Foreign investors propel Japan's hotel sector amidst declining domestic Interest

Record-breaking inflow from global investors exceeds Tokyo 2020 expectations.

Foreign investments in Japan's hotel sector are skyrocketing as domestic interest takes a backseat, fueled by the reopening of the tourism market. The country's thriving hospitality industry and resurgent tourism have attracted a wave of international investors seeking profitable avenues for growth.

Over the past year, foreign investors have poured US$1.7b (JPY232b) into Japanese hotels, nearly doubling the previous year's investments and marking the second-highest influx of foreign capital. These figures even surpass the anticipation surrounding the Tokyo 2020 Olympics. In contrast, domestic investment has fallen by 30%, resulting in a 47% spike in cross-border share for the past 12 months, a 15-year high.

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Global investors from North America and Europe have turned their focus to Japan, investing over US$1.2b in the first three months of 2023 alone. However, office investment has declined by approximately 50%, totaling US$10.6b in the first quarter. Japan's office market is struggling with an oversupply space and negative rental growth.

Despite the mixed fortunes in the office real estate sector, foreign investors remain enthusiastic about Japan's multifamily sector. BentallGreenOak and AXA IM Alts are among the companies securing sizable portfolios in Japan's multifamily market, further reinforcing the foreign interest and investment in the country's real estate.

The surge in foreign investments in Japan's hotel sector reflects growing confidence in the country's tourism industry, despite domestic investors’ cautious approach. This shift in the real estate industry underlines the importance of the hospitality sector in Japan's succeeding investment landscape.