Luxury hotels are in full bloom in Japan. One after another, Mandarin Oriental, Ritz-Carlton, Peninsula, Shangri-La announced their arrival in Tokyo.These great names take advantage of the revival of Tokyo’s real estate market to establish themselves in the heart of the Japanese capital.Today these new players are competing with the historic palaces of the city.
International hotels have set their sights on Tokyo. Four Seasons, Conrad, Mandarin Oriental very recently; Ritz Carlton, Peninsula and Shangri-La in the near future: these brands have set their bags in the Ginza neighborhood, the nerve center of the Japanese capital. These multiple openings have upset the balance between Japanese palaces –New Otani, Okura, Imperial – and properties with North American names —Park Hyatt, Westin and Four Seasons. This new wave of luxury hotels in Tokyo is anything but a surprise: this metamorphosis of the up-market hotel inventory has been fermenting for several years. "With the apparent improvements within the investment climate, Mandarin Oriental intensified its search for a suitable location and viable longterm business venture within Tokyo approximately six years ago," remembers Christian Hassing, the director of the Mandarin Oriental. Out of the game between 1985 and 1990 because of the real estate bubble with its stratospheric prices, then cooled by the bursting of the financial bubble and the weakening of the Nippon economy, today these prestigious groups are taking advantage of an environment that favors their expansion.“As the Japanese hotels generally remained within their tested uniform concepts of providing small simplistic room accommodations with an assortment of restaurants and banquet halls, the arrival of Hyatt International more than a decade ago proved to be very successful with their large guest rooms and innovative western restaurant and bar concepts. However as the economy was at its height during that time in Japan, the domestic hotels took little note of this. In addition, the excessive cost structure associated with business in Japan and lack of transparency during that period prevented other international hotel companies from entering the market till recently. With the increasing arrival of international hotels in Tokyo and their proven success, many of the domestic hotel companies have started large renovations and upgrades in an effort to remain within the top tier luxury segment, which has created a historical shift within the industry in general. When looking at the companies who recently became operational in Japan, such as Mandarin Oriental Tokyo, the timing of entering Japan over the past few years could not have been much better. In addition the low unemployment rate and large quantum of individual wealth within this maturing market, have given the Japanese the confidence to again spend on luxury products and lifestyle experiences like visiting luxury hotel properties, where then can indulge in the best there is to offer.”The climate is all the more favorable since with the end of the recession, real estate is back on an uptrend. However, it has not reached the heights attained fifteen years ago. Owners have taken advantage of this improvement to freshen up their investments. Fashionable "multi-functional" complexes are replacing aging office towers. And, in order to make these projects more interesting, real estate developers don’t hesitate to call upon the great names in the world’s hotel industry. Yuki Matsubara, who is in charge of public relations at the Imperial Hotel explains this trend: "Central Tokyo’s center continues to be in a perpetual state of renewal and re-invention. The new foreign brands have been able, over time, to find more or less suitable locations for their new properties, often in areas that were not available until extensive urban renewal projects got underway".Tokyo already experienced a similar offensive from international brands in the 90s. But the heart of the capital was not in its sights. The only luxury groups to venture into Tokyo during the "lost decade" concentrated on outlying areas. In financially more accessible areas such as Shinjuku where the Park Hyatt opened in 1993, while the Westin chose Ebisu, and the Four Seasons opened in Chinzan-so. Despite being in less "luxury" locations than Ginza or Marunouchi, they were successful. Their boldness was rewarded with the name the "New Big Three" in reference to the original "Big Three" that are the historic palaces the New Otani, the Imperial and the Okura located in the heart of the city.The newcomers get the lion’s share. South of Ginza, the Conrad Hilton took up residence in the new Shiodome neighborhood– a small area where skyscrapers recently popped up like mushrooms. In the North, near Tokyo’s train station, the business neighborhoods Marunouchi and Nihonbashi welcomed the Four Seasons and the Mandarin Oriental and await the Peninsula and the Shangri- La in the near future. Christian Hassing of the Mandarin observes: "this excellent location offers many advantages for both business and leisure clientele. Our hotel is near the Stock Exchange, the