Fukuoka Hotel Market Booming Thanks to Increase in Tourists From Other Asian Countries

Fukuoka: the largest city in Kyushu, the gateway to Japan for tourists from other Asian countries, and, now, a prime target for investors from in and outside Japan. Drawing particular attention is the Fukuoka hotel market, driven forward by a steady flow of tourists from abroad.

July 02, 2018

How to attract foreign tourists to Japan

Domestic and international investors alike have their eyes set on Japanese hotels. One look at the research on demand for lodging in Japan conducted by Japan National Tourism Organization (JNTO) is enough to see why. Demand for lodging increased steadily from 2008 to 2017, but the percentage of foreign tourists was only 7.2% in 2008. That number grew to 16.9% in 2017, which tells us that hotel performance is being pushed up by an increase in foreign tourists. This trend continues as of 2018. As of February, the percentage of foreign tourists had reached 18.8%.  Although these statistics are for Japan as a whole, it is estimated that, in the hotel market in Fukuoka, the percentage of foreign guests has reached the latter half of 20%. In Tokyo and Osaka, that number is in the mid-30% range, and in Kyoto, there are times when 40% of guests come from overseas. If you want to increase sales at your hotel, the key is in how you attract foreign guests.

Increasing by over 10%, even when the yen is strong

The rate of increase in the number of foreign visitors to Japan as a whole is getting higher year by year. JLL analyzed the year-on-year comparison of the monthly rate of increase in the number of foreign visitors on the basis of JNTO’s survey. The results show that the increase rates up until 2014 were roughly 30%, but starting in 2015, the monthly rates were as high as 50 to 60%. These rates are thanks to a relaxation of visa requirements that was implemented in 2014. Although this trend lost momentum in 2016, the increase rates are still going strong at 10 to 20%. If the number of foreign tourists to the country keeps increasing at a rate of 15 to 20%, it will be possible to achieve the Japan Tourism Agency’s goal of welcoming 40 million foreign travelers in 2020. We can see that the number is growing steadily.

The relaxed visa requirements mentioned above are not the only reason for the rapid increase in foreign tourists. Another key factor is the tendency in the fluctuation of the exchange rate between the Japanese yen and the U.S. dollar. According to JLL's research, there is evident increase in foreign tourists when the yen is weak, and things calm down when the yen is strong—though this is only a weak correlation. Increasing lodging rates in yen, combined with exchange rates, makes them appear extremely expensive to foreign guests. It can be difficult to raise hotel prices during those times. However, the reverse is also true. When the yen is weak and foreign currency has more buying power, hotels can raise their prices—the exchange rate will offset the higher price tag. In other words, it’s easy for tourists from overseas to visit Japan when the yen is weak, and the opposite is true when the yen is strong. However, even when the yen is strong, the number of foreign tourists continues to increase by double-digit rates, giving us a hint as to the underlying strength of the demand from inbound travelers.

Do boutique hotels in Fukuoka face an uphill battle?

How are the hotels faring? We compared the growth rates of the RevPAR (revenue per available rooms per night) of business hotels and boutique hotels in Tokyo. The RevPAR of boutique hotels was about 30 thousand yen, higher than that of business hotels. The majority of guests in business hotels are Japanese businesspeople. This is centered around what is called “overnight business trip demand”—although corporate performance has revived, the upper limit of business trip expenses that many companies will pay has not changed. With Japanese businesspeople as their customers, room rates can’t go much higher than 13,000 yen, and occupancy rates can’t be expected to go much higher than 90%. The resulting reality is that there isn’t much room for the RevPAR—a measure of both room rates and occupancy rates—to grow. On the other hand, foreign tourists don’t have as many budget restrictions, and boutique hotels don’t have any trouble attracting them, which has enabled them to keep growing while raising their prices.

However, boutique hotels in Fukuoka face a very different state of affairs. Though the average occupancy rate is hovering around 85%, the room rates are hovering between about 13,000 to 14,000 yen. One has to admit that that is low compared to Tokyo. Meanwhile, the average occupancy rate of business hotels in Fukuoka is over 90%, and room prices are more than 10,000 yen, depending on the availability of rooms. The gap between the room rates at boutique hotels and business hotels is closing. This low and narrow range of room prices may also be a weak point of the Fukuoka hotel market. Not long ago, it has been announced that The Ritz-Carlton will open a hotel in a project to redevelop the site of Daimyo Elementary School, and how high the prices at said hotel would be was the subject of much attention. It’s a chicken-and-egg debate—do room prices not go up because there is no new supply of boutique hotels, or do boutique hotels not get built because demand for lodgings is low? This is a fascinating theme through which to analyze the Fukuoka hotel market.