The Journal The Authority on Global Business in Japan

Many of Japan’s industries may be facing economic challenges, but tourism is not one of them. An influx of visitors from abroad has made it one of the country’s fastest-growing sectors, shattering the initial tourism targets of 40 million visitors annually by 2020 set by Prime Minister Shinzo Abe.

This growth in tourism has increased demand for hotel pro­perties and shops, and regional land prices have been pushed up for the first time in 27 years. Hotels are being developed faster than ever and have become attractive investments.

To better understand what is driving this growth, the American Chamber of Commerce in Japan (ACCJ) Tourism Industry Committee, Integrated Resorts Task Force, Real Estate Committee, and Alternative Investment Committee invited Hisashi Furukawa to speak at an event on September 26 at the ANA InterContinental Tokyo. Furukawa is president and representative director of Japan Hotel REIT Advisors Co., Ltd., the country’s largest real estate investment trust (REIT). His address was entitled Hotel Boom: A Look at Japanese Investment Trends.

THE BUBBLE
Furukawa spoke about long-term market trends, as well as those that have emerged in recent years surrounding inbound tourism and social media.

“This was a very tough time for Japan,” he said. Known as the Lost Decade, the post-bubble period saw the bankruptcies and bailouts of many financial institutions, and the collapse has had long-lingering negative effects. This can still be seen in the form of the government’s debt burden, which is the highest in the world.

But there were some positives, Furukawa said. “Equity players gathered in Japan and looked for investment opportunities. This was a turning point for the real estate business.”

WHAT IS J-REIT?
Furukawa also explained REITs, which are companies that own or operate real estate that generates income. This can include office buildings, residential apartments, shops, and hotels. REITs were first developed in the United States in 1960, but the Japanese REIT—or J-REIT—market wasn’t created until 2001.

With the bursting of the economic bubble came a plunge in property prices. J-REITs were introduced to stabilize—and hopefully increase—investment in the market. Today, Japan is the second-largest REIT market behind the United States.

REASONS FOR GROWTH
Furukawa then summarized the most recent trends—particularly, inbound tourism. “If you look back 15 years, there were only 5.5 million tourists [each year] in Japan. It took 10 years to reach 10 million, which isn’t so bad. But, in 2014, we saw really rapid growth.”

Furukawa believes the reasons include:

  • Abe’s tourism push
  • Relaxed visa restrictions
  • More international flights
  • Expanded airport capacity

However, the introduction of smartphones and the rise of social media in the late 2000s deserve a good deal of credit, too.

“The smartphone not only made trips to Japan easier and more enjoyable, but social media helped promote Japan,” Furukawa said. “Japan is not very good at promoting itself, but once inbound travelers shared pictures and experiences, it caused a sudden increase in visitors.”

TOURISM IMPACT
In March, Japan’s Ministry of Land, Infrastructure, Transport and Tourism reported a nationwide increase in land prices—back up to 40 percent of the peak price set in 1991. It is the fourth consecutive year the national average land price for commercial areas has risen.

Furukawa and other experts believe the data suggests this correlates directly with the influx of visitors to the country. As real estate developments aimed at inbound tourists continue to spring up around the country, the price of real estate has finally begun to recover. 

Aaron Baggett is a staff writer at Custom Media for The ACCJ Journal.

Photos: Embassy of the United States, Tokyo