National land sales, closed-school reuse, fishing-port facility conversions, redevelopment of returned military land — every public-asset route to new lodging supply we have tracked so far has followed the same path: acquire land or a building, then build a new property on it. Yet among the real estate held by the public sector there is a meaningful stock of assets that are already operating as lodging, with guest rooms, an inn-business (ryokan-gyo) licence and an operating track record all in place. These are the kokumin shukusha (public lodges) and recreation facilities set up by local governments, and the onsen inns run by third-sector companies. Because revenue starts on day one of ownership, this fifth route is fundamentally different in character from the other four.

The conclusions first. First, recreational lodging facilities run as local public enterprises had been pared down to 60 businesses and 81 facilities in the FY2024 accounts, roughly 30% fewer than the 83 businesses and 112 facilities of FY2018. The universe itself is small, but the steady flow of 4–5 facilities leaving public accounts every year means deals keep surfacing for anyone who looks. Second, the 165 public inns captured in listing data have a solid customer-satisfaction base: a median review score of 4.08, with 65.5% scoring 4.0 or higher. Third, when matched against private properties of the same type in the same market area, the public inns’ estimated settled ADR sits 19.3% lower at the median. The reviews are there, but pricing has not yet caught up with the market — and that is the headroom private operating know-how can capture.

What “already being an inn” means — the decisive difference from the other four routes

Lodging supply that originates in public assets has several entry points: general competitive tenders for national land, calls for proposals to reuse closed schools, the fishing-port facility utilisation scheme, and redevelopment of returned military land. In every one of them, the buyer takes on the entire timeline of design, construction and permitting after acquisition. From confirming zoning to obtaining an inn-business licence, it is not unusual for opening to take 2–4 years. Converting closed schools, which arise at a pace of around 450 a year, into lodging assets is a case in point: it works only when zoning, building-code and demand conditions line up, and all of that has to be solved before the first guest arrives.

Municipal lodging facilities, by contrast, come with the building, rooms, kitchen, baths, licence, staff and historical occupancy data all in place at the time of acquisition or operating contract. The nature of the risk switches from development risk to operating risk. For small and mid-sized funds, local operators, or businesses already running such facilities as designated managers, this is an easy form of deal to evaluate. On the other hand, building age, the burden of equipment renewal and the constraints inherent in public tendering stand at the entrance.

The scale of publicly held room stock — three layers

“Municipal inns” may sound like a single category, but institutionally they fall into three layers. Each is covered by different statistics, so whenever the numbers are set side by side, their sources must be read separately.

Of these, layer 1 is the easiest to track as a source of deals. The number of tourism facility businesses overall fell 74.7%, from 814 in FY1993 to 206 in FY2024, and operating revenue dropped from a peak of ¥125.5 billion to ¥18.9 billion. Note, however, that this reflects not only business shrinkage but also the shift to the designated manager system with usage-fee arrangements. In fact, 186 tourism facility businesses in FY2024 — 90.7% of the total — were profitable, and the segment as a whole posted a surplus of ¥4.261 billion. The picture is not one of public inns failing across the board; closer to the reality is that what leaves the public-enterprise framework moves into private operation.

Over the last seven years, the facility count went 112 → 96 → 93 → 90 → 90 → 85 → 81. On average, 4–5 facilities a year have left the public-enterprise framework — by no means a small turnover rate for a universe of 81 facilities. On top of this, third-sector entities in layer 2 also produce deals in the form of share transfers or business transfers. Third-sector entities numbered 6,947 corporations as of March 31, 2025, down 80 over the last two years, and abolitions, mergers and equity withdrawals during the survey period totalled 195 corporations.

165 “public inns” in listing data — 27 rooms, opened 1990, rated 4.08

From here we look at the same universe from the side of properties listed on major booking sites. Extracting by name string the properties whose names contain “Kokumin Shukusha”, “Kyukamura”, “Fureai no Sato”, “Town-run”, “Village-run” or “City-run” yields 165 facilities (excluding campgrounds and auto-campgrounds), with a total of 5,707 rooms where room counts are known. The median is 27 rooms per facility, and properties with fewer than 40 rooms make up about 70% of the total. We should note up front that this is a convenience universe derived from names, not verified against institutional status, and that it includes facilities already run by private operators. Narrowing to kokumin shukusha and Kyukamura alone still leaves 136 facilities spread across the country, which gives a sense of how widely this room stock is dispersed.

The median opening year is 1990. Thirty-four facilities opened in 1969 or earlier, and the largest group is the 50 facilities of the 1990s. A core of buildings aged 30–60 years means that equipment-renewal capex after acquisition has to be taken as a given. Put the other way, book values are heavily depreciated, which is also why the seller’s pricing tends to settle around land value net of demolition cost.

Locations are spread thinly across the country. By prefecture, Nagano has 14 facilities, Wakayama 9, Hokkaido 8, and Hyogo and Hiroshima 7 each (N=165 facilities, listing basis; source: MetroEngines Research & Consulting). True to their institutional origin — built in natural parks and national health-resort onsen areas — they are scattered across mountain and coastal areas far more than in prefectural capitals.

Customer satisfaction is high. Among the 116 facilities with 10 or more reviews, the median score is 4.08 (out of 5), and 65.5% score 4.0 or higher. True to their institutional purpose of offering comfortable stays at low prices, satisfaction relative to price has built up. The table below lists the top-rated facilities among those with 100 or more reviews.

Price position — matched against private properties of the same type in the same market area

Next, pricing. A simple average comparison between public inns and private properties would be meaningless, so we extracted, for each facility, private properties of the same type within a 15 km radius (up to 12 properties), and matched the facility one-to-one against their median estimated settled ADR. This produced 57 pairs with at least three nearby comparables and estimated settled ADR for completed months on both sides.

