Hotels & Hospitality Group | November 2014

Tokyo 2020 Olympics: Expectations for the Hotel Industry

Contents03Introduction

Future Olympic Host City

Former Olympic Host Cities

Conclusion

10 Contributors

05

09

04

06

07

08

Beijing 2008

London 2012

Tokyo 2020

Tokyo 2020 Olympics: Expectations for the Hotel Industry 3

Introduction

It is just over a year since International Olympic Committee President Jacques Rogge announced in Buenos Aires that Tokyo had beaten Madrid and Istanbul to host the 2020 Olympic Games. Around one year later the question still remains – what will the win mean for Tokyo and Japan overall?

Most analysts would agree the long term impact of hosting the Games is generally beneficial to the local economy. Share markets in Sydney, London and Brazil recorded significant gains in the period following their successful announcements. Tokyo’s Nikkei also performed admirably, albeit there are several drivers behind this including changes to economic policy. What has traditionally followed in all previous host cities are increased tourism numbers far beyond the completion of the Games.

Before hosting the 1964 Olympic Games, Japan completed an unprecedented number of city (Tokyo) and countrywide improvements and upgrades, the most notable its public transportation system which provided a new train network or Shinkansen. Today Japan prides itself on being near-ready to host the 2020 Games however, the country will still upgrade a number of large-scale infrastructure projects.

In this paper, JLL and STR Global have specifically considered previous host cities London and Beijing, identifying what are the key impacts in terms of tourism and hotel performance before, during and after the Olympic event, in order to draw conclusions about Tokyo in 2020. This is the second collaboration by both firms assessing the influence of the Olympic Games on Tokyo (see Tokyo 2020: The Olympic Games Effect, released in November 2013).

SHORT TERM IMPACT

Share markets in Sydney, London and Brazil recorded significant gains in the period following their successful announcements. Tokyo’s Nikkei also performed admirably, albeit there are several drivers behind this including changes to economic policy.

LONG TERM IMPACT

The long term impact of hosting the Games is generally beneficial to the local economy.

JAPAN 2020

Today Japan prides itself on being near-ready to host the 2020 Games however, the country will still upgrade a number of large-scale infrastructure projects.

Most analysts would agree the long term impact of hosting the Games is generally beneficial to the local economy. Share markets in Sydney, London and Brazil recorded significant gains in the period following their successful announcements. Tokyo’s Nikkei also performed admirably, albeit there are several drivers behind this including changes to economic policy.

4 JLL | Hotels & Hospitality Group

Former Olympic Host Cities

According to industry sources, the 1988 Seoul Games achieved a 78% increase in international visitors to South Korea between 1986 and 1990 (by 2002, up 222% on 1986 levels to 5.3 million international visitors). The Barcelona Games in 1992 was the second highest in terms of inbound tourism growth (with Spain as a whole reporting an increase of 27% between 1990 and 1994).

The Atlanta Games in 1996 saw a 4% rise in international visitors to the USA between 1994 and 1998 and the 2000 Sydney Games recorded a 16% increase in international visitors to Australia between 1998 and 2002. However, inbound tourism growth was not recorded in all previous host cities. The number of foreign visitors to Beijing in August 2008 declined 7% to 389,000. Over the remainder of the summer that year, visitor numbers were sharply lower, recording a 30% y-o-y decline. It should be noted that this was also at the peak of the global financial crisis.

The most recent Games in London recorded improved results. In September 2012, overseas visitors completed 2.6 million visits to the United Kingdom, or around 1% higher than the previous year. In the three months July to September 2012, there were 4% less visits by overseas residents than in the same period in 2011. However, associated spending on these visits was 6% higher than the previous year, with a total figure of over GBP 6 billion.

CITIES IMPACTED

History shows the flow on effects for tourism and the wider economy generally extend to the whole of the host country and bordering cities.

EXCEPTIONS

The number of foreign visitors to Beijing in August 2008 declined 7% to 389,000. It should be noted that the Beijing Games were held at the peak of the global financial crisis.

2020 ASSUMPTIONS

It is safe to assume that in 2020, tourism will extend far beyond the city boundaries of Tokyo with Osaka and Kyoto most likely to see a large increase in overseas visitors.

History shows the flow on effects for tourism and the wider economy generally extend to the whole of the host country and bordering cities, as was the case in London. In the UK, the Eurostar aided travel to many European cities for tourists attending the London Games.

