August 6, 2017 1:39 am JST

Japan's hotel room crunch might be a glut

New survey sees 65,000 rooms being added by 2020

KOSUKE SHIMIZU, Nikkei staff writer

TOKYO -- Japan is fretting about running out of hotel rooms as foreign tourist numbers surge and as the capital prepares to host the 2020 Olympics.

But do entire countries really light up the "sorry, no vacancy" sign?

A recent survey by Tokyo-based real estate service company CBRE says Japan has nothing to worry about. It shows that by 2020 or so eight major cities will experience a combined increase of about 65,000 hotel rooms, 26% more than the current level.

This should be plenty to prevent any Olympic shortfall.

In fact, all the new rooms could make for a supply glut.

According to the survey, Tokyo is expected to get another 25,000 hotel rooms by 2020 or shortly thereafter, a 25.6% increase. The number of hotel rooms in Osaka is expected to grow by 18,000 by then, up 34.9%.

Kyoto is forecast to add 8,000 rooms, up 36.1%, according to the survey.

Hotel rooms in the ancient capital, a major tourist draw, are currently in short supply.

Earlier, Mizuho Research Institute estimated that Tokyo would need to have 16,700 more hotel rooms than it did in 2016 to be able to meet demand in 2020. The institute also estimated that Osaka would need 13,300 more.

According to the Japan National Tourism Organization, foreign arrivals in Japan hit a record 24 million in 2016. It's a number that keeps spiking, leaving some hotels near full capacity year-round.

But not all of them. In fact, the industry is concerned about the sharp rise in the number of business hotels.

And most of the rooms that will be added over the next few years are expected to be in business hotels. Japan's APA Group, for example, plans to open 47 hotels with a combined 14,500 rooms through 2020.

In Tokyo, many hotels are suffering stagnant occupancy rates. The rate at Shibuya Excel Hotel Tokyu declined to 88% in fiscal 2016.

Now fears of a glut are spilling over into the hotel real estate market.

The trading of hotels was most active in 2015, when hotel profitability jumped thanks to all the foreign tourists.

Yasokazu Terada, a senior official at real estate service major JLL, said many funds believe "now is the time to sell [hotel properties] out of fear of future uncertainties."

CBRE Senior Director Naoki Yoshiyama said that hotels will soon have to differentiate themselves to win bookings.

As an example of a property that is already differentiating itself, Yoshiyama pointed to the Ascott Marunouchi Tokyo, in the capital's Otemachi district. It offers luxury serviced apartments to wealthy families from overseas on long stays. The property opened in April, and each room is fitted with a kitchen and washing machine.

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