Japan’s hotel and ryokan market is projected to reach JPY 6.5 trillion in fiscal 2025, marking a new record high, according to a report by Teikoku Databank (TDB).

While demand continues to recover, structural issues remain, with approximately 30% of operators still in negative net worth, highlighting ongoing financial vulnerability across the sector.

The market expansion has been driven by the continued recovery in inbound tourism, supported by a weaker yen, as well as a rebound in domestic travel and business demand. Large-scale events have also contributed to increased activity.

Around 30% of operators reported revenue growth, particularly in major urban areas such as Tokyo, Osaka, and Kyoto, where room rates have risen amid tightening supply.

In regional areas, some operators have successfully captured inbound demand by redesigning their offerings, including simplified accommodation plans and all-inclusive packages, leading to improved occupancy and pricing.

However, performance remains uneven. Approximately 10% of operators reported declining revenues, with widening disparities between regions and properties.

Facilities in areas with limited accessibility continue to face challenges in attracting international visitors, while rising costs are not always being fully passed on to customers. Labor shortages and new openings by major chains are further intensifying competition.

From a financial perspective, the proportion of companies with negative net worth remains high at 28.6%, indicating that many operators have yet to recover from debt burdens accumulated during the pandemic.

While larger operators are investing in renovations and upgrades, smaller properties often lack the financial capacity to do so, raising concerns about long-term competitiveness.

Looking ahead, inbound demand is expected to remain strong in 2026, supporting continued market expansion. However, risks remain, including rising airfares driven by higher fuel costs and broader geopolitical uncertainties.

In the domestic market, inflation is expected to drive more selective consumer behavior, making pricing strategy, experience design, and target segmentation increasingly important factors in determining profitability.

TDB notes that the industry is entering a phase where demand growth does not necessarily translate into increased profitability. Differences in management capabilities — including pricing strategy, investment decisions, and operational efficiency — are expected to become more pronounced.

Investment in labor-saving technologies and service redesign, along with the establishment of sustainable financial foundations, will be critical challenges for accommodation operators going forward.

Why it matters

The Japanese accommodation market is expanding, but not evenly.

For travel companies, this means: • Not all destinations or operators are equally positioned to capture inbound demand • Financial strength and operational capability will increasingly determine partner reliability • Selecting the right local partners is becoming a critical success factor

Market growth alone does not guarantee quality or stability.