It is safe to assume that in 2020, tourism will extend far beyond the city boundaries of Tokyo with Osaka and Kyoto most likely to see a large increase in overseas visitors. Kanazawa may also welcome additional tourists once the Hokuriku-Shinkansen commences operation in 2015.

Olympic Cities Room Count ComparisonRoom Count of the Olympic Month, (Tokyo July 2014)

Tokyo 2020 Olympics: Expectations for the Hotel Industry 5

Future Olympic Host City

Government officials recently estimated that the 2020 Games could boost Japan’s GDP by an additional 0.5%, creating a positive economic impact estimated to be JPY 4.2 trillion. The 8.5 million international tourists that the Tokyo metropolitan government estimates will visit Japan are greater than the total number of foreign visitors to Japan in 2012. So now, Tokyo’s supply and demand equation to meet the additional room requirements is imperative.

Whilst accommodating tourists, officials and athletes to the Olympic and Paralympic Games should not govern overall planning, it is important to establish whether there is sufficient accommodation supply to meet total room demand.

The 2020 Games could boost Japan’s GDP by an additional 0.5%, creating a positive economic impact estimated to be JPY 4.2 trillion.

The 8.5 million international tourists that the Tokyo metropolitan government estimates will visit Japan during the Olympics are greater than the total number of foreign visitors to Japan in 2012.

The forecast increase in international visitors over the next several years however will justify the building of additional rooms.

GDP BOOST INTERNATIONAL TOURISTS ADDITIONAL ROOMS

38 17

172

116 98

Sydney '00 Athens '04 Beijing '08 London '12 Tokyo '14 0

20 40 60 80

100 120 140 160 180 200 Thousands

According to STR Global, Tokyo is a major international hotel market with approximately 94,000 available rooms however, it is noted that this room count does not include the balance of the Greater Tokyo Area where there are countless traditional accommodation options in the form of ‘Ryokans’. Additional accomodation options also include private hostels and unlisted “capsule hotels’. Airbnb has also made solid development in reinforcing its acceptability over recent years. The online community marketplace is certain to become a useful accomodation option in 2020.

In our last report, we noted the International Olympic Committee reported there were approximately 140,000 rooms within a 50 kilometre radius of the Tokyo CBD. With the anticipated displacement effect, existing room supply should meet current demand levels. The forecast increase in international visitors over the next several years however will justify the building of additional rooms.

When compared to previous host cities, London had approximately 116,000 available rooms in 2012 and Beijing had 172,000 available rooms in 2008. In contrast, the much smaller host cities of Athens and Sydney had considerably less room supply – Athens (17,000 available rooms in 2004) and Sydney (an estimated 38,000 available rooms in 2000).

Since Tokyo’s hotel market is more comparable in size to London and Beijing, we have analysed the impact of the Games on the most recent host cities.

Source: STR Global

Beijing Olympics – Key CitiesOlympic Month August, One Year Prior & After the Olympic Year (2008)

40%

50%

60%

70%

80%

90%

0 500

1,000

1,500

2,000

2,500

3,000 CNY

MainlandChina

Beijing Shanghai Xian Hangzhou Shenzhen Hong Kong(CNY)

20072007

Occupancy:ADR:

20092009

2008 (Olympic Year)2008 (Olympic Year)

6 JLL | Hotels & Hospitality Group

Beijing 2008

OCCUPANCY

In Beijing, the city recorded an 18.8% y-o-y decline in occupancy during the Olympics.

AVERAGE DAILY RATES

The average daily rate recorded a remarkable increase of 250% y-o-y during the Games period.

REVENUE PER AVAILABLE ROOM

Revenue per available room for Beijing grew by 184.2% during the Games period.

The chart illustrates the impact of the 2008 Olympics in Beijing relative to major hotel markets in Mainland China. In Beijing, the city recorded an 18.8% y-o-y decline in occupancy during the Olympics. The decline was primarily a result of the government imposed visa restrictions as a security measure for the Games which led to a 7% decline in international arrivals.

This was exacerbated by the global financial crisis which affected leisure travel patterns. Nevertheless, the average daily rate recorded a remarkable increase of 250% y-o-y during the Games period. Average daily rates in Beijing rose to levels above CNY 2,000 which is typically recorded only in luxury category hotels.

