Executive Summary — a 1.51x Renewal Investment Ratio, Back Above the 1.25x All-Industry Level

The conclusion first. Capital expenditure in the lodging industry reached ¥546.8 billion in FY2024, or 1.51 times the ¥362.3 billion of total depreciation booked that year. That is above the 1.25x recorded across all industries (excluding finance and insurance, all company sizes). Capital expenditure as a share of sales came to 5.37%, well clear of the 3.21% all-industry figure. Measured by how much of its earnings it puts back into its buildings, the lodging industry sits on the high side even in a cross-industry comparison — that is the first fact the corporate statistics deliver.

That 1.51x does, however, contain a rebound from FY2020, when the ratio fell to 0.40x during the pandemic. Cumulatively over five years, ¥1,835.2 billion of capital expenditure against ¥1,860.0 billion of total depreciation gives a ratio of 0.99x. Taken together, FY2020 through FY2024 amounts to putting back roughly the same value the industry consumed, and no more. By the volume of work deferred during closures, there is still a great deal for reinvestment to flow into — that is the straightforward reading.

One more point. Dividing capital expenditure by the room stock whose operation can be confirmed gives ¥431,000 per room per year, which sits squarely in the middle of the range recorded by four listed hotel REITs (¥134,000–¥624,000 per room per year). The industry as a whole is not being outclassed by the prime sample. The gap shows up not in the level but, as the next section shows, between size tiers.

Eleven Years of the Renewal Investment Ratio — Two Independent Survey Designs, One Shape

The Financial Statements Statistics of Corporations by Industry comes in two series: an annual survey covering all company sizes down to those capitalised at under ¥10 million, and a quarterly survey covering companies capitalised at ¥10 million or more. The chart below places the two side by side despite their different populations and survey designs. The levels differ, but the peaks and troughs line up almost exactly. This is not the quirk of a single sample; it is capturing how the industry actually invests.

Three phases stand out. Phase 1 (FY2016–FY2018) was the inbound demand expansion, with the ratio at 1.09x, 1.52x and 1.35x — above 1.0 for three straight years. The capex-to-sales ratio also held high at 5.95%, 6.15% and 5.99%. The capital committed then is operating today as rooms seven to ten years old.

Phase 2 (FY2019–FY2021) ran 0.72x, 0.40x, 0.71x. The 0.40x of FY2020 is the lowest of these eleven years. With sales shrinking to ¥4,161.3 billion, much of the renewal work that requires extended construction periods was pushed back. That deferred work did not disappear; it carried forward as an investment opportunity in later years.

Phase 3 (FY2022–FY2024) ran 1.04x, 1.24x, 1.51x — above 1.0 for three consecutive years, and rising each year. The quarterly survey points the same way at 1.12x, 1.26x and 1.60x. All four quarters of FY2025 (April 2025–March 2026) are already in on the quarterly basis, at 1.26x. That is calmer than the FY2024 spike, but it is roughly level with the 1.27x ten-year median on the same basis — not a return to the low band around 1.0.

In absolute terms the picture is sharper still. Depreciation is remarkably stable in the low ¥300 billions — ¥312.0 billion in FY2019, ¥305.1 billion in FY2020, ¥362.3 billion in FY2024. The value existing buildings consume each year does not pause for demand. Only capital expenditure moves, and it swings 4.5-fold, from ¥121.4 billion (FY2020) to ¥546.8 billion (FY2024).

That asymmetry is what makes asset management hard in this industry. Depreciation is a fixed, near-constant erosion of asset value; capital expenditure flexes with trading performance. Squeeze investment in a downturn and the ratio falls that year, but the erosion continues. The longer the trough, the more total volume accumulates to be put back later.

The third indicator, tangible fixed asset turnover, is worth adding: from 0.68x in FY2020 to 1.74x in FY2024. Sales generated per yen of tangible fixed assets rose roughly 2.5-fold, with higher rates and recovering occupancy showing up in asset efficiency (allowing for year-to-year movement in the denominator as well). While that efficiency holds, funding for capital expenditure is relatively easier to secure. It is a favourable window for pushing reinvestment forward.

