Japan hotel investments account for a fifth of 2024 total property transactions

Hotel investments hit JPY1.1 trillion in 2024.

In a recent report, Savills noted that hotels have been a highly desirable asset in 2024, given the bright performance and future prospects of the wider hospitality sector in Japan. As such, total hotel transaction volumes in 2024 comprised a historic 20% of total annual real estate transactions at a noteworthy JPY1.1 trillion, a large annual uptick over the figure in 2023, and over double that of 2022.

“Overseas investors have remained active in the market, having carried out around 45% of deals over the year, while J-REITs and other listed companies comprised around a quarter of the total figure,” the report said.

Here’s more from Savills:

Reflecting the enormous deal volume, several iconic individual hotel transactions stood out over the year. The largest was carried out by TPG Angelo Gordon and Kenedix, which acquired the Grand Nikko Tokyo Daiba in Tokyo for JPY107.0 billion, while a Tokyu Group-affiliated SPC acquired The Park Front Hotel at Universal Studio Japan in Osaka for a price in the JPY70.0 billion range. Additionally, Japan Hotel REIT acquired the Hilton Fukuoka Sea Hawk for JPY64.4 billion from ML ESTATE.

Hotel assets were also focal points of a few mega deals in recent months. Blackstone acquired a 250-guestroom hotel located inside Tokyo Garden Terrace Kioicho as part of the JPY400 billion transaction for the entire property, and also acquired RitzCarlton, Okinawa and Kanehide Kise Beach Palace in Okinawa for an aggregate JPY20.0 billion, as well as Nest Hotel in Osaka. Additionally, Brookfield Asset Management reportedly acquired a 30% ownership interest in Meguro Gajoen in Tokyo, which hosts a 60-guestroom luxury hotel, as part of a US$1.6 billion deal including a separate land acquisition.

J-REITs also signalled their continued confidence in the sector, with a number of significant portfolio transactions taking place in the second half of 2024. The largest such deal was Invincible REIT’s acquisition of a 12 hotel portfolio across Japan for JPY104.0 billion from multiple sellers. Star Asia REIT acquired a portfolio of four hotel properties for JPY34.7 billion, while Hulic REIT acquired Grand Nikko Tokyo Bay Maihama from its sponsor Hulic for JPY27.0 billion.

Many other deals in 2024 also stand out when viewed on a per-key basis. For instance, Six Senses Kyoto, which was disposed of by Samty for more than JPY19.8 billion, has a per-key price of a staggering JPY250 million. Similarly, St Regis Hotel Osaka, acquired by BentallGreenOak for JPY21.4 billion has a per-key price of JPY133 million, while MIMARU Tokyo Shinjuku WEST, acquired by Japan Hotel REIT for JPY9.6 billion has a per-key price of JPY127 million. A few other hotels were transacted for prices exceeding JPY100 million per-key, which demonstrates the strong appetite among investors for prime hotel assets.

Another indication of this sentiment has been a series of high-profile M&A deals in recent months. For instance, Hillhouse Investment Management and its real estate unit Rava Partners completed a takeover bid for the majority of Samty Holdings for over JPY100 billion, which has a sizeable roster of hotel assets, while Daiwa Securities Group continues to hold 37% of the company.

Moreover, CapitaLand Investment reached an agreement to acquire SC Capital Partners for over JPY30 billion, in order to expand their presence in Japan. SC Capital Partners is a major sponsor of Japan Hotel REIT as well as Daiwa Resort, and has total assets under management of JPY1.3 trillion.

Meanwhile, prospects are strengthening in regional hospitality markets, which saw notable levels of investment in 2024. For instance, JUNGLIA Okinawa, a large theme park and resort, will open in late July following JPY70 billion in investments, and is estimated to generate a wider economic impact in Okinawa of up to JPY7 trillion over its first 15 years.

Elsewhere, Fortress Investment Group is carrying out an acquisition of Joban Kosan, the operator of Spa Resort Hawaiians in Fukushima prefecture, on top of Phoenix Seagaia Resort in Miyazaki in early 2024. The success of these developments could lead to similar resort developments across Japan, and trigger wider sustainable growth in respective regional hospitality markets.

Overall, the hospitality sector has extremely positive fundamentals, and even despite sharpened pricing, investment activity may not slow down for the meantime. Tailwinds such as the ever-expanding inbound tourism market and limited upcoming hotel supply should help the market remain strong, and given the optimistic outlook, we anticipate a busy year to come in terms of hotel investments.