This was similar to the London Olympics in 2012 which also witnessed average daily rates rise sharply. Overall, revenue per available room for Beijing grew by 184.2% for the period. The 2008 Games also had a positive impact on neighboring Mainland Chinese cities as well as Hong Kong, which recorded increases in room rates but similar declines in occupancy.

Source: STR Global

The 2008 Games also had a positive impact on neighboring Mainland Chinese cities as well as Hong Kong, which recorded increases in room rates but similar declines in occupancy.

2008

Daily Comparison – London vs. European Key MarketsOlympic Months, Occ %Change

UK Markets Average Daily RateOlympic Period 2012 compared YOY to 2011 & 2013

Source: STR Global

The chart above illustrates the daily impact of the 2012 Games on London hotel occupancy before, during and after the event. Historically, occupancy levels decline prior to the Olympics in all host cities. In August 2012 (when the Games’ events were staged), there was a 5% decline on international visitors to United Kingdom, however hotel occupancy was still recorded at peak levels of 90.2%, a 7.6% improvement from August 2011.

The fall in occupancy is due to the displacement of visitors during the month of the Games, where tourists who are not attending any events avoid the city and generally the higher costs associated with visiting an Olympic host city during this period. Inbound tourism attending the Games still contributes to a significant 9% y-o-y increase in overseas visitor expenditure during the month, making up for the shortfall of tourists that stayed away.

Unsurprisingly, average daily room rates in London had increased over the period the Olympics were staged. The Olympic Games is the biggest sporting event in the world, so it is inevitable room rates rise. It is worth noting that London, in comparison to past host cities, had the lowest percentage increase in room rates.

Overall, the London Olympics boosted visitation and tourism expenditure in the UK in 2012 (a 1% increase in international visitor arrivals and a corresponding 4% improvement on visitor spend was recorded), showing the positive impact of the Olympics on the country.

In London, visitor arrivals and tourism spend benefited substantially, increasing by 5% and 9% y-o-y respectively. However during the Games, retail, food and beverage outlets and most major tourist attractions experienced decline in spending. This is because visitors in London were essentially there to watch the Games and not for general sightseeing.

In the months leading up to the Games, the government implemented tourism campaigns to boost visitation including a ‘Holidays at Home’ campaign to encourage Britons to take ‘staycations’ and other related ‘Visit England’ initiatives. Despite this, a 5% fall in overseas tourists to the UK was still recorded as a restrictive visa application policy limited entry to several nations including Mainland China.

One year post the event, London welcomed a record of 16.8 million visitors, about one million additional visitors over 2012 while visitor spend was registered at GBP 11.2 billion (GBP 1 billion more than 2012).

Average daily rates across the UK recorded solid growth patterns during the Olympic period in 2012 as reflected in the chart above. Most cities experienced rate growth during this period, with London outperforming, achieving an 86.6% improvement from the previous year. In 2013, average daily rates returned to levels that were last recorded in 2011 (or before the Games).

Large football matches held in Cardiff, Coventry and Manchester underpinned increases in these cities whilst locations close to Airports such as Heathrow, Manchester, Edinburgh, Birmingham, Glasgow, Newcastle, Liverpool and Aberdeen also recorded gains.

20%

10%

0%

-10%

-20%

-30%

Jul 01

Jul 08

Jul 15

Jul 22

Jul 29

Aug 05

Olympics

Aug 12

Aug 19

London

Aug 26

Sep 02

Sep 09

Sep 16

Sep 23

Sep 30

Year 2012

UKReg

ional U

KLo

ndon

Heathr

owBirm

ingha

mMan

cheste

rGlas

gow

Leed

s

Liverp

ool

Bristol

Aberde

enCard

iffNott

ingha

mCove

ntry

Newcas

tleEdin

burgh

250GBP

200150100

500

ADR 2011 ADR 2012 ADR 2013

Tokyo 2020 Olympics: Expectations for the Hotel Industry 7

London 2012

OCCUPANCY

Hotel occupancy during the London Olympics recorded peak levels of 90.2%, a 7.6% improvement from August 2011.

AVERAGE DAILY RATES

Average daily room rates in London and across the UK increased over the period the Olympics were staged. It is worth noting that London, in comparison to past host cities, had the lowest percentage increase in room rates.

One year post the event, London welcomed a record of 16.8 million visitors, about one million additional visitors over 2012 while visitor spend was registered at GBP 11.2 billion (GBP 1 billion more than 2012).

