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Business

Nomura group looks to ride Japan tourism wave with new hotel

Developers turn to lodging amid dimmer outlook for offices

Inbound tourism has brightened hotel developers' prospects for return on investment in Japan.

TOKYO -- Japan's Nomura Real Estate Development will open its first hotel here next fall, joining a broader push by developers into the lodging business as growing inbound tourism makes hotels potentially as profitable as office buildings.

The 130-room stay-only hotel, the first under a new brand to be established by the Nomura Real Estate Holdings unit, will be built on land owned by group member NREG Toshiba Building east of Ueno station.

Room rates will average around 20,000 yen ($177) a night. The developer sees foreign tourists accounting for about half the hotel's business. By leaving out banquet halls and other non-lodging amenities, it aims for higher margins.

Nomura Real Estate will form a new group company to handle the hotel business as early as mid-October. It  seeks to have 2,000 rooms of accommodations in the near future, mainly in the three major urban areas of Tokyo, Osaka and Nagoya, though regional hub cities such as Sapporo and Fukuoka are also on the table.

The developer envisions opening mostly properties with 100 to 150 rooms costing about 5 billion yen to build. Further ahead, it may build mixed hotel-residential properties and sell its hotel holdings to real estate investment trusts.

Developers concerned about a looming supply glut in the office market are diversifying into other types of properties, such as hotels and logistics facilities, which now offer the promise of similarly sized returns.

Expected yields on office buildings in Tokyo's Otemachi business district, where land is particularly pricey, average 3.55%, a July survey by real estate services firm CBRE shows. By comparison, expected yields for non-owner-operated hotels in the capital's five central wards average 4.75%.

Mitsui Fudosan opens the second hotel in its new high-end Celestine brand Thursday in Tokyo's ritzy Ginza district. The developer aims to have 10,000 hotel rooms in urban areas by fiscal 2020, up from about 5,800 now.

(Nikkei)

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