Japan May Attract More Interest from Western Hoteliers

American and European-based hotel companies have focused much effort in recent years on expanding their presence in the booming economies of China and India. Much less attention has been paid to the world’s third largest economy, Japan, but, according to a recent report from HVS International, that is soon likely to change. The report notes that investing in Japan does pose some challenges to Western firms. The Japanese lodging industry has no data-gathering company comparable to Smith Travel Research, which provides a wealth of hotel operations and profitably data in the United States. Also, hotel values are measured differently. In the United States, hotels are measured by how much income they produce, but in Japan, the building’s value takes precedence. The study’s author, Emily Smith (pictured), consulting and valuation analyst for HVS of New York, said that, consequently, Western investors frequently discover that hotels in Japan are undervalued. The country should get a close look from both Western investors and hotel companies, she said. “There is a lot of opportunity in Japan,” Smith said. “It’s a powerful economy.” She also notes that many Japanese are enthusiastic travelers, and more and more will have time to indulge their passion, as a huge number of baby boomers are reaching retirement age. Japan ranks high in the world in its number of lodging establishments, but a great number of them are small-scale facilities. Western brands, however, are beginning to fill the void, notably Best Western International and Choice Hotels. In late 2007, Best Western had only three hotels in Japan, but by May the number had jumped to six. The company recently announced it expects to have 30 hotels there by 2010. As of May, Choice Hotels had 43 hotels in the country. And, in October 2006, airline company ANA and InterContinental Hotels Group launched a partnership, with the new entity taking over management of IHG’s existing hotels in Japan, and 31 hotels that ANA owned in Japan (13 of the assets were sold in December 2006.) There are three brands: ANA-InterContinental, ANA-Crowne Plaza and ANA-Holiday Inn. The well-known ANA name should entice many Japanese travelers to stay there, while Westerners will be drawn by IHG’s strong reservation systems and the familiar brand names, Smith said. The credit crunch may slow down Western investment in Japan, but Japan’s hotel sector should continue to benefit from Asian tourists traveling from countries where economic growth is still robust, Smith said. She also predicts that major hotel companies such as Hilton and Marriott, both of which have had a long-term presence in Japan, will introduce their array of mid-market brands to the country. “They want to have better control over the entire market,” Smith said.