Why hotel supply will remain limited in Japan in the near term

Only 16,000 new rooms are expected to be completed until 2026.

According to a recent Savills report, in 2024, Japan saw an increase in the number of hotel guestrooms by around 35,000 rooms, which is a considerable drop from the years leading up to the 2020 Olympics, when the number well exceeded 50,000 rooms. This figure is anticipated to slow even further moving forward, with a supply forecast of 16,000 guestrooms across Japan in 2025 and 2026.

This can largely be attributed to a few key bottlenecks constraining supply, particularly elevated construction costs and the labour shortage, on top of multiple project cancellations during the pandemic.

“Indeed, the average cost of constructing a steel reinforced concrete hotel across Japan has increased by over 25% between 2021 and 2023, according to data by the Ministry of Land, Infrastructure, Transport and Tourism (MLIT), while this figure has reached around 40% in Tokyo. Given both the persistent labour shortage and competition from other large commercial and infrastructure developments, hotel supply looks to remain limited for the meantime,” the report said.

Here’s more from Savills:

Previously, Tokyo, Osaka, and Kyoto accounted for the lion’s share of hotel supply - for instance, in 2018 and 2019, these three prefectures alone accounted for around 50%. They are easily the dominant hubs for inbound tourists, and expected strong tailwinds with events such as Expo 2025.

However, supply figures in 2024 and beyond point to a potential pivot in strategy for hotel development. In 2024, only around 25% of supply was delivered in these three prefectures, and this proportion is projected to decline even further going forward.

While elevated construction costs and limited land for development have likely played a role, regional areas have also made efforts to catch up in the tourism sector. Inbound tourism has surged, and repeat visitors appear to have a higher propensity to visit areas outside the major tourist hubs of Tokyo, Osaka, and Kyoto, perhaps in search of more authentic and varied cultural experiences.

With repeat visitors comprising nearly 70% of total inbound tourist visits to Japan in 2023 according to MLIT, the proportion which will likely increase going forward, demand for hotels in regional areas will likely increase as Japan aims to welcome 60 million inbound tourists by 2030.

Consequently, many developers and operators may increasingly shift their focus elsewhere, anticipating an uptick in demand from inbound visitors to regional areas. Indeed, the pipeline of new hotel supply in many less-travelled regions has remained rather stable, for instance Chugoku, Tohoku, and Koshinetsu & Hokuriku, despite the overall decline in new hotel guestrooms anticipated in 2025. Moreover, these regions have only seen moderate decreases in annual new supply between the peak level in 2020 and 2025, compared to the stark drops in Tokyo, Osaka, and Kyoto in recent years.

As Japan’s inbound tourism sector continues to grow and mature, many regional areas will likely continue to progress and attract more demand for hotels, which should generate numerous broad opportunities for developers and investors in such areas moving forward.

At the same time, although general hotel completions have slowed notably, a relatively large pipeline of international luxury hotels has emerged across Japan in 2025 to cater for the large and ever-growing number of high-spending visitors coming to Japan. Looking at the big three destinations, Tokyo will see continued expansion in its luxury hotel offerings, with several international five-star hotel brands opening locations within high-profile mixed-use redevelopment projects, including Fairmont and JW Marriott Hotel Tokyo in 2025, Waldorf Astoria Tokyo Nihonbashi in 2026, and Dorchester Collection in 2028. Similarly, Osaka will welcome Waldorf Astoria Osaka and RIHGA Royal Hotel Osaka - Vignette Collection in 2025, while Six Senses and Banyan Tree opened hotels in Kyoto in 2024.

Meanwhile, a pipeline of luxury hotels and resorts outside of these regions has also emerged, which likely also demonstrates the shifting demand towards varied and authentic travel experiences in typically less-travelled destinations in Japan. For instance, Ritz-Carlton opened hotels in Nikko and Fukuoka in 2020 and 2023, respectively. Conrad is also scheduled to open a hotel in Nagoya in 2026, while Berjaya aims to develop a Four Seasons hotel in Okinawa in 2027. Meanwhile, Niseko has been at the forefront of Japan’s emerging luxury ski market, with IHG Hotels & Resorts reportedly scheduled to open an InterContinental hotel in Sapporo in 2025, as well as develop a Six Senses hotel in Niseko in 2026.

Overall, the yearly supply of new guestrooms across Japan has been decreasing in recent years, and is anticipated to remain limited from 2025, particularly in established tourist destinations, while new supply remains more consistent in less travelled regional areas. This trend is likely to benefit existing hotels, as limited new hotel supply against a backdrop of ever expanding inbound tourist demand should create a sense of scarcity in the market, likely contributing to further ADR growth and greater hotel valuations. Meanwhile, upscale and luxury hotels should continue to perform well, as more operators establish themselves in Japan in order to fully capture the demand from a growing demographic of high-end travellers to Japan.