'We're seeing, and have seen, strong operating metrics in hotel operators in Japan' said managing partner at Hazelview Investments
While Japan’s real estate market has historically been synonymous with stagnation, there’s one asset that’s been driving growth for institutional investors: Japanese hotels.
As Hazelview noted in their most recent 2025 Global Public Real Estate Outlook Report, Japanese hotels were among the strongest performers within REITs last year and the momentum is expected to continue.
Darren Murray acknowledged that tourism and currency value is really at the core of the story here as the Japanese government has set a target of 60 million foreign tourists by 2030. There’s also a push to stimulate domestic travel. He sees this as more than political posturing because the yen’s weakness has made Japan a budget-friendly destination for Western tourists.
Indeed, tourist numbers bear that out as Murray underscored that arrivals are now up roughly 16 per cent over 2009 levels, with strong demand from the US, EU, and Taiwan.
“We haven’t seen a rebound in Chinese tourists,” said Murray, managing partner at Hazelview Investments, client portfolio management. “They were the biggest cohort of tourists to Japan pre-COVID.”
He acknowledged that cohort is still about 25-30 per cent below peak, largely due to “political uncertainties” between Japan and China and a slower post-COVID economic recovery in China but this is steadily improving.
“Chinese authorities were very restrictive around international travel and I think there’s definitely a hangover,” he added.
Beyond tourism, he sees strong fundamentals in the hotel sector itself. Unlike traditional real estate leases, “lease structures for hotels are a bit different,” allowing for faster adjustments to demand and pricing, Murray explained. Coupled with a decade-long undersupply of hotel construction, this has created a tight market environment.
“We’re seeing, and have seen, strong operating metrics in hotel operators in Japan,” he emphasized.
He cautioned, however, that a global downturn could quickly ripple through the sector.
“If there a global economic slowdown where we see a recession, maybe in North America, with less money in people’s pockets, less people willing to take vacations, then that’s going to impact tourism, which will, as a result, impact the hotels,” said Murray.
Additionally, inflation, while still modest by Western standards, has become more persistent.
“If we were to continue to see inflation pressures in Japan the Bank of Japan would have to increase their policy rate,” he said, noting that the current rate sits at just 0.5 per cent.
Rising rates could tighten margins for hotel operators and push the yen higher, making Japan less affordable for foreign tourists.
When asked about Airbnb’s role in the ecosystem, Murray doesn’t view Airbnb as a viable investment channel in Japan.
“We can’t invest in Airbnbs, we’re investing in publicly traded real estate investment trusts,” he said, emphasizing that REITs provide the exposure in the hospitality sector. And since most Airbnbs are run by private owners and face tight regulatory controls in Japan, their role in the broader tourism economy is limited.
“There are pretty stringent regulations in Japan in terms of operating Airbnb, so I think that probably does hinder their proportion of the Japanese tourism side of things,” he added.
Instead, Murray sees strength in the diversity of hotel offerings in the country. From high-end luxury to capsule hotels and hostels, Japan has a wide range of hotel types catering to all needs.
“You have quite a lot of options at your disposals that are hotel operated that you can trust from a cleanliness perspective,” he said.
Ultimately, he believes the hotel sector in Japan is certainly worth a hard look for those looking to make an addition to their alternatives portfolio.
“It’s a sector in a region that we are positive on,” he said, “but again, it’s part of a globally diversified portfolio that we feel quite comfortable with from a risk-return perspective.”
Japan’s historical turning point
Murray reflected on Japan’s asset bubble of the late 1980s as a period marked by a dramatic rise in equity and real estate values, which he traces back to a series of global and domestic monetary events.
One key turning point, Murray believes, was the 1985 Plaza Accord, which was aimed at devaluing the US dollar. While it succeeded, the flip side was a stronger yen that put “more recessionary pressures in Japan.” To counter that, Japan slashed interest rates and rolled out aggressive stimulus.
“Some people blame that Plaza Accord for the consequence of the bubble,” said Murray. “Some say it wasn't necessarily linked, and it was more nuanced around policy with the Japanese Government and the Japanese central bank, but there's no doubt that it was a contributing impact to that bubble.”
As asset prices soared and firms increasingly used cheap credit to leverage up, the bubble burst in the early 1990s when the Bank of Japan raised rates, causing the Nikkei to plummet over 50 per cent and GDP fell considerably in Japan as a result.
The collapse ushered in a long period of economic malaise, marked by deflation, risk aversion, and a shrinking labor force, also known as Japan’s “Lost Decade.” Despite the central bank in Japan introducing zero interest rates, quantitative easing and even ETF purchases, Murray said these efforts had little lasting impact – at least until more recently, particularly as the Nikkei 225 surpassed its previous peak record in 1989 last February.
While Murray agreed that the scars of Japan’s deflationary decades linger across parts of the real estate market, he noted that hotels are bucking the broader trend.
“The emergence of Japan hotels is a really neat way to play the recovery or the boost in Japanese tourism that we’ve seen over the past maybe two and a half years,” he said.
