Japan’s hotel markets are diverse as they span the country’s four main islands that extend in a crescent shaped archipelago in the north Pacific. The following summarizes characteristics of eight hotel markets, the largest in Japan, beginning with the nation’s capital, Tokyo. 

Tokyo 

One of the world’s largest cities, Tokyo stands as the center for Japan’s economic and administrative functions, as well as affairs related to political, government, finance, international trade and corporate headquarters. As a result, the Tokyo hotel market is most resilient for every segment, including out-bound, in-bound and regional travelers and consumers. Even with a distressed economy, room demand has surpassed rooms supply. Tokyo also enjoys a double-digit share of the foreigner guests. In the upper-tier properties in Tokyo, room night demand generated by foreign guests exceeds 50 percent of total demand.
 

A bullish economy in the late 1980s motivated investments in major additions to the high-end hotel market, which came online in the 1990s. Four Seasons Tokyo (1992, 283 rooms); The Westin Tokyo (1994, 444 rooms); Hotel Inter-Continental Tokyo Bay, (1995, 339 rooms); Hotel Nikko Tokyo (1996, 453 rooms); and Park Hyatt (1994, 178 rooms) ; and Le Meridien Grand Pacific Tokyo (1998, 884 rooms) are good examples of these developments. These new luxury entries increased Tokyo’s rooms inventory in the first-tier market 15.9 percent between 1993 and 1998, while demand increased by 26.9 percent during the same period. 

Tokyo hotels, however, have not avoided all of the downside of the current economy where losses are seen in the high-volume banquet and restaurant business. The rooms revenue of the typical full-service first class hotels of 200 rooms or more is typically less than 30 percent of the Gross Operating Revenue (GOR), while at the same time the banquet and F&B can easily sell 60 percent or more of GOR. The shrinkage of the gross market size in Tokyo hotels in aggregate revenue is believed to exceed 30 percent during the last five years of recession. Most of that market shrinkage is in the banquet and restaurant business, reflecting weakened corporate business sponsors.

Osaka 

The Osaka prefecture recently suffered from the largest fiscal deficit at the level of the prefecture government. Many of the area developments have been suspended given the cumulative loss incurred from uncompleted development projects. Kansai New International Airport with only a single runway is so far not generating an expected volume of the inbound arrivals. The bay area developments, including Universal
Studio Japan, seem to be among the very few projects to help the Osaka hotel market to correct the current oversupply. In particular, the new luxury entries (e.g., The Imperial, The Westin, Hankyu International and Ritz Carlton) are said to be particularly affected by the slow economy.
 

Yokohama 

The city is the second largest in Japan in population, and yet is still only one-third the size of Tokyo. The romantic port town atmosphere supported by new area development - including the spectacular bay bridge, international convention center and the Landmark Tower building - has stimulated new hotel demand.  However, as long as the hotels must target the leisure market, which naturally tends to be concentrated to the weekends and holidays, without increasing support in the business segment, Yokohama hoteliers will continue to suffer from reduced demand. The competition among the hotel neighbors lined up along the new bay area called MM21 will remain intense. In addition, new competition also arrived last year with the opening of the Tokyo Bay Sheraton Yokohama in June 1998.

Kyoto 

Just 20 minutes away from Osaka by Shinkansen or bullet train, Kyoto is Japan’s best known tourist
destination for both overseas and domestic tourists. As such, its hotel market tends to be self-sustaining.
While the hotel market has not posted a downward trend, it remains weak, however. 
 

Sapporo 

This is the capital city of Hokkaido, the island prefecture situated at Japan’s northern territory, which is
suffering from a weak regional economy. Hokkaido Takushoku Bank, one of the large commercial
banks headquartered in Sapporo, was the first bank bankruptcy in Japan under “Japanese Financial Big Bang”. The city’s hotel operators depend on business travel driven from local branch offices of the corporations based in Tokyo and Osaka.  But the primary room demand comes from tourism, which reflects strong seasonal fluctuations. As a result, Sapporo hotels have limited average room turnover due to the seasonal fluctuation and low ADR depressed by the dominant bargaining power of travel agents. 

Fukuoka 

Fukuoka City serves as the capital of Fukuoka prefecture, as well as the gateway city to Kyushyu Island, located to the southwest of the main island (Honshu). Like Sapporo, Fukuoka City hosts many branch offices of Tokyo-based corporations. It also maintains close communications and traffic with nearby Asian countries such as Korea, China, Taiwan and Hong Kong, which have become feeder markets of tourists inbound to Kyushu. Reduced travel among Asia nations as a result of recession has had an impact on Fukuoka’s hotel market. But a strong mix of tourism resources - the local culture, sea food, tourist points of the sea and mountains, abundant hot springs and large theme parks - also attract leisure tourists from the neighboring Japanese prefectures of Ohita, Kumamoto, Miyazaki and Kagoshima. Business and conference are also important travel segments. Fukuoka accommodates the most number of medical related conventions in Japan through a year.

Kobe 

Like Osaka, Kobe has a large international port with an exotic and romantic ambience, and has long attracted leisure visitors from nearby Yokohama. Kobe, however, continues to recover from the 1995 earthquake, the largest in Japan since 1923. And this recovery has been slower due to the national economy. Kobe tourism, however, has recovered in terms of tourist arrivals. 

Nagoya 

This city seems to have a better socio-economic outlook compared to the other major “branch-economy” cities in Japan. The city has avoided becoming an economic subsidiary to Tokyo or Osaka, even though main factory lines of Toyota contribute to stabilizing the regional economy. Nagoya will be the host city for the World Exposition expected to be held in year 2005. Also, a new Nagoya international airport is in preliminary survey. Unlike other major cities in Japan, Nagoya avoided the hotel industry recession until recently when rapid increases in the room supply resulted in very tight competition. The competition is expected to become more heated when JR Tokai opens The Nagoya Marriott Associa Hotel in May 2000 with 780 rooms and 17 banquet halls, nine restaurants and wedding facilities.

(Ryu Iwaya and Katsuhiro Goto are member firm Partners and Directors, Hospitality and Leisure Services, Global Management Directions Co. Ltd., a Global Corporate Finance Division of Arthur Andersen’s practice in Japan. They are based in Tokyo.)

©Arthur Andersen