Local Governments’ Heated Efforts to Attract Hotels

While there are many luxury hotels in Tokyo, Osaka, and Kyoto, more local governments outside of major cities are working on attracting luxury hotels by themselves. They recruit advisors from the public and look for ways to invite hotels. The expectations pinned on hotels to become a core hub for the urban development seems to be higher than we expected.

May 30, 2019

Foreign luxury hotels coming to local cities

In August 2018, Kato City in Hyogo Prefecture commissioned the JLL Japan Hotels & Hospitality Department to do research into activities to attract accommodation facilities. JLL will research and analyze multiple aspects of activities to attract hotels, as a part of far-sighted urban development. This case is one example that local cities are working on attracting hoteliers in a proactive manner. They hire consultants to research the market, and enhance subsidy systems for developers and operators.

One particular focus of attention is plans for attracting foreign luxury hoteliers. For example, in Nara Prefecture’s large-scale redevelopment project, “Omiya-dori New Hotel & Exchange Hub Project,” it has been finalized that a JW Marriott Hotel Nara—the most luxurious brand among Marriott International Group—will open as a core facility of the project. The project of Fukuoka City’s “Tenjin Big Bang” is the redevelopment of the site of Daimyo Elementary School, and a business group made up of Sekisui House, Nishi-Nippon Railroad, and others presented an idea to invite Ritz-Carlton, and earned the first right of refusal. Furthermore, a plan by Hiroshima Prefecture to attract a hotelier to Fujimicho district of Hiroshima City chose Hilton as the hotel operator, and the hotelier will open its first hotel in the Chugoku and Shikoku regions. In Kanazawa City, Hyatt Hotels and Resorts will open a hotel at the site of temporary parking in front of the west exit of Kanazawa Station, which is owned by the city.

Kentaro Nakamura of the JLL Japan Hotels & Hospitality Department says, “More local governments than ever before are publicly looking for advisors in order to attract hoteliers. Many still specify in the conditions of their public offering that the company must be qualified to participate in the tendering in the applicable municipality, but little by little, doors are being opened to foreign real estate service companies with abundant experience in successfully attracting foreign luxury hoteliers—like JLL, for example.”

Hosting MICEs is another major goal

One reason to invite foreign hoteliers is to meet the demand for accommodations, which has grown thanks to an increasing number of foreign tourists and other factors, rather than let that demand flow out elsewhere. As an example, let’s take a look at JW Marriott Hotel Nara. Nara is home to a number of world heritage sites and important cultural assets—it boasts one of the highest concentrations in Japan—but remarkably runs short of hotels. According to the Ministry of Health, Labour and Welfare’s Report on Public Health Administration and Services FY 2016 , the total number of guest rooms at hotels and ryokan in Nara is 8,690. This falls far below the numbers of the neighboring prefecture’s Kyoto (37,650 guest rooms) and Osaka (80,869 guest rooms), and Nara ranks at the bottom in Japan as a whole. Meanwhile, the prefecture was ranked 7th in the country in Japan National Tourism Organization’s Ranking of Visit Rates by Japanese Prefecture, and there is a huge gap between the two rankings. Although there is Nara Hotel―a well-established Japanese luxury hotel―there were no hotels of the same grade operated by foreign luxury hoteliers in Nara. Therefore, inviting foreign luxury hoteliers has been a long-held wish of the area. “There is no place for wealthy tourists to stay when they visit the area. They avoid Nara and stay in neighboring Kyoto or Osaka. There is a demand for accommodations, but the area is not able to keep up with it. The key to attracting hotels lies in how much awareness the government has of this issue,” explains Nakamura.

In addition, there are quite a few examples of local governments attempting to attract luxury hotels along with the development of international conference halls, with the aim of hosting MICEs. For instance, above-mentioned Fukuoka City tried to host the first G20 Summit in Japan in 2019, but lost in the final bidding to Osaka. One of the reasons why the city was not chosen was “the lack of luxury hotels to accommodate VIPs from around the world.” Not only that, but attracting foreign luxury hoteliers also contributes to an area’s ability to host MICEs by way of redevelopment. “Hiroshima, which is now moving forward with its plan to invite Hilton, is well known around the world as a city of peace, but lacks large-scale conference halls and hotels. That is why the city has not been successful in hosting international conferences. Hosting more international conferences will help the city get a higher profile internationally, and give a further boost to the number of foreign visitors to the area—we can expect a virtuous cycle,” says Nakamura.

Local governments exploring ways to turn areas into tourist destinations

Having said that, inviting luxury hoteliers is now only feasible in local cities that can expect demand for accommodations, and in some areas that are established a certain status as tourist destinations. Private operators will decide to develop hotels on their own if there is demand for accommodations in the first place, but otherwise, there is no choice but to spark new demand for accommodations through redevelopment or other actions. Not only that, in the cases where the local government has land that is perfect for developing hotels, it only has to publicly seek a developer. However, when a development location is not prepared, they need to make preliminary moves to investigate the feasibility of inviting a hotelier. On the other hand, there are many examples of attracting hoteliers as a measure to put unused public spaces to reuse, including sites of elementary schools and parking lots. Some good examples are the hotel development project in front of Kanazawa Station mentioned above, Kyoto City’s project to develop the site of former Kiyomizu Elementary School (NTT Urban Development’s first directly-owned hotel, whose operation has been contracted to Prince Hotel), and a project to make use of the site of former Rissei Elementary School (Hulic opened a hotel on the building’s upper floors, which is operated by its group company), to name a few. All of these developments take place in tourist destinations where plenty of demand for accommodations can be expected.

Nakamura says, “When we look at publicly offered projects in local cities, we find that many are looking for advisors for strategies to attract foreign tourists.” While there are a lot of local governments trying to turn their area into a tourist destination, they are falling short of sparking demand for accommodations that is large enough to encourage real projects for developing hotels. Attempts to attract hoteliers are becoming more active in core cities in local areas, which can expect a certain amount of tourism demand, but they are not a nationwide trend yet. However, Nakamura points out, “When developing a city center, having a hotel will facilitate the subsequent development.”

Local cities are suffering from shrinking population as a result of declining birth rates and aging populations. Attracting tourists could be an effective measure in revitalizing the local economy and saving these cities. Although not all local governments are fortunate enough to have a promising site for hotel use, attracting foreign luxury hoteliers will contribute to attracting more foreign tourists, and will boost the area’s value as a tourist destination. There will be even more local governments exploring the possibility of opening a hotel in light of urban development, as well.