Investment in Japanese Hotels Jumps 50% as Foreign Investors Pile In

2024/01/03 by Poonyapat Luenam Leave a Comment

A consortium led by SC Capital acquired the Royal Hotel Okinawa Zanpamisaki as part of last year’s biggest property buy

With Japan’s tourism sector on the rebound, global players have ramped up purchases of hospitality assets in Asia’s second largest economy, with foreign investors accounting for more than 60 percent of hotel acquisitions in the country during the first three quarters of 2023, according to Savills Japan.

With the proportion of foreign-invested deals jumping 20 percentage points from the same period a year earlier, commitments to Japanese hospitality assets climbed to more than JPY 500 billion ($3.5 billion) from January through September, which was up 50 percent from the first same period in 2022, the property consultancy said in a recently published report citing data from MSCI.

“2023 has been a standout year for the hospitality sector, having witnessed the reopening of borders and robust recovery to pre-pandemic levels. As such, hotels have experienced magnetic appeal among investors, and a much-anticipated intensification of transaction activity has taken place,” Savills said in the study.

SC Capital Partners joined with Goldman Sachs and the Abu Dhabi Investment Authority in July to acquire a portfolio of 27 resort hotels across Japan for $900 million in Japan’s largest hotel deal of last year. The deal was also the year’s largest Japanese property acquisition by non-local entities.

Japan Tourism Resurgence
Savills attributed the recovery in Japan’s hotel sector to depreciation of the yen, removal of border restrictions and growth of inbound tourism.

According to a report from the Japan National Tourism Organisation, 2.5 million foreign visitors arrived in the country during October, twice as many as during the same month in 2019. That recovery comes despite arrivals from mainland China still lagging 2019 levels by more than 57 percent in the June to September period, according to government data.

Christian Mancini, chief executive of Savills Asia Pacific (excluding Greater China)

Visitors are also boosting their travel budgets, with Savills pointing to benefits for the luxury hospitality sector. In the first half of 2023, the average visitor from mainland China spent an average of JPY 477,000, which was up by 143 percent from the same period in 2019. European travellers averaged JPY 262,000 in spending in the first half of last year, which was up by 49 percent from January through June 2019, Savills said, citing government data.

US private equity giant KKR made last year’s biggest bet on Japan’s high-end hotel sector in July when it teamed up with entities managed by Gaw Capital Partners to buy the Hyatt Regency Tokyo in the capital’s Shinjuku district from Odakyu Electric Railway for around $409 million.

In January last year North American fund manager BentallGreenOak also put its money on luxury hospitality when it acquired the Rihga Royal Hotel Osaka for a reported JPY 50 billion.

“The hotel sector has improved dramatically in 2023, and given the segment’s bright prospects, many investors will continue to explore opportunities in the market. Overall, the market should continue this encouraging trajectory moving forward, but individual hotel performance will depend largely on the hotel grade and respective market,” Savills said in the report.

Sheds Stay Hot
Alongside the upswing in hospitality deals, trades of Japanese logistics properties more than doubled in the first three quarters of 2023, compared to a year earlier, totalling more than JPY 800 billion.

Foreign investors also played a key role in that shed surge, with overseas capital accounting for around 30 percent of acquisitions of Japanese logistics properties in the first nine months of 2023, which was up approximately 15 percentage points from the same period in 2022.

In April, Singapore’s GIC made the largest acquisition of Japanese warehouses of 2023 when it purchased a portfolio of six distribution facilities from Blackstone for more than $800 million.