The hotel industry is facing challenges to keep up with the growing demand for rooms. This is in line with the government’s plans to welcome 60,000,000 tourists by 2030 in order to offset the struggling parts of the Japanese economy.

Hotel construction started doubled last year to reach an 18-year high of 1.96 million sqm. Marriott, the largest hotel operator, has five hotels that it is rebranding before the 2020 Tokyo Olympics.

Small local hoteliers also want a piece of the tourism boom. The country’s love hotels are being transformed into low-cost, cozy boutique hotels to fill the gap at the lower end of the market.

It is only natural that hotel owners and operators who are experiencing a decline in revenue convert their properties to hotels that target inbound tourists. This phenomenon was also seen in Seoul, South Korea, five to six years ago when the city was crowded with Chinese tourists.

Sawayanagi says that brands like Andaz, Moxy, and Edition, which are new on the market, have a unique approach to lifestyle boutique hotels. Moxy is launching in Tokyo and Osaka in 2019, while Edition plans to open two properties in Tokyo in 2020. In 2019, even the Japanese lifestyle brand Muji will offer its hospitality concept in Ginza.

Accommodations beyond Hotels

Japan is not immune to the growing home rental market led by Airbnb and others. New laws for home-sharing services aim to eliminate some of the less desirable aspects of the sector and provide more regulated accommodation options.

In recent years, Japan has witnessed a massive increase in the illegal operation of quasi-hotels at residential homes. According to Sawayanagi, the Osaka City Government reported recently that the estimated room count for the illicit operation is one-third the number of hotel rooms. Once the “Airbnb law” is passed in 2018, some (if not all) illegal operations are expected to be eliminated from the market.

Managing Supply and Demand

Could Japan be headed for a glut, with the supply quickly outstripping the demand? Alarm bells are already ringing in the industry over the increase in rooms. The hotel industry has grown rapidly from 2013 to 2016, and this year appears to be a consolidation period, observes Sawayanagi. “New supply will likely peak in 2019.”

As many Japanese travelers return to Japan, they may choose to visit other parts of the country. This could cause problems for hotels in Tokyo and Osaka. Sawayanagi says: “Increased room rates at city centers in Tokyo and Osaka will likely drive tourists to satellite cities.” Travelers can now choose Airbnb-style accommodation, which is a more affordable and accessible option.

Still, there are reasons to be optimistic. Japan is still on track to reach 40 million tourists by 2020, as the growth rate remains around 15% annually. The Japanese authorities reported a 16.8 percent increase year-over-year when 2.68 million tourists visited Japan in July.

Sawayanagi says that the relatively favorable exchange rate for travelers from abroad has played a significant role. Sawayanagi adds that the yen is likely to remain stable at the current rate for the foreseeable future. This bodes well for foreign travelers.

Managing the influx

In the future, Japan’s housing sector may face a shortage of workers rather than an oversupply. Construction costs remain high due to the lack of workers in construction and an increase in demand for projects related to the Olympic Games as well as hotels.

The shortage of labor, particularly in resort areas, has a direct impact on operating costs and, therefore, the bottom line. “If the Japanese Government is serious about boosting the tourism market, they need to think about opening up the labor market through easing labor visas,” says Sawayanagi.

The current geopolitical unrest on the Korean Peninsula could also affect tourism. Travel agencies in Hong Kong say that the number of travelers to Japan has not decreased. The immediate priority for Japan’s lodging market is to catch up.

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