Japan's hotel industry has been the beneficiary of positive dynamics for awhile, with current exchange rates making it an inexpensive option for international travelers.
The country's long-term availability of inexpensive debt is another reason Japan has continued to thrive, said Steve Carroll, head of hotels and hospitality in Asia Pacific for CBRE. Carroll joined the latest episode of the CoStar News Hotels Podcast to discuss how Japanese investors are poised for success.
"Our No. 1 market is Japan," he said. "Both onshore investors and offshore investors are continuing to pour into Japan."
Carroll said Japanese real estate investment trusts in particular are poised for success at the moment.
"Given the much lower cost base, Japanese REITs in particular are leading the charge," he said. "They will dominate this year and into the future. What's happening [is they are] dominating tier 1 markets — Tokyo, Osaka, Kyoto and some of the main resort destinations in Japan as well."
He noted investors coming from outside the country are more focused on "a value-add or opportunistic" type of plan for their capital.
"To do that you need markets to be positive, i.e. you get market growth, but on top of that you need asset-level initiatives and asset management," he said, explaining that the underpenetration of hotel brands in both Japan and South Korea opens opportunities for international investment groups.
STR's Jesper Palmqvist said investment in Japan isn't without risk even though it remains the most attractive country in the region, with concerns about bond yields, continued weak currency and political conflicts with China.
"However strong Japan is — it's safe, it's large, very liquid — is there a risk of capital flight in the medium term from Japan?" he asked.
He also said that second-tier markets in Japan are seeing a different growth story than the main international destinations, particularly because those have grown more expensive for domestic travelers.
"It is a very different picture in how it's growing, where most of it is domestic travel [in secondary markets], for sure," Palmqvist said.
Listen to the podcast above for the full interview with CBRE's Steve Carroll and STR’s Jesper Palmqvist, including discussions of the outlook across the Asia Pacific region.