Hospitality investors are recalibrating their strategies in Japan as construction costs in gateway cities such as Tokyo, Kyoto, and Osaka have surged to nearly double pre-pandemic levels. At the South East Asia Hotel Investors’ Summit (SEAHIS) 2026 in Bangkok, a panel of industry leaders convened to dissect the shifting dynamics of Japan’s hotel investment landscape, with a clear consensus emerging: Japan remains the most compelling near-term market in Asia Pacific, but success increasingly requires looking beyond the traditional urban hubs.
HA Advisors managing director Hiro Abe moderated the discussion, which featured Pacifica Capital KK president and CEO Seth Sulkin; SC Capital Partners founder and chair Suchad Chiaranussati; Pan Pacific Hotels Group (PPHG) CEO Choe Peng Sum; and Takenaka Corporation executive managing officer Aki Tachibana. The panel explored risks and opportunities, underscoring that while Japan’s appeal endures, the cost environment is forcing a strategic pivot.
Repositioning and Regional Expansion
PPHG’s Choe expressed continued bullishness on Japan despite intensifying competition from domestic players. “One reason I think we can grow rapidly is through repositioning. By bringing in international travellers, the revenue grows, the yield grows. It justifies our presence,” he said. Choe highlighted the success of branded properties in Tokyo and Kyoto, where international demand has significantly boosted performance, but stressed that the real opportunity lies in secondary cities. “We all hear about overtourism because a lot of people go to Tokyo, Osaka and Kyoto. But actually Japan has so much to offer. I’m a true believer that we can grow a lot in Fukuoka and Sapporo, where demand can extend throughout the year.”
This sentiment aligns with broader industry trends. As urban markets become saturated and costs escalate, regional destinations are emerging as viable alternatives for hotel development and repositioning. For operators like Pan Pacific, partnerships with local owners are key to unlocking value in these markets.
Construction Costs: The New Reality
Takenaka’s Tachibana provided a stark assessment of the cost environment. “If we set the index at 100 in 2020, by the end of 2025 the index was 175 to 200. Still, three to five percent inflation is very much a risk factor for developments over the next three to five years,” he explained. While the sharpest increases may be behind the industry, structural labour shortages continue to exert upward pressure on costs. “The significant inflation is already done. The next phase is mainly due to structural labour shortage,” Tachibana added.
This cost escalation is reshaping investment strategies. Pacifica Capital’s Sulkin noted that rising construction costs have pushed many investors toward conversions and repositioning rather than traditional greenfield developments. “Prices for existing hotels are going up a lot because everybody is trying to avoid new construction,” he said. Pacifica is actively pursuing office-to-hotel conversions, which offer lower risk and shorter construction timelines. However, even these projects face hurdles. “The problem is not just with general contractors. It’s also with subcontractors, particularly electrical. In many smaller markets, you simply can’t find contractors. Even if you’re willing to pay the higher cost, you may be told to wait one, two, three or four years,” Sulkin elaborated. He dismissed expectations that construction costs will retreat significantly in the near term.
Why Japan Still Wins
Despite these challenges, SC Capital Partners’ Chiaranussati remains deeply committed to Japan. His firm has acquired over 100 hotels in the country over the past 14 years and continues to invest actively. He cited three key reasons for his bullish outlook. First, operational efficiency improvements can unlock substantial value. “Japan can be extremely inefficient due to its demand for offering the best service it can. Sometimes there are three or four people serving you when there only needs to be one. We have done some assets where we purchased properties yielding one or two percent. Once we restructured operational efficiency, we could bring somewhere between 400 and 800 basis points of yield improvement,” he said.
Second, Japan’s hotel leasing market is uniquely sophisticated in Asia Pacific. “Japan is the only country in Asia-Pacific today that has a very sophisticated hotel leasing system. From an investor perspective, you can decide to buy the type of hotel with the lease profile that suits your risk appetite,” Chiaranussati explained. Third, the country offers access to highly developed capital markets. “The capital market instruments are extremely complete for you to manage risk. This flexibility really opens up a lot of value.”
These structural advantages, combined with strong tourism demand, continue to attract capital. As the panel made clear, the path forward for hospitality investors in Japan involves adapting to higher costs, embracing regional opportunities, and leveraging the country’s sophisticated financial and leasing infrastructure. For those willing to pivot, the rewards remain substantial.
