Why Japan’s Budget Bucket Brand Hotels Need A Shake-Up?

Japan has been one the globes bright shining stars over the past five years, with foreign tourism rising from just over 6 million per year in 2011 to over 24 million last year. As the government targeted what seemed to be a lofty 20 million goal, reality saw the metric hit 5 years early and now by 2020 the expected growth is now targeting a whopping 40 million.

At the same time, regional tourism within Asia is a key engine of growth, with a sweet entry spot at the budget travel level. While the demand for Japan is at an all-time high, the accommodation choices for the broad market remains dismal given slow growth of new international standard hotels.

While most of Asia has experienced a proliferation of shiny new budget hotels such as Holiday Inn Express, ibis and most recently Yotel, for those looking at affordable accommodation typically sees travelers relegated to the legacy brand. What are bucket hotels you might ask? These are nameless chains offering dismal aged rooms, fading interiors, tattered furnishings and outdated fit-outs.

For the  most part, the sector has a number of players who focus on volume offerings, mainly real estate groups who build and finish cheaply and operate a numbers game. For tourist’s the products as similar to those visits to an elderly grandmother and grandfather’s musty old home. All you really wanted to do was escape and get back home.

According to C9 Hotelworks recent research in the sector, occupancies in CBD areas remain robust in the 85-90% occupancy, average rates of JY8000 to 12,000 and gross operating profit in the 50% region. Like many city markets the guest profile is business travelers during the week and the leisure sector kicks in on the weekend. As in the rest of the world distribution remains strongly slanted toward OTA’s.

So where do the opportunities exist? Build costs sit at USD3000-3600 per square meter, depending on the market but location is a key factor. Train stations, subway links and transport is a key success factor – location location location. Land cost, rising construction levels ahead of the 2020 Tokyo Olympics and scale remain challenging but looking at the long term the graying of the bucket brands and sustained tourism numbers are creating a strong opportunity for new entries. After all you can only kick a  rusty bucket so far, until it slips over the edge and there is only open road ahead.