Skift Take

The pandemic shows just how futile it is to build a hotel just for the sake of an event like the Olympics. Real estate is a long-term play.

Series: Early Check-In

Early Check-In

Editor’s Note: Skift Senior Hospitality Editor Sean O’Neill brings readers exclusive reporting and insights into hotel deals and development, and how those trends are making an impact across the travel industry.

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Smart hotel developers wouldn’t hinge the financial success of a project on a multi-week event, but Japan’s decision to not allow international spectators to this summer’s rescheduled 2020 Summer Olympics takes a major bite out of anticipated hotel demand at newly opened hotels. Developers were on a hotel-building whirlwind in the years leading up to the Olympics. Since Tokyo was first announced as the 2020 Summer Olympics host city in 2013, Tokyo added 250 hotels, or a little more than 53,000 rooms, to its hotel supply, according to Lodging Econometrics. Inbound international tourism was growing about 25 percent annually in the years leading up to the 2020 Summer Olympics, according to an International Monetary Fund working paper. International tourism as a portion of Japan's overall tourism sector grew from just shy of 5 percent in 2009 to a little more than 17 percent in 2018. Hotel construction in Tokyo hit its peak at the beginning of 2018 when there were 73 projects, or nearly 17,000 hotel rooms, under construction. The most openings took place last year, when 58 hotels opened despite the ongoing pandemic. Even with that pace of development, there were reports in late 2019 the city was going to be short 14,000 hotel rooms each day of the Olympics. That doesn’t appear to be a concern anymore now that the events will be a domestic travel-dominated affair. Demand Zapped: Expected hotel demand in Tokyo this July and August should be just shy of 3 million room nights each month, according to STR. That’s an improvement from some of the worst months of the pandemic, but it’s still not great compared to normal times. Demand was stronger in January of last year when 3.4 million rooms were booked. Analysts still see some good growth signs this summer, even with lower attendance figures at the Olympics. “We do still expect an uptick over July and August in both occupancy and [average daily rates], thanks to domestic travel and teams stays etc.,” Natalie Weisz, STR’s director of research and development and analysis, told Skift via email. “However, it’s much low