87.4
87.6
73.8
80.3
76.0
72.0
59.8
75.2
Emphasis on environment
Prefer unfamiliar destination to
familiar
Prefer to travel with friends rather
than alone
Total (right axis)
1,800,000
66.0
63.0
64.4
61.8
59.0
55.3
53.0
55.1
49.6
50.4
45.6
37.1
44.5 Total
43.3
Two nights or more rather than day
trip or one night, two days
Study up rather than going without
knowing anything
Full travel experience rather than
easy trip
Arrange on one’s own rather than
taking a tour
A notch up rather than inexpensive
23.6
20.7
7,000,000
U.S.
1,600,000
China
Hong Kong
1,400,000
6,000,000
U.K.
Australia
83.4
82.6
Philippines
1,200,000
5,000,000
Canada
Thailand
4,000,000
1,000,000
800,000
3,000,000
600,000
2,000,000
400,000
Male baby
Travel that emphasizes experiences
over sightseeing
(Number)
Taiwan
67.7
Prefer traditional to modern
destination
Korea
53.7 boomers
35.9
Female baby
boomers
1,000,000
200,000
Source: Japan Productivity Center for SocioEconomic Development
0
0
96 97 98 99 00 01 02 03 04 05
Source: Ministry of Justice
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Industrial Report
(c) JETRO, 2007
5. Trends
A. Foreign Luxury Hotels to Continue Opening
International hotel chains have rushed to build and operate luxury hotels (Fig. 11), with two
major openings scheduled for 2007. New openings in Tokyo will fall off temporarily after the
spring 2009 opening of the Shangri-La Hotel, Tokyo, but luxury hotel openings appear to be
spreading to regional cities, such as the Grand Hyatt Fukuoka, Nagoya Marriott Associa Hotel and
The Ritz-Carlton, Osaka. The St. Regis, the top luxury brand of the Starwood Hotels and Resorts
group in the U.S., will be invited to operate in Osaka, according to an article in the February 7,
2007 issue of Nihon Keizai Shimbun. An InterContinental Hotel is scheduled to open in Okinawa
in 2008. Many anticipate the boom in foreign luxury hotel openings will spread nationwide.
Fig. 11 Foreign Hotels in Tokyo
Hotel
Four Seasons Hotel Tokyo at Marunouchi
Grand Hyatt Tokyo
Conrad Tokyo
Mandarin Oriental Tokyo
The Ritz-Carlton, Tokyo
The Peninsula Tokyo
Shangri-la Hotel, Tokyo
Location
Marunouchi
Roppongi
Shiodome
Nihonbashi
Roppongi
Hibiya
Marunouchi
Year opened
October 2002
April 2003
July 2005
December 2005
March 2007
Fall 2007 (scheduled)
Spring 2009 (scheduled)
Source: Above companies’ Web sites
B. Domestic Airlines Sell off Hotels
All Nippon Airways Co., Ltd. (ANA) announced a capital partnership with InterContinental
Hotels Group (IHG) in October 2006, resulting in the founding of IHG ANA Hotels Group Japan
LLC. to operate the 31 hotels ANA owns in Japan.1 After the new company began operating in
December 2006, it announced the sale of 13 properties directly operated by ANA. Although ANA
hotel operations have maintained solid business results, management will be delegated to the new
company so that ANA can strengthen the competitiveness of its core airline operations.
Japan Airlines (JAL) is also in the process of restructuring. Reports indicate JAL will sell its
share in the Hotel Nikko Tokyo’s holding company to an American investment fund. JAL also
announced it would extricate itself from the risk involved in asset holdings and strengthen its
outsourcing operations as part of a medium-term business plan released in February 2007. It also
announced it will concentrate resources on airline operations, and hopes to strengthen its financial
condition and competitiveness by selling off 30% of its shareholdings in JALUX Inc., the operator
of its air terminal shops.
These moves by both airlines are seen as a return to focusing on core businesses, which
could serve as a new business model for the Japanese tourism industry.
Reference
JETRO Japanese Market Report #75, Hotels
(http://www.jetro.go.jp/en/market/reports/jmr/)
1
Establishment of limited liability companies is permitted under the New Corporate Law enacted in May 2006. For details, see
Japan Economic Monthly, “Reforms Under the New Corporate Law,” August 2005. www.jetro.go.jp/en/market/trend/jem
6