OSAKA (Reuters) - The Osaka Corona Hotel in western Japan has been eerily quiet and empty the past few weeks.
“Our name is extremely regrettable,” Kohei Fujii, the hotel’s sales director, said with a sigh as he sat in an empty cafe in the lobby. A sign advertising discounted bottles of Corona beer stood at the front desk, but there haven’t been many customers at the hotel to take up the offer.
Spring is usually the hotel’s busiest season, Fujii said, with Japanese companies renting out conference space and banquet rooms to hold training seminars and parties for their new hires. The hotel is near the bustling Shin-Osaka Station, a transport hub for western Japan.
But with the coronavirus curtailing travel and disrupting businesses across Japan, room bookings are down to a third of what they were last year, Fujii said. The postponement of the Tokyo Olympic Games, originally scheduled to take place this summer, is also likely to devastate smaller businesses in Japan reliant on tourism and disrupt the economy at large.
Hotels with less unfortunate names than the Corona have not been spared either. Across Japan, hotels have seen a drastic fall in bookings as countries restrict travel to stem the spread of the virus and the Japanese government discourages people from unnecessary travel.
A boom in hotel construction and overinvestment in the hospitality sector in recent years had already sparked concerns over the sustainability of the market, even before the spread of the coronavirus.
“There’s been so much development in the last few years and we’ve seen an absurd number of rooms added to the market,” Fujii said, as he adjusted the surgical mask he was wearing. “I think there’s going to be a lot of places that won’t survive this.”
After he came to power more than seven years ago, Prime Minister Shinzo Abe rolled out an ambitious economic plan for the country with tourism as a key component. To that end, Abe’s government vowed to attract 40 million inbound visitors to Japan by 2020 and 60 million visitors by 2030.
Under his leadership, Japan aggressively bid to host the Olympics, legalized casinos, and courted foreign investment in the hospitality sector. Last year, 31.9 million people visited Japan, spending 4.81 trillion yen ($43.65 billion).
But the coronavirus, which has now spread to 195 countries and killed more than 16,000 worldwide, and the postponement of the Olympics announced Tuesday, will likely undermine those plans. Many countries have sealed their borders and put entire regions under lockdown.
In February, the number of foreign visitors to Japan plunged nearly 60% from a year earlier and analysts are already predicting a catastrophic year for the tourism sector.
“We had predicted 34 million foreign tourists to visit Japan in 2020, but that’s just not happening anymore,” said Takayuki Miyajima, a senior economist at Mizuho Research Institute.
As of Tuesday, shares in real estate investment trusts (REITs) focusing on hotel assets like Invincible Investment Corp 8963.T, Ichigo Hotel Reit Investment Corp 3463.T, and Japan Hotel Reit Investment Corp 8985.T have shed some 60% this year, a deeper dive than a 31% drop in the broader REIT Index [.TREIT]on the Tokyo Stock Exchange.
EMPTY ROOMS AND QUIET STREETS
The pandemic has been particularly devastating for Japanese cities like Osaka that have grown more dependent on tourists, particularly those from China, to support local employment and midsize businesses.
Investments in real estate in the Tokyo area dipped slightly last year, but continued to rise steadily in Osaka, according to a recent report by JLL, a global real estate broker.
The real estate boom in Osaka had already added 21,000 new hotel rooms between 2015 to 2018. Now many of them, like those at the newly opened Hotel Vista Osaka Namba, are sitting empty.
Hisao Ikawa opened the 121-room hotel last month on the same day Japan encouraged schools to shutter across the country. Sitting in front of a giant mural of a golden tiger in the lobby of his empty hotel, Ikawa said there was “no point” trying to woo overseas travelers right now.
“We’re controlling prices and trying to get even a small number of domestic tourists and business travelers,” Ikawa said, a difficult task as Osaka has emerged as one of the clusters of coronavirus cases in Japan.
The Japan City Hotel Association, which represents over 200 mid-range business hotels across the country, said it expects a spate of bankruptcies this year if the outbreak continues through the summer and the government doesn’t step in.
“We’d built our hotels with the belief that the country was going to shift toward welcoming tourists. But now with the public refusing to go out, we’re the ones who are first to fall victim,” said Tsuguyoshi Shimizu, the president of the association.
Japan’s tourism agency said in 2017 that consumption by international and domestic travelers supported 4.7 million jobs in the country and accounted for 5% of the economy. A recent report by a Japanese corporate research firm said 12 hospitality companies, including a cruise operator, had already gone bankrupt since the outbreak of the virus, with many of these closures focused in western Japan.
Industry groups have sought additional government aid to weather the downturn. Japan is considering stimulus measures of at least $137 billion to combat the economic fallout from the coronavirus, sources say, joining global efforts to cushion the blow from the pandemic.
In the ancient capital city of Kyoto, the loss of foreign visitors is threatening the very survival of traditional Japanese ryokans, or family-run inns.
Momoka Matsui, a fourth-generation landlady of a ryokan near the famed Nishiki market, has fielded a steady stream of cancellation calls in recent weeks. Matsui’s hotel is normally busiest in the spring, when cherry blossoms in full bloom attract visitors from across Japan.
Matsui said almost all the large groups that had reserved rooms years in advance had canceled or delayed trips due to the virus. Only in a few cases has she been able to collect cancellation fees.
“If this continues through summer, we really don’t know how we can hang on,” said Matsui. Many of her 100-person staff have been asked to stay home to receive a government subsidy that covers two-thirds of their pay.
Japan’s Ryokan and Hotel Association, which oversees 2,500 small to mid-sized inns and hotels, said many small owners had poured most of what they’ve gained from the recent tourism boom into expensive renovations to upgrade their facilities ahead of the Olympics.
Now, many of them are negotiating with their banks to forestall bankruptcies after a disastrous month of cancellations, said Shigeki Kitahara, who owns a ryokan a few streets away from Matsui in Kyoto, and heads the association.
“In all honesty, for the month of March, it’s not even a question about the percentage of customers we’ve lost,” he said. “We’ve been pretty much wiped out.”
Additional reporting by Junko Fujita and Ami Miyazaki in Tokyo; Editing by Philip McClellan
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