Bank of Japan and other key financial institutions".The last neighborhood to attract the attention of hoteliers: the trendy Roppongi, which is appealing because it has the oldest multi-functional complex: Roppongi Hills. Launched by Mori Trust, this city in the city – with offices, apartments, shops, museums, movie theaters – is home to the Grand Hyatt since April 2003. In the first quarter of 2007, Ritz- Carlton will open nearby, in the future tallest tower in the city, at the center of the "Tokyo Midtown" project by the group Mitsui Fudosan.In their quest for the perfect location, hotel groups received support from powerful local partners. Promoter of the Shiodome and the Mitsui Tower, Mitsui Fudosan, the biggest Japanese real estate group, is also behind the arrival of the Mandarin Oriental and the Conrad in Tokyo. In addition to the Grand Hyatt, Mori Trust is also the partner of the future Shangri-La, which will open in 2009 in the new Marunouchi Trust Tower Main Building. The future Peninsula, meanwhile, will be part of the "Marunouchi Redevelopment Project" of the Mitsubishi Estate Company. This ambitious project, begun in 1998 to boost the Yurakucho neighborhood, relies on the reconstruction or progressive renovation of a dozen buildings. Total cost of the operation: one thousand billion yen, or the tidy sum of 6.5 billion euros.Having arrived in vast numbers, are these new actors kamikazes? Can Tokyo easily absorb this growing inventory of 5* hotels? Capital of the second economic world power, with an agglomeration of more than 35 million inhabitants, Tokyo is a key stopover for businessmen from around the world. And occupancy rates often flirt with 90%. "The market is immense," confirms Yuki Matsubara, "we don’t expect to see a negative impact on our average daily rates and our occupancy rates". Yoko Takano, assistant manager of Japan’s tourist office in Paris is also very optimistic: "the opening of international luxury hotels represent only 3% of all hotel rooms in Tokyo. At a time when the number of international travelers is growing rapidly in Japan – by approximately 10% – the supply should be easily absorbed by demand." The new jewels of Tokyo’s hotel industry are relatively modest in size in comparison with Japan’s high-capacity hotels: 1,500 rooms at the New Otani and 650 at the Imperial, while the Four Seasons Marunouchi appears Lilliputian with just 57 rooms.Another favorable aspect that offers much hope for the future: the immense domestic clientele. At the Mandarin Oriental, 51% of the clientele are Japanese, far ahead of North American clientele, which represent 12%, Hong Kong with 11% and Europe on the whole with 10%. Japan’s economy is doing well and brings in a regular supply of businessmen on weekdays. Even more, in the Leisure segment, the aging population serves as a major source of well-to-do clientele: young retirees. "8 million babyboomers will be particularly active in the years to come," mentions Yoko Takano. Japanese clientele are strategic in more than one way, both locally and internationally. "Tokyo is a strategic market for our business and leisure clients. As a worldwide luxury chain, our presence in Tokyo is essential," congratulates Simon Cooper, President and CEO of the Ritz- Carlton in 2004. Brands with a worldwide vocation will use these properties as showcases. "Japanese businessmen will discover the Shangri- La experience at home before going to Beijing or Singapore… and stay in a Shangri-La there," anticipates Austin Frost, VP International Sales for the group. Such hope is confirmed within the Mandarin Oriental group: "As a result of the launch of Mandarin Oriental Tokyo, many of our sister properties around the world have seen growth in the volume of Japanese visitors," observes Christian Hassing.Rather than fear it, local hoteliers welcome the new competition. "The new arrivals should actually help invigorate the local industry, increase popular and more casual hotel usage among the public," explains the representative of the Hotel Imperial who reassures, "a segment of the market tests them, but in our case comes back to us." Considered great caravansaries with a history by some international travelers, Japanese palaces are undertaking major renovations in order to keep up the race. The Imperial, in particular, launched a 5-year renovation program in 2004 for more than 100 million euros with two primary goals: make its rooms bigger and offer a real business center. For 65 million euros, the New Otani is renovating its main building, giving it a new façade made of high tech glass that filters ultraviolet rays and emphasizing energy savings with a goal to save 30%. The hotel has not ignored its business clientele: two executive floors will be entirely dedicated to business travelers with a concept of a "small luxury hotel within the hotel".These properties preserve a strong appeal. Their aura is intact vis-à-vis the local clientele. To be married in one of the "Big Three" continues to be a must for Japanese families. Starting with the first family: at the end of 2005, the imperial princess Nori married