The Summer 2020 Tokyo Olympics originally was due to showcase Japan's cultural and economic strength to the world, but the year-long delay dealt by the COVID-19 pandemic and the restrictions of the rescheduled event have drastically dimmed that spotlight.

While the sporting action has been admirable, shown to a worldwide TV audience and widely praised for its organization, things are not going so well outside of the athletes’ village and the sporting venues.

Koji Takabayashi, managing director in Japan at business advisory Horwath HTL, said the Tokyo Olympics is being held in an unprecedented environment with countless restrictions, no spectators allowed to the games and Japan being hit by its worst wave so far of COVID-19.

The latest phase of the pandemic has led to Japan's government declaring a state of emergency set to end on Aug. 22. The Japan Times reported the country surpassed 10,000 positive cases on July 29, the first time cases have gone into five figures since the pandemic began.

The newspaper added more than one-third of that daily count — 3,865 cases — were registered in Tokyo, which is also a daily record. Local authorities fear the city’s health system is close to breaking point.

Amid this crisis, Tokyo's hotels are struggling during an event that typically would be a boon for bookings and rates. Part of the problem stems from new hotel supply added in anticipation of throngs of spectators flocking to the city, which didn't happen.

“Occupancy rate for most hotels in Tokyo is still hovering at below 50%, even during the Olympic Games, due to much new room supply in the city, as well as [the increased severity of the pandemic],” Takabayashi said.

He said investors and developers added 32,000 rooms to the Tokyo market ahead of the Olympics. But, even in the absence of the international guests who were expected to fill those rooms, the long-term health of that extra hotel supply is looking good, he added.

“In this struggling environment, even during the Games, while lodging demand is heavily impacted and will be narrowed down to the domestic segment for the next couple of years, we project the market environment will see a solid recovery,” he said.

Ayako Sasaki, owner of business advisory Alma Hospitality and former executive director of hotel asset management at Japan Hotel REIT Investment Corp., said there has been a positive impact for a limited number of hotels, mostly those hosting athletes, officials and media.

She said while the muted Olympic impact is unlikely to offer immediate motivation to investors looking at Tokyo and Japan, the spectacle and style of the Games could still leave a good impression in the long term.

“I don’t see any significant positive impact in general from domestic Japanese leisure demand for hotels as no spectators are allowed at most games [and] stadiums due to the pandemic, except [those sports held] in rural areas.

“As for investor sentiment, I see the fact that Tokyo is being shown in good light is actually a positive. I expect this would likely contribute and then further accelerate future hotel-demand recovery once inbound tourists demands are coming back to Japan, following the Japanese leisure demand recovery,” she said.

June 2021 research and data from STR, CoStar’s hospitality analytics firm, stated that occupancy in Japan has been moving in the right direction since the beginning of the year.

Data showed the country posted 24.5% in occupancy in January, then 35.8% in April, but that average daily rate moved in the other direction, from 10,035.06 Japanese yen ($96) in January to 9,723.87 Japanese yen ($89) in April.

Domestic demand has been a focal point for the Japanese hotel industry, and for July and August, Tokyo’s monthly hotel occupancy is projected to exceed 50%.

“ADR will increase to above 15,000 Japanese yen during the event, but on a long-term basis, a rise in room rates is not driven solely by the mega event,” STR's report noted.

In the run up to the Olympics' original and postponed date, the STR report said that “since January 2020, 199 new properties have opened across Japan, with 36 coming in Tokyo."

"However, considering the current situation and the postponement of the mega event, 10 projects in the country’s pipeline have been abandoned, of which three were based in Tokyo. Furthermore, there are additional work suspensions and delays on other properties in the pipeline," the report said.

In the past, of course, hotel markets in Olympic host cities have thrived.

Over the two-week competition period, Beijing and Rio de Janeiro hotels posted a better than 400% increase in revenue per available room on a rolling seven-day average when those cities hosted the Olympics in 2008 and 2016, respectively, according to STR data.

Rio de Janeiro hotels posted a 199.2% increase in ADR, a 26.6% rise in occupancy and a 278.6% increase in RevPAR in August 2016, the month of its Olympics, while 1.7 million tourists arrived during the two weeks of the sporting action.

London, with a much higher performance base historically, showed an 80% RevPAR increase when the city hosted the Olympics in 2012.

Takabayashi added Tokyo’s rebound initially depends on the rollout of a vaccination program, which is only now picking up steam, and the renewal of a series of government initiatives to encourage domestic travel spending, which have been put on hold since last December.

He said the government is being cautious in its attempt to boost the economy while at the same time ensuring public safety. It is now putting into place initiatives for when the pandemic ends, such as the Japan Tourism Agency allocating $2.2 billion on strategic marketing promotions to encourage international inbound tourism.

“Assuming these government supports will function to support the industry during the recovery period, we project the overall lodging demand will come back and market occupancy will be back to the 2019 level by 2025," Takabayashi said.

“Due to the expected mass immunization in Japan and key source markets by 2022, the occupancy will start to recover from 2023 onwards, driven by pent-up inbound demand. After a strong rebound, its pace will slow down year by year.”