Domestic Major City Lodging Market Trends Series: Kyoto

Reflecting on the trends in Kyoto's lodging industry, we will consider future development prospects.

Kyoto Hotel Market from 2019 to Spring 2024

Kyoto, one of Japan's premier tourist destinations, has already recovered from the demand decline caused by the COVID-19 pandemic. According to data from the Kyoto City Tourism Association's "Kyoto Tourism Data Dashboard," the RevPAR (Revenue Per Available Room) in March 2024 was ￥18,592, which is ￥3,895 higher than the same month in 2019, when it was ￥14,607. The breakdown shows an OCC (Occupancy Rate) of 81.1%, down 3.9% from the same month in 2019, and an ADR (Average Daily Rate) of ￥22,925, up ￥5,740 from the same month in 2019. Nationally, while ADR has been steadily rising since the latter half of 2022, the recovery of OCC has lagged. However, approximately four years after the first state of emergency due to COVID-19, OCC is finally starting to recover. This recovery in the lodging market is believed to be driven by an increase in inbound tourists. In April 2024, the total number of overnight guests in Kyoto City was 980,000, comprising 690,000 inbound guests and 290,000 domestic guests, significantly surpassing the 620,000 guests in the same month in 2019 (Kyoto City Tourism Association "Kyoto Tourism Data Dashboard"). Notably, the number of inbound guests increased to 186% compared to the same month in 2019. This significant increase in the number of overnight stays is not only due to rising demand but also changes on the supply side of lodging facilities. Let's examine the development status during the pandemic.

Recent Development Trends and Future Prospects

In Kyoto City, the development of lodging facilities has been progressing since around 2015, driven by a favorable wind of inbound tourism. According to the Kyoto City "List of Permitted Facilities under the Ryokan Business Law" and the Ministry of Health, Labour and Welfare's "Annual Report on Health Administration," the number of hotel and ryokan rooms in Kyoto City increased from 26,297 rooms in 2015 to 42,678 rooms in 2023, an approximately 1.6-fold increase. The average number of rooms per building increased from 49 rooms in 2015 to 67 rooms in 2023, an approximately 1.4-fold increase, indicating that despite the unique height and design regulations in Kyoto, mid-sized facilities are being secured.

Furthermore, when comparing this data to the entire Kyoto Prefecture, the rapid pace of development in Kyoto City stands out. As of the end of March 2024, there are 353 hotels and ryokans in Kyoto Prefecture excluding Kyoto City, with 59 of them, or about 17%, newly permitted within the last ten years since 2015. In contrast, as of the end of March 2024, there are 638 hotels and ryokans in Kyoto City, with 296 of them, or 46%, newly permitted within the last ten years since 2015. Approximately half of the currently operating lodging facilities have been newly developed or renovated within the last ten years.

However, such trends have also shown changes since around 2023. In recent years, the number of hotel and ryokan rooms in Kyoto City had been increasing annually by 5% to 15%, but in 2023, it remained almost flat with a year-on-year increase of only 0.2%. Various factors could be at play, such as the suspension of development plans due to the COVID-19 pandemic and the closure of businesses unable to withstand the prolonged decrease in demand. Another contributing factor could be that the major areas of development have reached a lull, making it difficult to secure attractive land at prices that align with revenue expectations. The land prices in Kyoto City have been rising since turning positive in 2013, and the land price fluctuation rate in 2019 before the pandemic was 13.4 points, significantly exceeding the national average of 2.8 points (source: Ministry of Land, Infrastructure, Transport and Tourism "Land Price Publication"). Additionally, construction costs have soared, leading to numerous development plans that could not proceed due to unbalanced financial returns following the conventional approach.

From the perspective of lodging guests, the recent rush of new hotel and ryokan openings has provided a wide variety of accommodations, expanding their range of choices. Kyoto has often been selected as the site for the first stores of new brands and the first entries of foreign brands into Japan. Additionally, the number of luxury hotels, which are said to be lacking, is increasing. However, some Japanese-style hotels, which claim to incorporate local culture and express Kyoto's uniqueness through Japanese motifs, bamboo materials, and tatami-style designs, can appear homogeneous. With such a large number of lodging facilities, it is challenging to be unique, but there is a demand for hotels that carefully delve into and combine local and brand-specific characteristics to create new value.

Nationally, the trend of opening new establishments in regional areas is progressing. As shown in the previous chart, there are still few new openings outside Kyoto City, suggesting that future development plans may advance in northern areas and other parts of Kyoto. While regions not yet established as tourist destinations have the advantage of relatively easy land acquisition and fewer competitors, it is challenging to predict demand. Therefore, concepts and facilities that make the lodging itself a destination are necessary. Additionally, a broad perspective that considers cooperation with local governments, revitalization of local culture and industries, and the development of tourism resources around the hotel with an emphasis on ESG (Environmental, Social, and Governance) is becoming increasingly important.

Twenty years have passed since the "Tourism Nation Declaration" in 2003, and the number of people involved in the tourism industry in various capacities has increased. There is a hopeful expectation that these experiences and insights will be utilized in creating lodging facilities.