Demand Plateau Pushes Japan's Hotel Rates Up Slowly

While not approaching the breakneck acceleration of demand in some other Asian countries, Japan's hotel market has raised rates in response to slowly climbing occupancies throughout 2007, and is poised to maintain strength next year. Meanwhile, rapid development continues in the country's high-end hotel market, with moderate development in Japan's other hotel segments.

Key indicators of occupancy, room rates and RevPAR show Japan's hotels are on track to maintain the strengths these prime indices displayed in those areas in 2006 and so far this year.

The latest HotelBenchmark Survey by Deloitte (see chart) shows that occupancy for all of Japan from January to August 2007 stood at 76.8 percent, against 76.9 percent for the same time period in 2006.

"Demand from the United States and from within Asia has been pretty consistent, and global demand for Japan is increasing also, with business travel consistent and strong," but "not quite as strong," as worldwide demand for China and India, said Roger Pfund, Sydney-based general manager of Asia/Pacific operations for mega travel management company BCD Travel, adding that U.S. demand should remain strong in 2008. Still, Japan's hotel market is certainly in Asia's top half from a competitive standpoint, he said.

"Occupancy is close to 80 percent in Tokyo's hotels, and even though hotel acquisitions and expansions will increase supply and ease the demand crunch, and may have an impact on rates and occupancy over the next 12 months, it will be status quo in the short term," said BCD Travel's Hotel Relations Program senior vice president Jerry Murck. "Though demand was down somewhat, room rates in Japan will rise, ADR will go up and RevPAR will climb, because hotels there know how to control demand and get a high market rate that really exploits the situation."

Pfund said one relatively recent change has become a noticeable negotiating trend. "Over the last three to five years, we've seen a change in the way business travel negotiating is done in Japan, moving from a local approach from a local basis and perspective to a more global one, with more global methodologies. Business travel negotiating now has a much more customer-centric approach to it, especially over the last two years," he said.

Also, Pfund said, Japanese hoteliers "now looking at an outsource model as a guide to handling business travelers from overseas."

Japan's luxury hotel segment is growing by leaps and bounds. Among the country's newest hotels is the Peninsula Tokyo, a 314-guest room luxury property that opened in September in the city's Yurakucho business district. To complement five restaurants, two ballrooms, six function rooms, a spa and a fitness center, the hotel's management boasts the highest number of staff per guests in the city. Developers said it's the first freestanding luxury hotel to be constructed in Tokyo in more than 10 years.

In March 2007, the first Ritz-Carlton opened in Tokyo, with 250 guest rooms. The deluxe property is part of Tokyo Midtown, a redevelopment project recently completed that offers retail and office space in Tokyo's central Roppongi district. The Ritz is housed on the top nine floors of the project's central tower, has restaurants, two ballrooms, six function rooms, a spa and a fitness center.

"The new luxury hotel trend is explained mainly by economic recovery in Japan, the Yokoso (Welcome) Japan! campaign, promoted by our government, and increases in low-cost carriers internationally," said Ryuji Sawada, partner in charge of tourism, hospitality and leisure at consulting firm Deloitte Japan. "Regarding the campaign, 5.21 million people visited Japan in 2003, when the campaign was launched. This number had risen to 7.33 million in 2006, up more than 40 percent, according to the Ministry of Land, Infrastructure and Transport. In this figure, U.S. travelers account for 11 percent of all travelers. Naturally, we are expecting more U.S. travelers on business and for leisure for all of 2007 and in 2008, but currency fluctuations may badly affect this trend," Sawada remarked.

New hotels planned for 2010 include Starwood Hotels and Resorts' first St. Regis property in Japan, scheduled to open in Osaka with 170 guest rooms. In March 2007, Starwood announced plans to add two new hotels in Japan under its Sheraton brand. The Sheraton Miyako Hotel Tokyo has 482 rooms, while the Sheraton Miyako Hotel Osaka has 574 rooms. Shangri-La Hotels has announced that it plans to build a luxury property in Tokyo, also in 2009.

A new 76-room hotel, the Dojima, a mixed-use property, with guest rooms on the 8th to 13th floors, has opened in Osaka. In addition to the hotel, there are several restaurants, leisure options and a number of shops. The 170-room hotel Nikko Northland Obihiro opened on Japan's northernmost island, close to a lake and hot springs, on April 1, 2007.

Some existing Japanese hotels are expanding and renovating. At the Imperial Hotel Tokyo, rooms on the 11th and 12th floors were renovated and now feature restricted key card access. All guest rooms now are nonsmoking.