Japan hotel investment volumes hit record highs in 2023

Investments more than tripled to JPY500b during the year.

Supported by the low cost of debt and strong hotel operating environment, data from CBRE revealed Japan hotel investment volume increased significantly in 2023, surpassing JPY 500 billion. 

“This was more than 240% higher than 2022’s figure, and 4% higher than the previous record set in 2019. Cross-border investment totalled JPY 240 billion, accounting for 46% of all hotel investment, the highest proportion since 2007,” the analyst said.

Here’s more from CBRE:

The luxury and upscale segments, a favourite among investors in 2023, should gain even greater traction this year given the relative lack of scale. Due to the relative affordability of Japan compared to other markets in the region, tourist preference still very much lies within luxury accommodation. Investors will therefore continue to target these segments to capitalise on potential returns.

Despite the recent hike in interest rates, Japan's relative attractiveness as an investment destination remains intact from the perspectives of liquidity and stability. Even with the potential narrowing of yield spreads, the enduring level of investor interest in Japan alongside the significant accumulation of dry powder targeted at Japanese real estate means that the impact of the shift in monetary policy should be limited. Economists and investors anticipate policy interest rates remaining within the market consensus range of 0.1% to 0.2%, representing a further increase of 10 to 20 bps from the current level in 2024. 

CBRE data show aggregate NOI yields for hotel assets in Japan ranging from 4.3% (Tokyo, Lease contract) to 5.3% (Government Designated City, Management contract). Given hotels’ strong performance; the attractive entry yield compared to other sectors; and the expectation of limited overall movement in central policy rates, CBRE expects overall yields for hotel assets in Japan to remain stable over the next 12-24 months.