The Split by Company Size — 2.82x Above ¥100 Million in Capital, 0.94x Below

Break the 1.51x industry average down by capital tier and the view changes. In FY2024, companies capitalised at ¥100 million or more posted 2.82x and those under ¥100 million posted 0.94x — a threefold gap inside the same industry.

What is interesting is that this ordering is not fixed. In FY2020–FY2021 it was reversed. Companies capitalised at ¥100 million or more cut back to 0.24x and 0.49x, while those under ¥100 million held 0.47x and 0.78x. Larger operators can stop major refurbishments — and when they do, the ratio drops hard. Smaller operators invest mainly in day-to-day maintenance and repair, which is difficult to stop in the first place. The reversal reflects a structural difference in how elastic investment is at each tier.

Then, from FY2023, the larger tier came back at speed. The 2.82x of FY2024 means roughly three times the asset value consumed was put into fixed assets in a single year. Public-area refurbishment, guest room renewals, upgrades to energy-efficient plant — with the demand recovery confirmed, the deferred work started moving. The 0.94x at companies under ¥100 million shows how much room that wave still has to reach. As a destination for industry-wide reinvestment, this tier covers the largest area.

Since FY2016, the lodging industry’s capex-to-sales ratio has run broadly between 5% and 7%, setting aside the pandemic dip (3.27% in FY2019, 2.92% in FY2020). That is well above the roughly 3% seen across all industries — the only year it fell below was FY2020, at 2.92% against 3.01% — and the character of a capital-intensive industry shows plainly in the numbers. If your product is a room, the product ages unless you keep working on the asset. That structure makes the investment burden per yen of sales heavier here than in other industries.

Among smaller operators, the use of that investment is more concentrated still. Looking at capital expenditure by purpose for accommodations (industry sub-group 75) in the Basic Survey on Small and Medium Enterprises, “maintenance, repair and renewal of existing buildings and equipment” accounted for 83.0% in FY2016 — a sharp rise from 34.7% in FY2014 and 47.5% in FY2015. In value terms, the ¥174.5 billion of FY2016 was ten times the ¥17.4 billion of FY2014. Not new openings, not business conversion: keeping the building you already have is where most of the smaller tier’s capital expenditure goes — the same picture emerging from an entirely separate survey design.

Converting to a Per-Room Figure — the ¥431,000 Industry Average Sits Mid-Range Against REIT Assets

Now translate these amounts into the unit investors actually use. Dividing FY2024 capital expenditure of ¥546.8 billion by the 1,267,377 rooms (27,162 properties) whose operation MetroEngines Research can confirm gives ¥431,433 per room per year — about ¥430,000.

The denominator you choose changes the answer. Rooms under the “hotel and ryokan business” category of the Hotel Business Act numbered 1,757,557 (end of FY2021, Ministry of Health, Labour and Welfare, Report on Public Health Administration and Services); on that broader denominator the figure falls to ¥311,107 per room per year. Either way, the per-room conversion in this article is approximate. The lodging industry in the corporate statistics includes entities with no guest rooms, while the room stock includes unincorporated, owner-operated inns. We flag up front that numerator and denominator do not cover exactly the same population.

Side by side, the industry average sits right in the middle of the range recorded by REIT-held properties (¥134,000–¥624,000 per room per year). There is no order-of-magnitude break between prime assets held by listed REITs and the industry-wide average. Recalling that the reinvestment multiple (capital expenditure ÷ depreciation) at those REITs ranged from 0.29x to 1.43x, the FY2024 industry average of 1.51x is if anything at the top of that band.

That said, the comparison has some latitude. “Capital expenditure” on the REIT side is a concept confined to work that preserves a building’s asset value, while “capital investment” in the corporate statistics covers acquisition of newly created fixed assets generally. Since land makes up only 0.0–3.4% of the total in this industry, the broad comparison holds — but the industry average of ¥546.8 billion also includes construction investment for new openings. Isolate renewal investment in existing buildings and the per-room level comes in below the figures above. By the same token, the room for reinvestment in existing stock is larger than the headline numbers suggest.