Yoshiki Kuroda at the Imperial Hotel. Such happy events are the star products of any self-respecting palace. And the newcomers are playing by the rules.In order to attract couples, the Peninsula banks on its fleet of historic Rolls Royce Phantoms and several well-known partners: Shu Uemura for the beauty salon, You Ka En for floral decoration, Hatsuko Endo for the bride’s trousseau and the official photographer of the imperial family, Sato Photo, to immortalize the moment. "The Japanese hold marriage in high esteem. They want to provide the ultimate experience for their children and guests," confirms Christian Hassing, "if we did not offer all the facilities – chapel, reception rooms, coiffeurs, wedding gift salon –within our hotel, we would not be able to cater to this very important business segment."Because in Japan, the occupancy rate is not the key indicator of a hotel’s profitability. The great challenge for Nippon hoteliers lies not in filling their rooms, but in filling their restaurants and banquet halls. "At the Imperial, room revenues represent only 20% of our total revenue. Banquets account for nearly 30% of our results and the restaurants for 16%, and then there are the other services we offer," explains Yuki Matsubara. Luxury hotels rival with an incredible restaurant supply where Asian and Western influences cross paths. The Mandarin Oriental offers the informed public Italian, Cantonese and Japanese restaurants as well as its very modern "Tapas Molecular Bar". As soon as it opened, the Conrad entrusted its kitchens to the three-star British chef Gordon Ramsay. In response, the Imperial reinforced its F&B offer with the arrival of Thierry Voisin, from Les Crayères near Reims, at its restaurant Les Saisons.For the new generation, enjoying a glass of Australian Chardonnay at the Oak Door, the Californian restaurant at the Grand Hyatt, is very hip. The gathering places at the Peninsula, Shangri-La or Ritz- Carlton should rapidly succeed. "Tokyo is a city obsessed with all that is new," explains Yuki Matsubara. "Some suggest that this rush of international luxury hotels marks a turning point for the city and will upgrade it," reports Yoko Takano, of the Japan tourist office in Paris. And the clock continues to tick away for those groups that haven’t done their shopping yet. The restructuring of the market continues, but could soon come to an end.Akie Imai, Marketing Department New Otani“The influx of luxury hotels into Tokyo will act as a revitalization of the hotel industry as a whole. Those people, who in the past had no need to use hotels, are beginning to show interest in getting a taste of hotels as the media features new hotels and the overall trend of the hotel industry. Consumers will have a wide range of hotels to select from and with the help of the media, they are being "educated" about how to make the best use of hotels. Therefore, we expect part of our clientele to be attracted to the new hotels. But the "smart" consumers will differentiate and creatively use the hotels according to their various needs. Tokyo to begin with has so many interesting sites and is an important center of business—it has an unrivalled attractiveness to draw people from all over Japan and the world. With the reinvigorated hotel business, the demand for hotel stays is expected to increase and as a consequence, will increase occupancy rates and may also allow a raise in room rates. Therefore, rather than interpreting the emerging hotels as a threatening competition, we in fact sincerely welcome the arrival of the new hotels.”Christian Hassing, Gm at the Mandarin Oriental, Tokyo “As the Japanese hotels generally remained within their tested uniform concepts of providing small simplistic room accommodations with an assortment of restaurants and banquet halls, the arrival of Hyatt International more than a decade ago proved to be very successful with their large guest rooms and innovative western restaurant and bar concepts. However as the economy was at its height during that time in Japan, the domestic hotels took little note of this. In addition, the excessive cost structure associated with business in Japan and lack of transparency during that period prevented other international hotel companies from entering the market till recently. With the increasing arrival of international hotels in Tokyo and their proven success, many of the domestic hotel companies have started large renovations and upgrades in an effort to remain within the top tier luxury segment, which has created a historical shift within the industry in general. When looking at the companies who recently became operational in Japan, such as Mandarin Oriental Tokyo, the timing of entering Japan over the past few years could not have been much better. In addition the low unemployment rate and large quantum of individual wealth within this maturing market, have given the Japanese the confidence to again spend on luxury products and lifestyle experiences like visiting luxury hotel properties, where then can indulge in the best there is to offer.”
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