(Bloomberg) — Foreign investors are buying up Japanese hotels at a scale unseen in almost a decade, as the nation’s tourism recovery, weak currency and low interest rates drive appetite from abroad.
(Bloomberg) — Foreign investors are buying up Japanese hotels at a scale unseen in almost a decade, as the nation’s tourism recovery, weak currency and low interest rates drive appetite from abroad.
Overseas buyers were responsible for 47% of the 494.3 billion yen ($3.7 billion) invested in hotel deals that closed in the past 12 months — the highest proportion since 2014, according to data at the end of March from research firm MSCI Real Assets.
A combination of low rates, the weak yen and market stability has made Japanese real estate attractive for global investors amid pervasive economic uncertainty in the past year, said Benjamin Chow, MSCI’s Asia head of real assets research.
“There was a point last year where all our clients were going to Japan or had gone to Japan to look at properties,” Chow said.
The increased interest in hotels, which make up about a tenth of real estate deal activity in Japan, is notable because it remains one of the more niche property areas in the nation, Chow said. Foreign investors have historically been more drawn to residential or retail properties, he added.
Tourists have been flocking back to Japan since it eased pandemic-era border controls in October. Overseas investors are betting on strong demand from both foreign and domestic tourists, combined with tight supply from a lack of new hotel rooms in the country.
“Upcoming hotel supply is expected to be low in the coming years, and is therefore unlikely to disrupt the operating performance of hotels due to the moderate competition in the market,” according to a 2023 Japan hospitality report from real estate services firm Savills Plc.
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Savills said hurdles remain, including labor shortages, higher costs from utilities and food, and the potential impact of a global economic slowdown. “Nonetheless, the industry is indisputably in better shape and on track for recovery despite these challenges,” it said in the report.
There have been some notable hotel transactions in the past year. Private equity firm BentallGreenOak bought the Rihga Royal Hotel in Osaka for an estimated 55 billion yen in January, and Singaporean wealth fund GIC Pte purchased a portfolio of hospitality assets from Seibu Holdings Inc. for 150 billion yen in a deal that closed in the past year.
KKR & Co. and Hong Kong-based Gaw Capital agreed to buy the Tokyo Hyatt Regency last month from Odakyu Electric Railway Co. The sale price is estimated at about 57.1 billion yen, according to filings from the Tokyo-based rail operator.
The yen has weakened about 14% against the dollar since the start of 2022, as the Federal Reserve raised rates while Japan maintained its negative-rate policy. While some economists anticipate new Bank of Japan Governor Kazuo Ueda may begin to tighten monetary policy as soon as June, any adjustments are likely to be gradual.
“There’s still a very strong case for Japan this year,” Chow said. “Interest rates have remained low and with this new Bank of Japan governor who has recently taken over, the early signs are he’s not going to do anything crazy.”
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