Japan’s Tourism Boom: The Effect on Accommodation

Japan is experiencing a tourism boom with as many as 20 million tourists expected to visit Japan by the end of this year, potentially reaching Abe’s government target of 20 million tourists by 2020, 5 years early.

Omotesando visitors

Furthermore Abe’s government have set a target of 30 million tourists by 2030, with the prospect of propelling Japan into the top ranks for worldwide tourism. At the end of June 9.14 million tourists had already visited Japan, representing a 46% increase on the previous year. Japan’s increased tourist numbers are thanks to the weak yen, visa deregulation for some Asian countries, and the low-cost airfares from neighbouring Asian countries. In the next 5 years more tourists are expected to visit Japan due to it winning the rights to host two major events: the 2019 Rugby World Cup and Tokyo 2020.

What does this mean for Japan’s hotel industry?

Tokyo currently has about 100,000 hotels rooms with an occupancy rate running at over 90%. According to STR Global over the next 3 years only 9938 rooms are scheduled to be added to this number, a 10% increase in supply. A majority of the rooms will come from several new luxury hotel developments for example the Andaz Tokyo, Toranomon Hills and the new Hotel Okura. Rising tourist numbers will only put more pressure on Tokyo’s hotel supply; demand will outstrip supply unless an innovative solution is put forward. Exacerbating the situation further is the cost of construction to build new hotels; increasing land prices, ongoing labour shortages and the expense of importing primary materials are disincentives for hotel development.

Potential alternatives

According to Jones Lang LaSalle there are two possible solutions to Tokyo’s hotel supply and demand issue. The first and the most cost-effective solution for Tokyo’s hotel industry could be to maximise occupancy capacity in hotels by increasing the number of beds per rooms. The second is for the Japanese government to incentivise hotel developers; for example, telling them to develop new multipurpose complexes in exchange for tax breaks or other ‘rewards’ per floor for your hotel. Other alternatives include converting unused spaces or buildings into hostels, capsule hotels or hotels. This offers an immediate solution to the problem, which is cheaper and less time consuming than the construction of a new hotel development.

Currently the market for capsule hotels in Tokyo is tiny; however, in the near future this could change with the growing number of tourists. Innovative developers and hotel operators are converting old office buildings etc. into capsule hotels, following a new hotel business model. Capsule hotels offer tourists’ the cheapest accommodation in Tokyo with room prices ranging between $27 (£17) and $46 (£29) per night. In comparison the lowest ranked business hotels will charge ~$76 (~£48) per night.

Is Airbnb a solution?

Airbnb is a global phenomenon except in Japan. According to Airbnb, Tokyo has about 2500 listings on its site significantly less than any other major global city.

Commentators have suggested several factors for this slow growth including:

Japanese legislation does not permit the leasing of residential properties for short-term periods (less than a month) without the approval of prefectural authorities

The vast majority of Japanese people are uncomfortable with dealing with foreigners due to cultural customs / differences of expectations

Most Japanese speak very little or no English, let alone other foreign languages

Living in a Japanese home is complicated for foreigners due to residential rules and social norms

Some apartments are only for Japanese residents

Japan’s lack of street signs and house numbers make little sense to foreigners, an issue for foreigners staying in Airbnb accommodation

At Housing Japan, we have already seen rising interest in this area, especially amongst foreign investors or home-owners who are looking to rent out their places for a short-time while they themselves live elsewhere. Being closer to the foreign users of Airbnb has allowed for some foreign owners to customise their properties and offer unique experiences.

Where a lot of the blowback has been is in cases where foreign residents have created a noise or mess by not understanding Japanese residential norms. Those who are confused by modern Japanese security systems or who try to engage with doormen or building staff have also caused nuisances and led to complaints.

There will likely continue to be some blow against such a service as AirBnB, simply because it goes so much against the grain of Japanese regulations, but there success cases to. Together with the increasing tourist numbers, Japan’s government may start encouraging its citizens to open unused property in this way. As an example of this, in 2014, specific areas of Tokyo were designated special zones, relaxing Japan’s short-term rental legislation. Earlier this summer, Airbnb announced that as part of Japan’s economic growth plan, the Japanese government is reviewing/reforming its laws to make Japan a more foreigner-friendly country by the 2019 Rugby World Cup and Tokyo 2020. Further relaxation is expected elsewhere after the government’s review making Airbnb an attractive rental alternative for real estate investors. Airbnb has the potential to see significant growth in the region over the next 5 years; Airbnb has an excellent track record with Olympic host cities and the tentative support from Prime Minister Abe.

 


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