Investor appetite, strong tourism demand and weaker currency values are driving hotel transactions in Japan.
Last week, a joint venture comprised of New York City-based investment firm TPG Angelo Gordon and Tokyo-based investment firm Kenedix acquired the 882-room Grand Nikko Tokyo Daiba for 106 billion Japanese yen ($695 million), or $787,982 per key. The property is 26 years old and has 29 floors.
Tokyo-based owner Hulic Co., which sold the hotel, said it expected to close the deal by the end of November, and that the “sale price is equivalent to more than 10% of Hulic’s consolidated net sales [446 billion yen] in the most recent consolidated fiscal year.”
A rise in hotel investment activity provided a boost to Japan's commercial real estate sector. In the second quarter, commercial real estate transaction value declined 25% year over year to 663 billion yen, according to CBRE. Despite the down quarter, hotel transactions accounted for approximately 40% of total commercial real estate transaction volume. Further, hotel sales in Japan increased by 49% year over year in the first half of 2024.
Japan did not increase interest rates as most other developed nations did, which caused its currency the yen fell to its lowest level since 1990. The Bank of Japan raised interest rates to 0.25% on July 31, then maintained rates at that level at its Oct. 31 meeting. Conversely, the U.S. Federal Reserve has kept its federal funds interest rate at 5.5% since July 2023 and only cut rates to 5% in mid-September.
According to economists, the two countries have entered the current landscape from different directions. Japan has suffered from a period of stagnation in which salaries and prices have not risen, while the U.S. and much of the world have experienced rising inflation and wages while struggling to keep a rein on them.
Jesper Palmqvist, area director, Asia-Pacific, STR, said transactions in the hotel asset class have picked up in 2024, but that is not such a boast considering transactions in 2023 were very muted).
He said acquisitions activity was evident in the expected markets of Australia and Singapore, although it was Japan that caught most of the attention.
“Asian markets continue to see higher than normal office vacancies, and more investors look for industrial and hotel assets for good returns. This [Grand Nikko Tokyo Daiba] deal obviously stands out since it is of substantial size, but we’ve generally seen an uptick in deals this year, and we see this likely to continue in 2025,” he said.
Palmqvist agreed that Japan remained one of very few markets where hotel rates have continued to grow on the backend of surging inbound arrivals with a cheaper Japanese yen.
“The total market is somewhat bifurcated when comparing more domestic markets with the more commonly visited markets for foreigners (Tokyo, Kyoto, Osaka and to some degree Hokkaido), and it’s certainly become more expensive for domestic travellers in top markets and less of a dramatic swing in secondary and more regional areas.
“Foreign asset buyers seem quite willing to look at both single-asset as well as portfolios and across both regional locations and varying hotel classes, another trend likely to continue into 2025,” he added.
Travelers see value in trips to Japan
Japan is on a high in terms of tourism due to the weakness of the yen, which has attracted increased numbers of international tourists.
International travelers have realized trips to Japan offer more value, which has led to a surge in demand for flights and hotel rooms. In July, more than 3.29 million international travelers visited Japan, according to the country's tourism board.
Year to date through September, Tokyo hotel occupancy rose 2.7% to 78.6%, average daily rate increased 24.8% to 28,342 yen, and revenue per available room rose 28.2% to 22,270 yen, according to CoStar hospitality data. For full-year 2023, Tokyo's hotel occupancy as 77.7%, ADR reached 23,849 yen and RevPAR was 18,527 yen.
Travel to Japan from the U.S. across the Pacific has not been as limited as travel from Europe to Japan. Flights originating in Europe must now avoid Russian, Ukrainian and Middle Eastern airspace due to multiple wars and conflicts.
Imports into Japan are also more expensive because of the weaker yen, but those goods and services produced or originated in Japan are cheaper for inbound guests.
In a Sept. 25 podcast from Hotel News Now, Palmqvist provided more insight into Japanese hotel performance, as well as insight into other Asian hotel markets.
"I think Japan will take a little bit of time for that slowdown at a national level because we still see that rate growth in Tokyo and Osaka and Kyoto to some degree," he said in the podcast.
Notable Japanese hotel deals in last six months
Oct. 2024 — TPG Angelo Gordon and Kenedix acquired the 882-room Grand Nikko Tokyo Daiba for 106 billion Japanese yen from Japanese firm Hulic Co.
Aug. 2024 — Japanese REIT Star Asia Investment Corp. bought three hotels in Tokyo and one in Osaka for 34.6 billion yen: the 188-key Koko Hotel Tsukiji Ginza, the 42-key Koko Hotel Residence Asakusa Tawaramachi, the 47-key Koko Hotel Residence Asakusa Kappabashi and the 211-key Koko Hotel Osaka Shinsaibashi.
Singapore’s sovereign wealth fund GIC Private Ltd. sold the 1,052-key Hilton Fukuoka Sea Hawk Hotel to Japan-based Mizuho Leasing Company for an undisclosed sum.
Japanese REIT Takara Leben Eal Estate Investment Corp. bought two hotels in Tokyo and one in Hokkaido for a total of 15.25 billion yen: the 113-key Hotel Livemax Shinjuku Kabukicho Meijidori, the 220-key APA Hotel Kamataeki-Higashi and the 167-key Quintessa Hotel Sapporo.
Nomura Real Estate Master Fund acquired the 261-key La’gent Stay Hakodate Ekimae on the island of Hokkaido from developer Daiwa House Industry for 6.3 billion yen.
July 2024 — Tokyo-based REIT Japan Hotel REIT Investment Corp. bought two Tokyo hotels for approximately $115 million. It paid approximately 9.6 billion yen for the 76-room Mimaru Tokyo Shinjuku West and approximately 8.8 billion yen for the 169-room Amanek Shinjuku-Kabukicho.
June 2024 — Japan-based Hoshino Resorts REIT acquired the 436-room OMO7 Osaka Hotel in Osaka for 29 billion yen from Shin Imamiya Development Special Purpose Co.
French investment firm AXA IM Alts bought an unnamed hotel with 183 keys in Kyoto for 6.8 billion yen to convert it to the Holiday Inn Kyoto Gojo.
May 2024 — Tokyo-based REIT Star Asia Group acquired 100% of the shares of Tokyo-based Minacia Co., with the deal including 39 hotels, 5,180 rooms and limited-service hotel brands Wing International and Tenza Hotels.