February 17, 2017 2:10 am JST

Top Tokyo, Osaka hotels see occupancy rates slip

Increased room supply, Airbnb sap potential growth in demand

The average occupancy rate at leading Osaka hotels fell for the first time in five years in 2016.

OSAKA -- A sharp increase in the number of hotel rooms and the growing popularity of private lodging rentals dented occupancy rates at leading hotels in Tokyo and Osaka last year, even as Japan hosted a record number of foreign visitors.

The room occupancy rate at 18 major Tokyo hotels averaged 83% in 2016, down 1.5 percentage points from a year earlier as 13 of them suffered a decline, data compiled by Nikkei Inc. shows. The average occupancy rate had increased in 2015.

Palace Hotel Tokyo adopted a strategy of improving overall comfort by "focusing more on the quality of service," said Masaru Watanabe, general manager. One way for the hotel to deliver better service was to become more selective about its guests, raising room charges by an annual average of 5,000 yen ($44). The new strategy helped Palace Hotel Tokyo attract business travelers from the U.S. and Europe, but its 2016 occupancy rate fell 0.7 point to 83.2%.

Imperial Hotel Tokyo's occupancy rate slipped 1.8 points to 76.2%, a drop the hotel blamed on more Japanese people heading overseas during the summer holiday season.

In the city of Osaka, the average occupancy rate at the 12 leading hotels fell 1.3 points to 89.1%, the first decline in five years.

Imperial Hotel Osaka enjoyed solid demand stemming from incentive tour packages, a reward that some businesses offer to high-performing employees. But the hotel received fewer holiday guests, resulting in a 3.8-point drop in its occupancy rate to 82.2%.

Sheraton Miyako Hotel Osaka's occupancy rate fell by roughly 5 points to around 90%. Renovations made an impact, but the decline was attributed to a decrease in group travelers. The hotel kept room rates largely unchanged from 2015, when demand from foreign visitors overheated.

Osaka hotels tend to rely more on holiday guests than their Tokyo counterparts.

Shifting tide

Though these overall occupancy rates remained high at more than 80%, the hotels faced a challenge from the sharp increase in the supply of rooms as business hotel construction boomed. A tourism ministry report shows that construction starts nationwide for new lodging facilities hit an 18-year high at some 1.96 million sq. meters of floor space in 2016, a 110% jump from the preceding year.

Private room rentals are also thought to be absorbing some of the lodging demand from foreign visitors. More than 16,000 properties in Tokyo and 12,000 in Osaka are listed on the Airbnb website, according to Hollywis, a Tokyo research firm specializing in the private room rental market. A survey by the Osaka Convention & Tourism Bureau shows that 17% of foreign tourists visiting Osaka stay in privately rented rooms, while 57% choose hotels.

Yet occupancy rates at leading hotels likely also fell because they maintained bullish room charges, driving both Japanese and foreign tourists toward cheaper accommodations.

A growing number of foreign tourists are venturing outside Tokyo and Osaka, as they seek to experience traditional Japanese culture and visit locations featured in anime and movies. This likely also contributed to lower occupancy rates in Tokyo and Osaka.

Going upmarket

Some leading hotels in Tokyo and Osaka are fighting back by upgrading facilities and pursuing wealthy visitors and business travelers staying for an extended period.

Prince Park Tower Tokyo renovated its top floors and opened them as the "Premium Club Floor" in October to cater to wealthy customers, focusing on those staying for business over a medium to long term. The hotel plans to continue renovating other floors through 2018 and open them under various brands, each catering to specific types of guests and offering wide-ranging room charges.

At Hotel Nikko Osaka, the top three levels from the 28th to 30th floors will reopen as the "Nikko Premium Floor" as soon as late March. It will feature suites and other types of rooms ranging between 40 and 60 sq. meters. The basic daily rate for twin rooms will be 80,000 yen.

"We want to tap demand from foreign visitors staying for consecutive days and group tourists," an official at the hotel's sales and marketing division said.

(Nikkei)

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