Growing interest in a blue ocean of opportunities in the luxury ryokan segment.

Ryokan is a type of accommodation considered to be unique to Japan, with many designed, constructed, and equipped in a typically traditional Japanese style. The notable lack of five-star hotels in Japan is partly attributed to the significant role that upscale ryokan have played in the luxury market. The Hotel Business Act classifies ryokan businesses and hotel businesses differently, and sets different standards for their construction and facilities, accordingly. However, since there are no restrictions on naming, even accommodations with the name “hotel” may effectively operate as a ryokan.

Ryokan have several unique characteristics that distinguish them from western-style hotels. Guest rooms are designed in a Japanese style, with tatami mat flooring, and are arranged for two or more guests. Indeed, many upscale ryokan, in particular, operate on the premise that a room will be shared by two or more guests, and do not allow single guests to stay in many cases. Although this practice has changed to accommodate solo travellers, prices will be significantly elevated in such cases. 

Following a period of stagnation, the luxury ryokan market seems to have regained its lustre among wealthy domestic guests, and looks to attract greater attention from inbound visitors. The overall ryokan market is vast, but fragmented, with numerous small and independent operators, many of whom are experiencing financial or succession issues. There are numerous prime locations for ryokan in major onsen towns, resorts, and urban areas across Japan. Overall, there also appear to be an abundance of value-add opportunities in the market that have potential for robust growth for well-researched players with deep pockets and operating acumen. The ryokan segment appears to be undergoing a transformation from a product of the past into one of the future.