Japan new hotel supply growth to underperform 10-year average of 3.7%

New supply is expected to have a CAGR of only 0.4% until 2027.

According to a CBRE report, although investor interest in Japanese hotels has strengthened considerably over the past 12 – 18 months, developers have been extremely cautious towards committing to new projects due to an increase in commercial real estate construction costs and land prices. 

Turner & Townsend data show construction costs for commercial real estate in Tokyo will increase by 24% between 2022-2024F, the second highest rise in Asia Pacific behind Singapore. As a result, new hotel supply in Japan is set to grow at a CAGR of just 0.4% between 2024F-2027F, significantly down from the 10- year average of 3.7%. 

According to STR, 75% of all new hotel supply in Japan due to come on stream in the next four years will be in the Upscale+ segment, which has traditionally attracted relatively weaker interest from investors and operators. As of the end of 2023, the Upscale+ segment constituted 40% of all available rooms in Japan.