POST 2012 OLYMPICS

Source: STR Global

2012

8 JLL | Hotels & Hospitality Group

NEW ROOMS

Tokyo’s hotel pipeline is expected to increase by around 8% or an additional 7,500 rooms, either under construction or proposed over the next several years.

AVERAGE DAILY RATES

Tokyo’s average daily rate in September 2014 has increased by 7.7% since the announcement. However, thanks to the ‘Abenomics’ factor, rates had been increasing since June 2012, so the rise is not solely a result of the Olympics win.

POLICY IMPACT

Government policies such as: the deregulation of visa requirements for several Asian countries that support increased inbound visitation, open sky policy, and the potential legalisation of casino gaming could all affect the number of international arrivals over the near future.

Tokyo 2020

Tokyo’s hotel pipeline is expected to increase by around 8% or an additional 7,500 rooms, either under construction or proposed over the next several years. In addition, some hotels have also announced expansion plans and refurbishment despite the strong increase in construction costs the country has faced in recent years.

On trading performance, hotels in Tokyo have recorded a consistent upward trend in average daily rates since 2012, not only on the back of the Games, but also a factor of ‘Abenomics’. Tokyo’s average daily rate in September 2014 has increased by 7.7% since the announcement. However, rates had been increasing since June 2012, so the rise is not solely a result of the Olympics win.

Government policy has promoted currency depreciation due to monetary easement, deregulation of visa requirements for several Asian countries that support increased inbound visitation, open sky policy, and the potential legalisation of casino gaming. Japan has shown a steady recovery which has influenced the local tourism industry and broader economy after the 2011 earthquake. It is noted that since the consumption tax increase in April 2014, the level of growth is now slowing. A second increase planned for late 2015 is likely to further impact domestic tourism demand.

On trading performance, hotels in Tokyo have recorded a consistent upward trend in average daily rates since 2012, not only on the back of the Games, but also a factor of ‘Abenomics’.

Tokyo Actual Performance, Supply, Demand, RevPAR12 month moving average January 2007 to July 2014, in JPY

0 5

10 15 20 25 30 35 40 Millions

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000

YenSeptember 07, 2013Tokyo won bid for Olympics 2020

Supply Demand RevPAR

Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Sept 14

Source: STR Global

2020

Tokyo 2020 Olympics: Expectations for the Hotel Industry 9

FOREIGN VISITORS 2013

In 2013, international inbound tourists recorded 10.4 million, according to the Japan National Tourism Organization.

FOREIGN VISITORS 2020 & 2030

The Japanese government is aiming to increase the number of foreign visitors per year to 20 million by 2020 and 30 million by 2030.

Just like London and Beijing, hotel trading performance is similarly expected to outperform in Tokyo. Cities such as Kyoto and Osaka are also expected to witness steep increases in average daily room rates nearer to 2020.

HOTEL TRADING PERFORMANCE 2020

Conclusion

The Japanese government is aiming to increase the number of foreign visitors per year to 20 million by 2020 and 30 million by 2030. In 2013, international inbound tourists recorded 10.4 million, according to the Japan National Tourism Organization, making the Japanese government’s target appear ambitious. Regardless, the Olympic effect may have already been observed as the number of foreign visitors between January and July in 2014 is 26% higher than the same period in 2013.

Just one year after the 2020 Games announcement, several new full-service hotels have been proposed. However, unlike the Games of 1964, Tokyo isn’t entering a period of major new hotel development where the city welcomed several new hotels including the Hotel Okura, Hotel New Otani and the Hilton Tokyo. Japan’s tourism market is clearly in recovery but the evidence suggests Tokyo can already service demand far better than many previous host cities.

As evident by the London and Beijing Games, hotel trading performance is similarly expected to outperform in Tokyo. Outside of the capital, several Japanese cities will benefit from Tokyo hosting the Games, including Osaka and Kyoto which are all within direct train access and may form part of an ‘Olympic tour package’. These cities too will witness steep increases in average daily room rates nearer to 2020.

More importantly, Japan will be further elevated into the international spotlight post the Olympics. London continues to see solid growth in its tourism industry as a direct result of the Games and Japan too will receive its fair share of international visitors after 2020.

Japan’s tourism market is clearly in recovery but the evidence suggests Tokyo can already service demand far better than many previous host cities.

