Yen Weakness, Influx of Tourists... Global Big Spender 'Il Hotel' Shopping

Half of Japanese Hotels Bought by Foreign Investors
'With Corona' Boosts Tourism Economy
Ultra-Low Interest Rates and Yen Depreciation Also Contribute to Popularity of Japanese Hotels

Global private equity funds and sovereign wealth funds, the so-called 'big players,' have started shopping for hotels in Japan. Benefiting from historically low yen value (yen depreciation), ultra-low interest rates, and a favorable investment environment, coupled with the tourism boom following the lifting of COVID-19 restrictions last year, they are actively investing in hotels.

Half of Japanese Hotels Bought by Foreign Investors

On the 17th (local time), Bloomberg News reported, citing US market research firm MSCI Real Assets, that foreign investors purchased Japanese hotels worth 232.3 billion yen over the past year. This accounts for 47% of the total purchase amount of 494.3 billion yen by all investors, both domestic and foreign. This is the highest ratio in the past 10 years since 2014.

Foreign investors' shopping spree for Japanese hotels sharply contracted after the outbreak of COVID-19. The scale of foreign hotel purchases dropped from 217.6 billion yen between early 2019 and early 2020 to 20.6 billion yen between early 2020 and early 2021. Since then, it has started to increase again, exceeding 200 billion yen in the past year.

Institutional investors from Canada, Hong Kong, Singapore, and other regions have been active in purchasing Japanese hotels. The world's largest private equity firm KKR (Kohlberg Kravis Roberts) and Hong Kong's Gaw Capital agreed last month to acquire the Hyatt Regency Hotel in Tokyo from Odakyu Electric Railway. The purchase price is reported to be 57.1 billion yen. In January this year, Canadian private equity firm BentallGreenOak purchased the Rihga Royal Hotel in Osaka for 55 billion yen. Earlier, Singapore's sovereign wealth fund GIC also acquired hotel assets worth approximately 150 billion yen from Seibu Holdings, a major Japanese railway and hotel conglomerate.

Tourism Revitalization with 'With Corona'... Ultra-Low Interest Rates and Yen Depreciation Also Play a Role

As Japan's tourism sector recovers with the endemic phase of COVID-19, overseas investors have boarded flights to Japan. Since the Japanese government allowed visa-free entry and expanded flights in October last year, the local tourism market has rapidly regained momentum. The supply of new hotels is insufficient to keep up with the increasing demand.

Benjamin Chow, Head of MSCI Real Estate Research Asia, analyzed, "Many clients visited Japan to view real estate last year," adding, "The combination of low interest rates, weak yen, and market stability is increasing the attractiveness of Japanese real estate." Global real estate firm Savills predicted, "Hotel supply is expected to remain low for the next few years," and "With reduced market competition, the risk of hotel operating income being affected is low."

[Image source=Yonhap News]

Another advantage is that investors can purchase Japanese assets at low prices due to the historic yen depreciation and low interest rates. Despite the global trend of interest rate hikes led by the US Federal Reserve (Fed), Japanese monetary authorities maintain negative interest rates. The yen-dollar exchange rate has risen from the 115 yen level at the end of 2021 to around 134 yen currently, resulting in a more than 16% decline in yen value since 2022. If the yen value recovers, investors can also gain from foreign exchange profits.

The sustainability of overseas investment enthusiasm in Japanese hotels is expected to depend on whether Kazuo Ueda, the new Governor of the Bank of Japan (BOJ), will revise the ultra-low interest rate policy that has persisted for the past decade. Chow, Head of MSCI Real Estate Asia, stated, "Interest rates remain low, and there are initial signals that the newly appointed BOJ Governor will not take irrational actions (such as rapid interest rate path changes)," adding, "The Japanese hotel market is expected to remain very strong this year as well."

This content was produced with the assistance of AI translation services.