Luxury ryokans seeing surge in investment

Atami Fufu
The Atami Fufu Ryokan

With expectations of growing demand from travellers and foreign tourists, luxury ryokans (traditional Japanese inns) and hotels across Japan are now a highly sought-after target by funds and major real estate companies. This means foreign investors looking to get into the hotel market in Japan will be facing increasingly tough competition from domestic investors.

This month, real estate giant HULIC will acquire two hotel properties in Hakone and Atami from Kato Pleasure Group. HULIC’s main business is office leasing and management, but with a declining population, they have been expanding their operations to other areas of the property market.

One of the acquisitions is the Hakone-Suishoen –  a luxury ryokan with 23 guest suites, each with their own private ‘rotenburo’ outdoor bath which draws upon natural spring water. Rooms can cost over 100,000 Yen per night for two guests. The property includes the former holiday villa of the noble Mitsui family. The historic Mitsui Takamachi Villa, dating from 1925, is used as the hotel restaurant and bar. The hotel was opened in 2007 by KPG Luxury Hotels and has an occupancy ratio of over 80%.

HULIC plan to acquire 1 ~ 2 ryokans annually and are targeting high-end hotels with 30 ~ 50 guest rooms. They have a budget of 2 ~ 3 billion Yen per hotel, and are looking at investing 30 billion Yen over the next five years.

In October 2014, Mori Trust acquired the Hakone Gora Onsen Seihokaku Terumoto Ryokan and are redeveloping the property into a luxury resort complete with rooms with their own outdoor hot spring pools.

Hakone Seihokaku Terumoto Ryokan
The Hakone Seihokaku Terumoto Ryokan

Hakone’s Gora district has been a highly regarded resort and hot spring area since the Meiji period. With a  growing number of foreign tourists to Japan, Mori is expecting Tokyo’s surrounding resort areas to be popular destinations for foreign guests. The ryokan is on a 10,000 sqm site and is a 3 minute walk to the Hakone Tozan cablecar. They are seeking an internationally recognised hotel brand as an operator and hope to have the new hotel open by 2017 ~ 2018.

Central Tokyo is also seeing the continued development of luxury hotels. Next year, Hoshino Resort will open the Hoshino Tokyo hotel in Tokyo’s Otemachi business district complete with hot spring baths. The replacement for the Grand Prince Akasaka Hotel is expected to open in 2016. The new hotel will have 250 rooms starting from 60,000 Yen per night.

Hoshino Tokyo and Tokyo Garden Terrace
Hoshino Tokyo (left) and the redevelopment of the former Grand Prince Hotel Akasaka (right).

Hoshino also plan to open a luxury hot spring ryokan in Nikko’s Kinugawa Onsen area later this year. The 48-room ryokan will be part of Hoshino’s KAI brand and is being built on the 36,000 sqm site of a former recreation facility owned by TEPCO. Rooms will start from around 32,000 Yen per night. Hoshino are also opening a camp site for ‘glamping’ near Lake Kawaguchi in Yamanashi Prefecture. Cabins start from 63,000 Yen per night and have Wifi and views towards Mt. Fuji.

The high-end hotel industry, and particularly the ryokan industry, has been benefitting greatly from the increase in foreign tourists. In 2014, over 1.3 million foreign travellers visited Japan, up 30% from the year before.

Another source of demand is from Japan’s retiree generation. In 2014, 25.9% of the population was aged over 65. In 2030, that number is expected to exceed 30%. According to the Ministry of Internal Affairs and Communications, the tourists that spend the most on travel packages are aged in their 60s and above.

The cost of hotel accommodation in Tokyo is said to be approximately 40% cheaper than New York. With the steep growth in the number of foreign visitors, there are concerns about a shortage in hotel rooms.

In 2014, there were 96 recorded sales of hotels within Japan. The trend has been increasing since 2009. Investment in the luxury hotel market is expected to grow for the foreseeable future.

Sources:
More Trust Group Press Release, October 24, 2014.
The Nikkei Shimbun, April 12, 2015.
The Nikkei Shimbun, April 15, 2015.

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