10 JLL | Hotels & Hospitality Group

Contributors

About JLL Hotels & Hospitality

JLL’s Hotels & Hospitality Group serves as the hospitality industry’s global leader in real estate services for luxury, upscale, select service and budget hotels; timeshare and fractional ownership properties; convention centers; mixed-use developments and other hospitality properties. The firm’s 300 dedicated hotel and hospitality experts partner with investors and owner/operators around the globe to support and shape investment strategies that deliver maximum value throughout the entire lifecycle of an asset. In the last five years, the team completed more transactions than any other hotels and hospitality real estate advisor in the world totaling nearly US $36 billion, while also completing approximately 4,000 advisory, valuation and asset management assignments. The group’s hotels and hospitality specialists provide independent and expert advice to clients, backed by industry-leading research.

For more news, videos and research from JLL’s Hotels & Hospitality Group, please visit: www.jll.com/hospitality or download the Hotels & Hospitality Group’s iPhone app or iPad app from the App Store.

JLL Hotels & Hospitality Group

Tom SawayanagiManaging Director, Japan +81 3 5501 9241tom.sawayanagi@ap.jll.com

Frank SorgiovanniVice President Research & Strategic Advisory+65 6494 3668frank.sorgiovanni@ap.jll.com

Seow Yu PingSenior Associate, Strategic Advisory+65 6494 3931 yuping.seow@ap.jll.com

Tokyo 2020 Olympics: Expectations for the Hotel Industry 11

About STR Global

STR Global provides clients—including hotel operators, developers, financiers, analysts and suppliers to the hotel industry—access to hotel research with regular and custom reports covering Europe, Middle East, Africa, Asia Pacific and South America. STR Global provides a single source of global hotel data covering daily and monthly performance data, segmentation data, forecasts, annual profitability, pipeline and census information. Hotel operators can join the surveys on a complimentary basis and benefit from free industry data. STR Global is part of the STR family of companies and is proudly associated with STR, STR Analytics and Hotel News Now.

For more information, visit www.strglobal.com

STR Global

Elizabeth Randall-Winkle Managing Director +44 0 207 922 1968ewinkle@strglobal.com

Naureen Ahmed Manager, Marketing and Analysis +44 0 207 922 1965nahmed@strglobal.com

Megumi Ishida Business Development Manager +81 0 80 3396 9092mishida@strglobal.com

Jones Lang LaSalle Property Consultants Pte Ltd | CEA Licence No. L3007326E© 2014 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

www.jll.com/hospitalitywww.jll.com/hospitality

JLL’s Hotels & Hospitality Group offices

Atlanta Tel +1 404 995 2100Auckland Tel +64 9 366 1666 Bangkok Tel +66 2 624 6400Barcelona Tel +34 93 318 5353Beijing Tel +86 10 5922 1300Brisbane Tel +61 7 3231 1400Buenos Aires Tel +54 11 4893 2600Chengdu Tel +86 28 6680 500Chicago Tel +1 312 782 5800Dallas Tel +1 214 438 6100Denver Tel +1 303 260 6500Dubai Tel +971 4 426 6999 Düsseldorf Tel +49 211 13006 0Exeter Tel +44 1392 423696Frankfurt Tel +49 69 2003 0

Glasgow Tel +44 141 248 6040Hong Kong Tel +61 3 9672 6666 Istanbul Tel +90 212 350 0800Jakarta Tel +62 21 2922 3888Leeds Tel +44 113 244 6440London Tel +44 20 7493 6040Los Angeles Tel +1 213 239 6000Lyon Tel +33 4 78 89 26 26Madrid Tel +34 91 789 1100Manchester Tel +44 161 828 6440Marseille Tel +33 4 95 09 13 13Melbourne Tel +61 3 9672 6666Mexico City Tel +52 55 5980 8054Miami Tel +1 305 529 6345Milan Tel +39 02 8586 8672

Moscow Tel +7 495 737 8000Munich Tel +49 89 2900 8882New Delhi Tel +91 124 331 9600New York Tel +1 212 812 5700Paris Tel +33 1 4055 1718Perth Tel +61 8 9322 5111Rome Tel +39 06 4200 671São Paulo Tel +55 11 3043 6900 San Francisco Tel +1 415 395 4900Shanghai Tel +86 21 6393 3333Singapore Tel +65 6536 0606Sydney Tel +61 2 9220 8777Tokyo Tel +81 3 5501 9240Washington D.C. Tel +1 202 719 5000