Japan's low-interest rate environment and its popularity as a tourist destination are set to boost investments in the country's hotel segment to a record high this year.

For Hong Kong-based investors, Japanese hotels offer a solid diversification strategy amid a slowdown in the city and mainland China, as well as geopolitical risks between Beijing and the West.

Investments in Japan's hotels are estimated to reach an all-time high of 600 billion yen (US$4.1 billion) this year, according to JLL. As of the first half, the property consultancy had already advised on 378 billion yen worth of hotel deals, a 64 per cent increase from the same period last year.

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"Japan's [solid] fundamentals continue to draw investment," said Ada Choi, head of research for Asia-Pacific at CBRE.

In the first half, Japan was the top property investment market in the region, receiving US$13.5 billion, with US$2.6 billion coming from cross-border investors, according to data provided by CBRE. Second-placed China secured US$13.3 billion, with US$900 million from foreign investors.

Hon Kwok Land Investment, which owns and operates hotels in China and Hong Kong, and the Chiu family behind Hong Kong-listed developer Far East Consortium and Dorsett Hospitality International are among investors that have snapped up hotels in Asia's second-largest economy.

Through Agora Hospitality Group, which was acquired by the Chiu family in 1997, the group now owns five hotels in Japan, while eight other properties are either under management or lease contract, said Wendy Shi, executive vice-president of the Tokyo-listed company. The Chiu family holds a 42 per cent stake in Agora, making them the largest shareholder in the hotel owner and operator.

One of the hotels - the 97-room Agora Tokyo Ginza - was converted from two office buildings acquired in 2018. Opened in 2021, it has been yielding an annual return of 7 to 8 per cent, she said.

"Japan is a very hot market right now," Shi said. "It's not only Dorsett that's investing, but also a lot of international investors. Institutional investors, family offices, high-net-worth individuals, the whole lot of them are looking into Japan right now."

The favourable view of Japan's hospitality sector is underpinned by its improving economic prospects. Besides, the country's interest rate at 0.25 per cent is one of the lowest in the world.

Japanese workers' salaries have started to increase along with inflation, reflecting a more vibrant economy after decades of deflation. In March, Japanese companies agreed to raise wages by 5.28 per cent this year, the biggest increment in 33 years, according to media reports.

"We are actively looking [for more assets] and we are committed to the Japanese market," Shi said. "In the future, our strategy could be one of co-investing with other partners, be it Dorsett or other groups. We could also help investors to acquire assets, secure financing and even operate."

The Agora Ginza is a 97-room hotel in Tokyo. Photo: Handout alt=The Agora Ginza is a 97-room hotel in Tokyo. Photo: Handout>

Dorsett operates four hotels in mainland China - in Shanghai, Wuhan, Chengdu and Lushan. In Hong Kong, the group operates four properties, with a fifth - Dorsett Kai Tak - set to open this month.

For Hon Kwok Land, the diversification into Japan began two years ago when Hong Kong started increasing interest rates in lockstep with the US Federal Reserve's policy tightening campaign.

The Hong Kong-listed developer has two hotels in mainland China - in Shenzhen and Chongqing. In Hong Kong, the group owns two Bauhinia Hotels - in Central and Tsim Sha Tsui.

"Diversification is one of the key factors why we are going to Japan," said Roy Yip, the founder and CEO of R Hotels Group and joint venture partner of Hon Kwok in Japan, where they plan to own and operate 10 hotels with a total of 1,000 rooms. "We felt that risks were getting higher in China and Hong Kong."

The joint venture partners estimate that they will need 14.5 billion yen to realise their hotel acquisition and development plans.

Eventually, the target is to have between 15 and 20 hotels in the group's portfolio, said Yip, who is also the director and general manager of Bauhinia Hotels Group.

The partners' confidence in Japan's hospitality segment also stems from the fact that tourist numbers in the land of the rising sun are already 50 per cent above pre-Covid levels.

Domestic tourism is also likely to remain strong, as only 17 per cent of Japanese nationals own a passport, which should keep them within the country for leisure travel, Yip said.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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