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Jones Lang LaSalle Hotels Reports

Active investment market testifies Japan`s Hotels are hot property

A rising number of bankruptcies and the restructuring of companies under pressure by creditors created a flurry of hotel investment activity…

A rising number of bankruptcies and the restructuring of companies under pressure by creditors created a flurry of hotel investment activity in Japan during 2002, according to latest edition of Jones Lang LaSalle Hotels` Digest Asia.

2002 was an unusually good year in terms of hotel transactions for this historically illiquid market and we believe this level of investment activity will continue said Tomohiko Sawayanagi, Senior Vice President Jones Lang LaSalle Hotels, Tokyo. The impact of SARS on investors` appetites has been limited as investors continue to be drawn by the prospect of participating in the world`s second largest economy. Due to a prolonged period of economic recession and currency deflation in Japan, many investors feel that now is a good time to enter the market.

By the end of first quarter 2003, the market had already witnessed three publicly announced deals, including Goldman Sachs` acquisition of Daiei hotel portfolio. During 2002, Jones Lang LaSalle Hotels` database recognised a total of seven hotel transactions in Japan. Of these, the more notable deals included the sale of the Sunroute Plaza Tokyo for approximately JPY15.0 billion and the Hotel Okura Kobe for approximately JPY16.5 billion.

Jones Lang LaSalle Hotels gauged investor sentiment at their recent Global Hotel Forum, in Tokyo. It was evident that many people believe hotel investment activity in Japan will only accelerate in the near future as Japanese banks are faced with increasing pressure to write off non-performing loan assets collateralised by hotels said Mr Sawayanagi.

Looking at hotel trading performance during 2002, Tokyo`s first class and luxury market showed continued growth from 2001. Occupancy increased 6.8%, induced by newly renovated room supply. Average daily rate recorded marginal growth at 2.2% to JPY 21,469. As a result, revenue per available room (RevPAR) reached JPY16,295, an increase of 4.2% over 2001.

In 2003, the effect of severe acute respiratory syndrome (SARS) has so far been limited to Tokyo where inbound corporate is a major demand segment. Although the war in Iraq and SARS have caused inbound arrivals to decline in the short term, it will not be of significance in the long term. I expect international arrivals will rebound and resume growth once the SARS situation has stabilised said Mr Sawayanagi.

In the interim, the gap will be offset to certain extent by increased domestic demand as Japanese substitute international holiday plans with local destinations. The marketing of newly opened hotels is also expected to stimulate domestic demand growth.

According to the Digest, over 3,000 rooms are expected to enter the Tokyo hotel market within the first class and luxury sector between 2003 and 2008. The positive combination of new hotel product and prime CBD locations is expected to boost overall ADR in the Tokyo CBD area. Older hotel product will be under increased competition to achieve future ADR projections said Mr Sawayanagi.

Conversely, the major hotel market of Osaka is unlikely to witness any new luxury supply in the near future due to the prolonged local economic downturn and the reluctance of local developers to undertake large scale projects. The one exception to this is Swissotel`s conversion of Nankai South Tower Hotel.

The demand boom Osaka experienced with the opening of Universal Studios Japan (USJ) in 2001 settled in 2002, leading to a 10.1% decline in occupancy in the first and luxury hotel sector. This, coupled with a moderate decline in ADR led to an 8.4% fall in RevPAR to JPY12,626.

In an effort to boost future visitor numbers, USJ opened a new attraction in April and will undertake marketing strategies to tap into new markets such as the weddings segment.

Jones Lang LaSalle Hotels` Digest Asia 2003 Edition provides the latest analysis for 22 major hotel markets spread over 12 countries. It also features an economic report card, tourism market examination and future supply tables.

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Vicky is the co-founder of TravelDailyNews Media Network where she is the Editor-in Chief. She is also responsible for the daily operation and the financial policy. She holds a Bachelor's degree in Tourism Business Administration from the Technical University of Athens and a Master in Business Administration (MBA) from the University of Wales. She has many years of both academic and industrial experience within the travel industry. She has written/edited numerous articles in various tourism magazines.