Domestic demand set to drive Japan‘s retail and hotel market recovery
VIEWPOINT
Recovery in domestic demand alone is likely to have an impact on the overall demand for retail and hotel markets in Japan
CBRE RESEARCH1. Loss of demand due to COVID 19
Since early 2020, Japan’s retail and hotel markets have been negatively impacted by measures to contain the spread of COVID 19 In the retail sector, activity has been constrained by the government’s requests to the industry to refrain from business in order to control the spread of the virus, as well as requests to consumers to not leave home unnecessarily In the hotel market, demand for leisure and business trips has plummeted due to the curtailment of inter prefectural travel In addition, inbound demand has been non existent due to the implementation of strict measures to restrict the entry of tourists into Japan. Although the Japanese government took measures to ease entry into Japan in stages between July and October 2020, the recent resurgence in infections led to the temporary suspension of these measures at the end of December last year
Figure 1 shows the severity of entry restrictions in major countries as of September 2021 Of the five levels (0 4), Japan is at Level 4, which is the strictest. As the spread of COVID 19 slows, restrictions on the entry of tourists into Japan are likely to be eased in stages However, given the need to proceed cautiously in light of the often unpredictable COVID 19 infection situation in Japan and abroad, it will take some time before the restrictions are completely lifted.
Figure 1: International travel controls
Level 0 1 2 3 4
No countermeasures Screening
Quarantine of arrivals from high risk areas
Ban on entry from high risk areas Border closure
Country/ region
Germany Spain China Hong Kong, SAR Taiwan South Korea
United States Canada United Kingdom France Italy Turkey Singapore
Australia New Zealand Japan
2. Japanese retail and hotel demand
Japan has seen rapid growth in the number of visitors over the past decade Prior to 2012, the number of foreign visitors to Japan remained below 10 million per year Since then, however, annual arrivals have risen sharply, surpassing 30 million for the first time in 2018. There is no doubt that inbound tourism has driven growth in demand in the Japanese retail and hotel market over the past few years As the number of foreign visitors to Japan has increased, retailers have opened new stores, which has driven up rents, and occupancy rates were pushed up in the hotel sector.
Despite strong growth in retail and hotel demand resulting from the increase in visitors from abroad, it is the domestic market that had continued to underpin demand With no foreseeable date for the lifting of entry restrictions to prevent the spread of COVID 19, domestic demand is likely to support the recovery in retail and hotel markets for the time being.
Figures 2 to Figure 4 show the proportion of domestic demand groups in key regions in terms of population, retail sales and number of overnight stays* The figures refer to statistical data for 2019, prior to the onset of the COVID 19 pandemic
Figure 3 and Figure 4 directly show the percentage of domestic demand in the retail and hotel markets Meanwhile, due to the lack of statistical data in some regions, Figure 2 shows the estimate % of domestic demand, by calculating the population as a percentage of the sum of the population and the number of inbound visitors
* The "number of overnight stays" here refers to the actual number of overnight stays, or the total number of people who stayed at least one night in one trip Unlike the total number of guests, the number of guests is not multiplied by the number of nights This indicator was used as a reference because the number of actual overnight stays is the most comparable statistical data available for most regions In countries with land borders, there are many day trippers who make return cross border trips in the same day For this reason, the number of overnight stays was used as a reference rather than the domestic visitors as a percentage of total visitors
Figure 2: Percentage of potential domestic demand groups = population / (population + international tourism arrivals) (2019)
Source: Oxford Economics, OECD, UNWTO, CBRE, June 2021.
Formula: Percentage of potential domestic demand = Population / (population
Data for France, Turkey, China and Thailand are as of 2018.Population data
Figure 3: Percentage of domestic demand segment in retail market = (retail sales inbound consumption) / retail sales (2019)
United States Canada Germany
Kingdom
Turkey Spain China Japan Taiwan Australia New Zealand Hong Kong, SAR Singapore South Korea
Americas EMEA APAC
Source: Euromonitor, OECD, CBRE, August 2021.
Formula: Percentage of potential domestic demand = (Retail sales Inbound expenditure) / Retail Sales
Figure 4: Percentage of domestic demand groups in the accommodation market = actual number of nights spent by domestic residents / (actual number of nights spent by domestic residents + actual number of inbound guests) (2019)
States
South Korea New Zealand China Australia Taiwan Singapore Hong Kong, SAR
Americas EMEA APAC
Source: OECD, UNWTO, CBRE, August 2021.
Formula: Percentage of potential domestic demand = Domestic overnight visitors / (Domestic overnight visitors + Inbound overnight visitors) Note: Data for France and Turkey are as of 2018.
In Japan, domestic demand accounts for 95.4% of the retail market and a 90.7% share of the accommodation market, a relatively high figure compared to other major countries Japan can therefore be said that a recovery in domestic demand alone is likely to have an impact on the overall demand
the period
the onset
emergency declarations
pandemic
seen the accumulation of substantial pent up demand arising from the government’s provision of various benefits and curbing of consumption due to
believes it is likely that some of this accumulated demand will be
into consumption and tourism
prices,
increasing the frequency
example slightly
consumption, it is more likely to be manifested in the form of higher
restrictions on social and business activity are gradually eased. Rather
consumption and tourism
this backdrop, retailers and accommodation operators are looking to capture a recovery in domestic
until inbound demand resumes. In the
recent months have seen increasing demand for street level stores in key retail areas, particularly from luxury groups. In addition to luxury brands, other retailers are likely to open new stores for branding purposes or to relocate within an area to improve their
the hotel market, plans are underway for new developments in resort areas and the opening of urban luxury hotels. The key to recovery for hotel operators will be to enhance the status of their brand name and image to ensure they are selected by tourists
investors
CBRE.