The median gap across the 57 pairs is -19.3%. In 39 of the 57 pairs (68.4%), the public inn priced below the median of nearby private properties. The spread is wide — the first quartile is -38.1% and the third quartile +7.3% — but the centre of the distribution clearly sits on the downside. Across these 57 pairs, the median estimated settled ADR is around ¥12,400 for the public inns versus ¥14,000 for nearby private properties.

How should this gap be read? Given that these facilities were established to be widely available at low prices, pricing below market is exactly what the system was designed to produce. It is not something to criticise. What matters from an investment standpoint is the fact that rooms that have already earned review scores in the 4s are selling at prices about 20% below market. When demand-side appreciation has not caught up with pricing, that is the part most directly reflected in revenue once the operator changes and redesigns pricing and sales channels. How far rates can move once a renovation is added is a separate question: in our separate analysis of 43 municipal kokumin shukusha, the estimated median ADR was ¥8,800, while converted properties reached the ¥20,000 range — though the result depends heavily on the depth of the refurbishment and the local price band.

The 12 pairs on the upside (+25% or more) are also meaningful. In mountain and coastal locations where the only neighbours are pensions or small minshuku, the public inn is effectively the best-equipped property in the area and its rates sit well above its surroundings. In those cases the issue shifts from pricing to distribution channels and smoothing occupancy.

Acquisition routes in practice — six cases traceable in public documents

Below are deals that have actually been made public. We limited the list to cases where at least one of the transfer price, room count or post-transfer operator could be confirmed in public documents. How the terms are structured varies widely by municipality, ranging from “transfer at no cost plus a renovation subsidy” to “competitive proposal with a minimum sale price”.

Three practical points emerge from these six cases. First, prices often fall in a range from zero to a few tens of millions of yen. The Ueda case, including a building of 3,512.95㎡ total floor area and a 4,461.59㎡ site, carries a minimum sale price of ¥34.316 million — about ¥9,800 per ㎡ of building floor area. Second, municipal support is sometimes packaged in. In the Oshu case, half of renovation costs (up to ¥50 million) came with an operating subsidy for five years after opening. Third, the lead time to opening is not short. The Oshu case took 2 years and 9 months from handover to opening, and the Kurayoshi case 2 years and 8 months from operator selection to opening. “Having rooms from day one” is not the same as “selling from day one”.

Pro forma — NOI yield by renovation capex for 40 rooms acquired at ¥100–300 million

Keeping in mind that the universe median is 27 rooms, we set 40 rooms as a scale at which operations can more easily break even, and model the returns from acquiring a municipal inn with a largely depreciated book value for ¥100–300 million under three renovation scenarios. In this article, GOP (gross operating profit) means revenue less operating expenses, and the yield is a gross yield: annual GOP divided by total investment (acquisition price plus renovation capex). Depreciation, interest, FF&E reserves and property tax are not deducted. This is a simplified estimate built from the medians of public statistics and listing data; actual investment decisions require a detailed, property-specific feasibility study.

What this table shows is a structure in which renovation depth and the ADR setting determine the yield more than the acquisition price does. Compare a light renovation at a ¥100 million acquisition (total investment ¥140 million, yield 10.1%) with a full renovation at the same acquisition price (total investment ¥300 million, yield 16.1%): investment more than doubles, yet the yield rises. The turning point is whether ADR can be lifted from ¥12,100 to ¥20,000 and OCC from 40% to 55%. Conversely, if that uplift is not achievable, a light renovation that holds down investment is the more rational choice — the scenario is determined by the location’s demand density and the market area’s price band.

The -19.3% gap against nearby private properties seen earlier also supports the realism of scenario B. Simply bringing rates back to market level implies ADR headroom of about 20%, well within reach through renovation and sales design. Scenario C’s ¥20,000, on the other hand, is far above the local median and presupposes a remake of the product itself.

The variable in this table that demands the most attention is neither ADR nor OCC but the GOP margin. Our estimate assumes GOP margins of 20–30%, above the ryokan industry benchmark of 5–15%, reflecting a change of operating structure and meal-inclusive plans. Lowering scenario B to the 15% top of the benchmark cuts the yield from 8.0% to 4.8%, and combined with downside in ADR and OCC it falls to 3.9%. Before negotiating the acquisition price or scrutinising renovation capex, the core of this investment is building the evidence for how far the GOP margin can be raised at that property — food costs, labour costs and occupancy smoothing.

Points to watch — issues specific to public tendering

Conclusion

As a universe, the lodging stock held by the public sector is small: 81 recreational lodging facilities run as public enterprises, with 4–5 a year leaving public accounts. But add the 833 third-sector corporations in tourism and leisure and the layer of designated-management facilities that includes lodging and recreation, and deals do not come from a single source. Above all, the fact that rooms, licence, operations and review scores are all in place from the first day of ownership is a strength no other public-asset route offers.

What the listing data shows is that this room stock sits in a position where it has a customer-satisfaction base with a median review score of 4.08, yet prices 19.3% below private properties of the same type in the same market area at the median. Providing lodging at low prices is precisely what the system was designed to do, and this is not a verdict on how the facilities have been run. What matters from an investment and operating standpoint is a single point: there is room to layer private-sector pricing and sales design on top of the customer goodwill the public sector has built up. At 40 rooms and an acquisition price of ¥100–300 million, the numbers point to NOI yields of 4–16% depending on renovation depth.

For small and mid-sized funds seeking regional deals, local operators, and designated managers considering a move from operating contract to ownership, tender information is scattered across individual municipal websites. Because the universe is small, there is real value in narrowing down target municipalities and monitoring them regularly.

Related Reading

• Corporate Retreat Conversions: 8.27% GOP Yield Across 5 Onsen Areas