Past Olympic Games have boosted performance for most of the host cities, and even though the 2020 Summer Games in Tokyo have been postponed one year, the city’s hotels are in position to take advantage of the games in 2021.
LONDON and BROOMFIELD, Colorado—While 2020 certainly isn’t going how Tokyo hoteliers had hoped as they prepared to host the Summer Olympics, a recently announced postponement to 2021 might end up working out in their favor. This is especially true in light of continued travel concerns related to COVID-19 and countries such as Canada and the U.K. threatening to keep their athletes out of competition.
Flashbacks: Previous performance impact
A look at performance of previous Olympics may reveal some clues as to how Tokyo could perform in 2021. This analysis of the previous six editions of the Olympics, stretching as far back as Atlanta in 1996, looks at how the hosting markets performed in terms of occupancy and average daily rate (ADR) during the months in which the Olympics events took place.
As expected, the Olympics coming to town does bring substantial occupancy growth to some markets— most notably Athens in August 2004, where hotel occupancy grew 60.2% year over year, and Rio de Janeiro in August 2016, where occupancy increased 23.2%.
However, some markets experienced the opposite effect, with hotel occupancy actually declining during the months of hosting the Olympics. Such was the case with Beijing and Sydney, where August hotel occupancy decreased 18.6% and 14.8% respectively.
This behavior can be attributed to two main causes: excess supply and reduced demand. In the case of Beijing in 2008, supply was ramping up heavily in 2007 (+10.1%) and growing even more in 2008 (+16.7%). Yet, demand did not meet expectations, as Beijing reported a 1.6% decline in demand growth for the month of August 2008. This was potentially the result of travelers avoiding Beijing for fear of exceptionally large crowds.
While the Olympics may not have led to the desired occupancy growth in Beijing, ADR performance was remarkable, and the same was the case in Athens. In August 2008, Beijing’s ADR grew 248%, while Athens had a growth of 239.5% in ADR for August 2004.
In contrast, London saw the lowest ADR growth of all the Olympics in this analysis. Despite ADR growing at a rate of 44.4% when it hosted in August 2012, the Olympics did not leave its mark on London in terms of hotel performance to the same degree it did in other markets.
New supply will wait longer for anticipated demand
As with other previous Olympics, Tokyo has seen a growth spurt in terms of new hotel supply. The city has doubled the number of new properties added to the existing supply—going from 27 new hotels in 2017 (4,229 rooms) to 60 new hotels in 2018 (8,600 rooms) and 57 in 2019 (9,268 rooms). Given the Olympics’ postponement and the potential decrease in overall travel, the market may be dealing with a case of oversupply, similar to what happened to Beijing.
STR’s forecast was recently updated with the assumption that the Olympics will occur exactly 12 months later.
The rescheduling of the Olympics by a year will cause a sizeable shift in the expected demand that was forecasted to come in 2020 with July and August both now expected to see declines in demand growth.
STR now projects 13.2% year-over-year demand growth for Tokyo in July 2021 and 9.7% in August 2021. That is weaker growth figures than what was originally projected for 2020 and is made in comparison to period in 2020 with demand already significantly downgraded from earlier expectations due to COVID-19. The lower demand levels for 2021 are linked with travelers’ perception, as our expectation is that fewer travelers will attend such a large event so soon after a pandemic and a potential global recession.
In terms of RevPAR, Tokyo hotels are expected to see 22.1% RevPAR growth for July 2021, with actual RevPAR of 16,968.29 Japanese yen ($156.31), which is below previous expectations for July 2020, driven by lower occupancy and ADR combined with anticipated caution from Tokyo hoteliers. ADR growth is, however, expected to be the main driver of this RevPAR growth. Similarly, when Japan hosted the Rugby World Cup in 2019, Tokyo hotels greatly benefitted from high ADR, particularly during latter stages of the tournament.
This shift leaves both July and August 2020 feeling the impact of reduced tourist arrivals as a result of COVID-19, with hotels recording double-digit RevPAR growth declines.
Despite the change in dates and all subsequent complications with logistics, Tokyo seems to be poised for strong performance during the Olympics season. If history is a good indicator for future performance, be it high demand or high ADR, the hosting market would see some KPI growth thanks to the heightened dynamics that come with hosting a mega event such as the Olympics.
Christian Suarez is a Junior Analyst with STR’s Research & Analysis team, based in London. Claudia Alvarado is Analytics Manager with STR’s Consulting & Analytics team, based in Broomfield, Colorado.
This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.