It has been seven years since Tokyo won the right to host the 2020 Olympics, and the countdown to the event is ticking toward months rather than years. Although the Games have proven expensive white elephants for municipal governments -- shambolic Athens being the low point -- the hotel and hospitality industries undoubtedly benefit.
But do they gain in the long term? Or is their jolt of cash and influx of visitors restricted to August? It's a question that many in the industry are now pondering.
The Japanese government predicts that Tokyo will draw 8.5 million tourists during the Games, which it forecasts should also generate ¥3 trillion (U.S.$27 billion) and create 150,000 jobs. Long term, Japan hopes to boost the number of international tourists to 30 million per year by 2030, something the brokerage Jones Lang LaSalle (JLL) says is "highly achievable."
Tokyo is a mature hotel market, so it will be adding less room stock than emerging cities that have hosted the Games. There are 140,000 internationally branded hotel rooms within 30 miles of the Olympic sites, according to the International Olympic Committee, and 9,500 rooms in traditional ryokan inns.
Once avoided, Japanese hotels are now coming into their own as an asset class. "Before, hotels were one of the most-risky real-estate assets," Yuko Tomizuka, a valuer and real-estate consultant who runs Abrils, says. "It was very hard to manage getting solid and stable revenue from hotel operations." Financing was also very difficult to access.
Room rates in Tokyo, at around $125, were low compared with other gateway cities such as London and New York, both with rates the equivalent of around $300. Occupancy never climbed above 80%.
That situation has changed, however, with hotels now viewed as money-spinners. They are generating yields that are equivalent to stable office space, something that has attracted Japan's major developers and institutional investors who never before considered the asset class. Occupancy rates in central Tokyo range from 90% to 95%, and room rates have risen to around $225 per night.
Newspaper operators such Fuji Media Holdings (FJTNY) , which runs the conservative paper Sankei, are converting commercial space into hotels, such as a 35-year-old office in Akihabara, now a budget hotel called Grids Hostel. The developer, B-Lot, transformed a 28-year-old office tower near Tsukiji fish market into a business hotel called First Cabin, then sold it on to Hong Kong-based property investor SIS International Holdings. Japan's railways, such as East Japan Railway (EJPRY) and its Central (CJPRY) and West (WJRYY) namesakes, are also investing in hotels.
The short-term picture for Japan's hotel industry is uncertain, according to the investment bank Nomura (NMR) , which noted in late January that the real-estate investment trusts Invincible Investment and Japan Hotel REIT Investment lowered earnings estimates around the turn of the year. That's caused general concern over sluggish leisure and business demand and a yen that was strengthening heading into 2017.
However, performance at certain individual hotels paints a sunnier picture. Revenue per room at three hotels owned by Activia Properties is up by almost one-third in the last 18 months. United Urban Investment is seeing strong earnings at Hotel JLA City Naha, in Okinawa, and made beneficial lease changes at one of its Tokyo hotels. Orix JREIT is buying the Tokyo Disney hotel Sunroute Plaza Tokyo from its parent, the Orix Group (IX) , where occupancy is 95% and overseas visitors make up only 1% of guests.
The Olympics typically cause a drop in hotel occupancy in the year around the Games, since travelers put off non-essential business and pleasure trips. But the decline is more than offset by higher room rates. London saw per-night prices leap 12.5% in 2012, the year it hosted the Games, hitting £134 ($167), while Beijing prices jumped 31% to $145 in 2008, according to STR Global.
Annual figures aren't in for Rio de Janeiro, but it saw a bigger boost in August, the Olympics month, with prices up 199% compared with 184% in Beijing and around 44% in London. Only London saw continued strong hotel performance after the Olympics, with industry performance well down in Beijing and Rio after the events.
With the Olympics a one-time-only occasion, some critics contend that the Tokyo hotel market is already overheated. The optimism about the upcoming gains until 2020 may be warranted, but there's concern about how the industry will perform beyond that point. Short term, the industry will also get a boost from the Asian Winter Games, due to take place in February. It will also host the 2019 Rugby World Cup.
The Olympics will no doubt lead to a post-event lull in interest in the sector, Tomizuka admits, once the pomp and pageantry has vanished and the new supply continues operating. But the opening of Japan's first casinos, likely to occur around 2023, should pick up some of the slack.
"Probably there will be some period that we'll see to fill in that supply-demand gap," she says. "Values will stabilize or have a slight drop. But over the medium to long term the hotel market in Japan seems quite profitable, and will see solid growth."