Japanese Property Market Quarterly Review, Third Quarter 2016-Inbound Demand Peaks Out Affecting Retail Stores and Hotels-

3) Retail, Hotel and Logistics
Foreign visitor arrival numbers have still grown at the pace of about +20% y-o-y in 2016 (Chart-18), increasing by 19% to 1.9 million in September, and 18 million for the year in 2016.

Visitor arrivals from South Korea increased the most at 42.8% y-o-y in September as a result of the recent launch of new airline routes. Visitor arrivals from ASEAN nations have also maintained strong growth such as Indonesia by 38.5% y-o-y, the Philippines by 31.3% and Thailand by 30.0%. Visitor arrivals from the U.S. and Canada also increased significantly by 26.9% and 24.8%, pushed by promotions for Japan.

However, visitor arrivals from China in September decelerated noticeably to a mere +6.3% y-o-y, affected by the cancellation of cruise ships due to typhoons, however, visitor arrivals from China in 2016 have increased by 30.5% y-o-y already reaching 5 million in September.

Chart-18 Monthly Foreign Visitor Arrivals

Despite the continuous increase of visitor arrivals, consumption by foreign visitors in Japan has shrunk significantly, declining by 17.1% y-o-y in the third quarter (Chart-19). This trend is visible not only among visitors from China, for whom its government has required an abstention from luxury spending, but also visitors from many countries.

Chart-19 Travel Expenses in Japan per Tourist

Affected by the weakened inbound consumption demand, retail sales shrank by 1.9% y-o-y in September. Same store sales of department stores shrank by 5.0% for the seventh consecutive month in September and those of supermarkets and convenience stores also shrank by 2.3% and 0.01% y-o-y, respectively (Chart-20).

Duty free sales in department stores shrank significantly by 10.1% y-o-y for the sixth consecutive month in September, though the number of foreign customers still increased by 15.9% y-o-y.

Affected by weakening retail sales, retail store rents have also adjusted since the latter half of 2015, in particular in Ginza where many luxury brand stores are located (Chart-21).

Chart-20 Retail Same Store Sales/Chart-21 Tokyo High Street Retail Store Rents (Ground Floor)

Despite the increase in foreign visitor arrivals, the number of hotel stays in Japan has recently shrunk, and even worse, the number of foreign guests shrank in August (Chart-22). Now that the increase in the number of foreign visitors is no longer driving hotel demand, it has become difficult for hotel occupancy rates to surpass the high figures of last year (Chart-23). RevPAR of hotels in Japan declined by 1.7% y-o-y to 14,224 JPY in August, suggesting raising room rates has not been easy. RevPAR of luxury and high grade hotels have been declining and those of budget hotels have not grown enough to compensate for the decline.

Chart-22 Total Stays in Japanese Hotels/Chart-23 Hotel Occupancy Rates

Japanese Property Market Quarterly Review, Third Quarter 2016-Inbound Demand Peaks Out Affecting Retail Stores and Hotels-

mamoru masumiya