Japan’s hotel market to be bolstered by domestic demand

The number of incoming international visitors will not recover to 30 million annually anytime soon.

In 2021 and throughout Q1 2022, Japan’s accommodation market will be supported mostly by domestic demand, with little demand from international visitors, except for the limited capacity that the much delayed Olympics will take up in H2 2021, given the current restrictions. 

Colliers says it is possible that accommodation demand from international visitors will recover after restrictions on sightseeing tours are relaxed and COVID-19 is resolved through the provision of vaccines and various other policy measures. As such, it is likely that the number of incoming international visitors will not recover to 30 million annually until after domestic accommodation demand has recovered, and certainly not before 2023.

Here’s more from Colliers: 

After dropping to around 5% to 20% in all cities, the occupancy index recovered to around 49% in October 2020. However, as occupancy picked up to circa 55% in November 2020, there was a surge in COVID-19 cases, particularly in the Greater Tokyo area (Tokyo and 3 prefectures), Osaka City and Sapporo City, following appeals for the “Go To” Travel campaign to be reviewed and for the operating hours of eating and drinking establishments to be shortened. As at March 2021, we note that room occupancy has slipped back to approximately 32%, as the Japanese government has declared its third state of emergency with new restrictions imposed in Tokyo, Osaka, Kyoto and Hyogo prefectures. 

In contrast, although room rates are down from the previous year, both inner city hotels and business hotels maintained their room rates at almost constant levels from February 2020 through March 2021. The magnitude of the downturn in the occupancy index likely had some effect on the room rate; however, it is noted that if the room rate can be maintained regardless of the occupancy index, the recovery period for the room rate will likely be shorter when the accommodation market enters a recovery phase. 

Previously in 2018 and 2019, hotel room occupancy was at the 75% and above range. However, at the onset of COVID-19, the Japanese government soon declared a state of emergency in March, following a strict travel ban for visitors from 73 countries in April last year. This led to a significant drop in room occupancy to 33% in March and to 14% in April last year –the lowest in record for the city since 1996. 

Japanese hotel developers and operators had been relying on a surge in demand for accommodation in the run-up to the Tokyo 2020 Olympic Games, ramping up construction projects. However, Games have been postponed for a year. Nevertheless, occupancy picked up from May till November, with the recovery underpinned by tourism demand buoyed by factors such as the lifting of the emergency declaration on M y 25 d h “Go To” C mp h d on July 22 created to incentivize domestic travel. 

Due to the second wave of COVID-19 cases in November 2020, hotel occupancy experienced a dip in the following months to 25% in January 2021. As at March 2021, despite the third state of emergency issued by the Japanese government in four prefectures including Tokyo, room occupancy in the city is trending upwards. This was put in place so as to reduce the flow of people during Golden Week, an array of holidays marked by significant travel around the country and abroad. 

On the other hand, despite the effects of COVID-19, hotel room rates in Tokyo have held up relatively well compared to room occupancy. In May 2020, average room rate in Tokyo was recorded at a low of ¥8,213, a decline of circa 46% when compared to the previous year’s figures.

Click here to download the Hotel Insights Q2 2021 report.