Sizing the Renewal Pipeline — 578,000 Rooms Opened Before 1996

The renewal investment ratio is a flow measure. Lay the stock side over it and the scale of what reinvestment is aimed at comes into view.

HotelBank has already measured the depth of ageing stock at the room level in Japan’s pre-1981 hotel stock: 236,000 rooms, 19.1% of all rooms and 226,000 hotel rooms across 32 regional core cities, 42.7% built before 1996. Splitting the 1,233,252 rooms nationwide with a known opening year into vintages gives the following.

Rooms opened before 1996 number 577,871, or 46.9% of those with a known opening year. Rooms from 1980 or earlier alone account for 223,522 (18.1%) still in operation. The 246,147 rooms from 1981–1990 are the largest single block, now 35 to 45 years past opening.

Multiply that by a per-room reinvestment figure and the total renewal pipeline can be sized. Assume the 577,871 rooms opened before 1996 each cycle through ¥400,000 of reinvestment per year — close to the median of the REIT results — and the requirement is ¥231.1 billion a year, equivalent to 42.3% of the industry’s ¥546.8 billion of FY2024 capital expenditure. Maintaining ageing stock alone absorbs something over four-tenths of the industry’s capital expenditure.

Put the other way round, those four-tenths are an investment opportunity whose demand is already locked in. Whether or not lodging demand grows, buildings get older every year. Refurbishment, plant replacement, seismic retrofitting, energy-efficiency work — for the contractors on the receiving end, this is a legible market. So when should an individual property schedule that work? The relationship between years since opening and room rates is measured in Hotels at year 10: measuring renovation timing with the 2016 cohort.

Sensitivity — Move the Assumptions and Renewal Still Takes 20–90% of Industry Capex

The ¥231.1 billion estimate above rests on two assumptions: ¥400,000 per room per year, applied to the 577,871 rooms opened before 1996. The grid below shows how it moves when those assumptions change.

Wherever you look in the grid, renewal investment accounts for a large share — 20% to 90% — of the industry’s annual capital expenditure. Applying ¥500,000 or more per room to the entire stock takes it past 100%, which shows that renewing every room every year at that level is not realistic — not that the investment requirement is overstated. In practice the work is smoothed, arriving as a concentrated peak once every five to ten years.

Of the three scenarios, only the pessimistic case fails to meet the renewal requirement. The 0.40x of FY2020 came at a moment when investment decisions stopped across the board under the pandemic; sustained at that level, the industry would accumulate a backlog of necessary renewal. Conversely, as long as the ratio stays at normal levels, the industry as a whole is not short of funding for renewal investment. The constraint is not the quantity of capital but which tier that capital reaches.

Translated into investor practice, there are three implications.

Conclusion — the Industry’s Balance Sheet Is in a Reinvestment Phase

In the annual survey of the Ministry of Finance’s Financial Statements Statistics of Corporations by Industry, the lodging industry is reported as a standalone sector. There is no need to fall back on the combined “Accommodations, Eating and Drinking Services” figures: capital expenditure and depreciation for the industry alone can be traced across eleven years. That fact alone adds a new yardstick to the hotel investment conversation.

Four things emerge. First, the FY2024 renewal investment ratio of 1.51x is above the 1.25x recorded across all industries. Second, over the last five years including the pandemic the cumulative ratio is 0.99x — barely returning the asset value consumed, meaning deferred investment opportunities have accumulated. Third, the gap between tiers is wide, at 2.82x for companies capitalised at ¥100 million or more against 0.94x below that, so the largest area for reinvestment lies with smaller operators. Fourth, the per-room industry average of ¥311,000–¥431,000 a year sits mid-range against listed REIT-held properties, so the industry as a whole is in no unusual position.

And 577,871 rooms — 46.9% of active stock — opened before 1996. Maintaining that ageing stock at ¥400,000 per room per year implies ¥231.1 billion annually, or 42.3% of the industry’s annual capital expenditure. The total volume that reinvestment is aimed at is already fixed, independent of whether demand rises or falls. It is worth holding the size of that base in mind when thinking about hotel investment.

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