Lifestyle Hotels Set Themselves Apart from Conventional Hotels and are Rapidly Increasing

Mature society Japan has few growing industries, but one industry that has come under the spotlight, thanks to an ever-increasing supply of foreign travelers, is the hotel business. Lifestyle hotels, in particular, are getting more and more attention.

April 25, 2018

Earning more popularity with a differentiation strategy

With more and more hotels being rapidly developed in Japan, one challenge hotels face is in differentiating themselves from their competitors. Currently, many of the hotels that have been developed are “accommodation-only” hotels, which have only limited facilities for food and drink. They are trying to set themselves apart from others with the quality of their guest rooms, but that is not an easy task. Under these circumstances, a target of growing attention is the newly emerging lifestyle hotel. The first of these lifestyle hotels was the Andaz Tokyo by Hyatt International Corporation, opened in the Toranomon Hills skyscraper. It was followed by many others, including the Hyatt Centric Ginza (which opened in January this year), the TRUNK HOTEL by TAKE and GIVE NEEDS, the MUJI HOTEL by MUJI and UDS (scheduled to open in Ginza in 2019), the NOHGA HOTEL by Nomura Real Estate Development, and INTERGATE HOTELS by THE SANKEI BUILDING. Meanwhile, international hotel operators have also created lifestyle hotel brands, and are launching them in Japan. Marriott/Starwood’s Edition and W Hotels, the InterContinental Hotels Group’s Indigo brand, and Hilton’s Canopy brand have arrived in Japan, and in addition to those, Ace Hotel has recently announced that they will be opening a hotel in Kyoto. The players are truly diverse—Japanese real estate agencies, international hotel operators, newcomers from different industries, and so on, are all playing their hands in this hotel business. One thing they all have in common is that their hotels feature conceptual designs that focus on styles that set them apart from existing hotels, and on functioning as places of community, serving as the third place.

The vague Japanese definition of lifestyle hotels, with three things in common

Although lifestyle hotels have become mainstream outside Japan, within the country, even the definition of a lifestyle hotel is not yet concrete. They are often confused with design hotels and boutique hotels. To cope with this situation, Tomohiko Sawayanagi, head of the Hotels & Hospitality Business Department at JLL Japan, attempted to define lifestyle hotels in an article that he contributed to the July 2017 issue of Leisure Industry Data. In his article, Sawayanagi concludes that “on the basis of references available abroad, a lifestyle hotel needs to have the features of both a boutique hotel and a design hotel, as well as a ‘lounge’ function that serves as the third place.” A lifestyle hotel should have the uniqueness, stylishness, and comfort of a boutique hotel, and the sophisticated design of a design hotel. It does not have many guest rooms, but provides a “third place” separate from the home and workplace. A classic example of a “third place” is Starbucks Coffee. Starbucks is a comfortable place and facilitates community-building—this is what is said to be required of a lifestyle hotel.

Contract styles favored by developers inhibiting hotel development

Although lifestyle hotels are increasing in number, their degree of pervasiveness in Japan is more than 20 years behind that of the U.S. Sawayanagi’s analysis is that this is “because, from the viewpoint of developers analyzing the best uses of large-scale redevelopments, lifestyle hotels are not an option.” For example, in locations where a large-scale redevelopment will take place, it is best to build office buildings, because hotel floor areas are limited to the floor area ratio for non-business use. In such cases, a hotel will be built as part of a complex that includes office floors, and luxury hotel brands are often chosen over casual lifestyle hotels, due to their compatibility with business use. Also, when the land is rather small or faces a back alley, it is typically turned into a business hotel or a condo considering the perceived profitability. The biggest issue is that Japanese developers favor leasing, in order to avoid the risks that come with running a hotel. Under International Financial Reporting Standards, obligations to make lease payments under a long-term lease agreement are counted as a contingent liability, and that does not sit well at all with international lifestyle hotel operators, whose typical business model involves contracting with the hotel management.

Will the success of the Andaz Tokyo bring lifestyle hotels into the mainstream?

The concept of lifestyle hotels dates back to the early 90s in the U.S., and there have been a number of success stories since. They have not gained footing in Japan, however, largely because of the mindset among Japanese developers, as mentioned above. So, what has brought lifestyle hotels into the spotlight now? “Developing A-grade office buildings has worked just fine until now, but now, we foresee an excess in supply. Meanwhile, as a result of conventional hotel brands opening hotels one after another, the market has started to seek products with more character,” analyzes Sawayanagi. In the case of a hotel-office complex, for instance, developers may choose a lifestyle hotel in order to attract IT companies, known to prefer a casual atmosphere, to the office floors. This kind of choice is beginning to be welcomed. In addition, it has been announced that a Bvlgari Hotel will open in Tokyo. Although not a lifestyle hotel, it bears the name of a high-end jewelry brand. Through the development of hotels like this, which have particular tastes and luxurious standards, we can see the trend of differentiation from existing hotels.

Will the supply of lifestyle hotels grow even more? “Lifestyle hotels are still a blue ocean market in Japan. There are extremely few of them here, compared to London or New York,” points out Sawayanagi. He expects that a number of hotels will be launched in the days to come. JLL has been giving support to many projects since the development stages, including the Bvlgari Hotel mentioned above.

Lifestyle hotels are attractive options, not in the least because they are profitable. Sawayanagi says, “The Andaz Tokyo in Toranomon Hills was not well-known before it opened its doors, but now its average room price exceeds that of the Imperial Hotel. It has proven that there are a lot of customers who think it is worth the high price, even with its casual atmosphere.” Furthermore, lounges—a distinct feature of a lifestyle hotel—encourage both hotel guests and outside guests to visit. They place more emphasis on connections with the local community than conventional business hotels, which do not allow non-guests inside and are separated from the local community. Hence, lifestyle hotels better contribute to the developer's urban development. In the future, we are sure to see more developers consider attracting and operating lifestyle hotels.