Sightseers walk along Hanami-koji Dori street in the Gion district in Kyoto’s Higashiyama Ward in September. (Yoshiko Sato)

KYOTO--The globally renowned tourist destination of Kyoto has a hotel problem, believe it or not.

With the massive influx of visitors from overseas in recent years, the number of accommodations has spiked, but many are having to slash their rates to attract guests and stay competitive.

To address the issue, authorities here are changing direction. Instead of trying to attract new hotels, they're restricting their construction.

The move comes as upscale hotels are successively launching businesses in Kyoto, in contrast to the increasingly tough situation faced by cheaper inns and hotels.

Equipped with only 26 guest rooms, the foreign-affiliated Aman Kyoto hotel opened Nov. 1 in Kita Ward near Kinkakuji temple on grounds totaling 24,000 square meters and home to abundant nature.

The two "pavilions" of the super-luxury lodging facility can be chartered for more than 1 million yen ($9,100) per night, with different fees depending on the season.

Back in October, Park Hyatt Kyoto was introduced on the site of a long-established Japanese cuisine restaurant in Higashiyama Ward around Kiyomizudera temple by a leading U.S. hotel operator.

It was the second time for the operator to open its highest-level facility in Japan, following the first one in Tokyo. Room rates start from around 110,000 yen.

Both hotels target wealthy individuals, including non-Japanese guests. As there are fewer luxury accommodation facilities in Japan, there is said to still be room for more such hotels to be built.

Japanese businesses are following suit: After renovations at Kintetsu Miyako Hotels International Inc.'s The Westin Miyako Kyoto in Higashiyama Ward are complete, the number of guest rooms will be halved, so that the average area can be expanded by 40 percent, with plans to double the rate.

Mitsui Fudosan Co. is looking to start operating its top-brand Hotel The Mitsui Kyoto in Nakagyo Ward in front of Nijo Castle this summer, while Imperial Hotel Ltd. is expected to make a new facility available in Higashiyama Ward's Gion entertainment district.

HEATED COMPETITION

Meanwhile, competition is heating up among mid-level lodging facility operators that offer rooms at 10,000 to 20,000 yen per night, leading to a drop in rates.

"Operators are in a price-slashing war," said Masahiro Nishikawa, a senior Hotel Keihan Co. official. “I'm worried about how the battle will turn out.”

The Hotel Keihan chain has aggressively opened accommodation facilities around JR Kyoto Station in recent years, but the average room fee dropped 10 percent in 2019 from the previous year.

Although guest rooms are quickly filled around the Gion Festival in summer every year, the company reportedly struggled to secure customers in 2019.

Officials of Hotel New Hankyu Kyoto in Shimogyo Ward said its average room charge dropped 5 percent year-on-year as well.

Around Kyoto Station in particular, lodging facilities are scrambling to win over guests. A subsidiary of West Japan Railway Co., for example, opened two hotels in spring 2019 with a total of 900 rooms, including Hotel Vischio Kyoto in Minami Ward.

There were 30,000 hotel rooms in Kyoto in March 2016. However, the figure reached 46,000 by March 2019, owing mainly to the rapid increase in the number of guest houses, “minpaku” private lodging facilities and other inns offering cheaper plans and because an APA Group hotel that opened in 2019 in Kyoto is available for less than 5,000 yen per night on weekdays.

A hotel owner pointed out that mid-level hotel operators are forced into the dog-eat-dog competition partly because “much cheaper inns are introduced.”

The situation is expected to further deteriorate, as the number of hotels is likely to continue to rise.

The number of rooms to be made available between 2019 and 2021 in Kyoto is estimated to be comparable to 51 percent of the total at the end of 2018, topping the list of nine major cities across Japan, according to leading real estate service provider CBRE.

The hotel room increase rate for Kyoto during the three years is far higher than that of Tokyo at 24 percent and Osaka at 32 percent, whereas the Olympics and a world fair are to be held in the regions.

The difficult situation has already forced one operator to withdraw from the market. Ichigo Hotel REIT Investment Corp. in October sold a hotel near Sanjo Keihan Station, as the room charge decreased nearly 20 percent to 12,000 yen in 2019 from its peak in 2017.

“We took into account the future risk of business conditions becoming increasingly difficult,” said an Ichigo Hotel REIT Investment representative.

ENDLESS CONSTRUCTION

Kyoto, which had worked actively to attract more hotels, has changed course and is now trying to limit the number of accommodations popping up.

"We'll refuse plans by operators to open hotels that do not emphasize the preservation of local culture," said Kyoto Mayor Daisaku Kadokawa at a news conference on Nov. 20.

At an international conference on Dec. 12 in Kyoto, Kadokawa said, “With several thousand (guest rooms) to be newly introduced in 2020, I'll take advantage of every city planning mechanism to implement (regulatory measures).”

The main reason the municipality has changed its approach is that land prices have risen sharply in tandem with the rapid increase in hotels. Also, poor manners by some foreign visitors, traffic congestion and other overtourism issues have become increasingly problematic.

After many cases were reported of geisha and their trainees being chased about for photos in Gion and of tourists trespassing on private property, such countermeasures as erecting warning signs have been taken.

In line with the move, hotel operators are expected to be called on to bolster efforts to obtain consent in advance from residents from the next fiscal year.

“Kyoto is now at a turning point, despite so many hotels being built amid the influx of visitors from overseas,” said Teruhiro Nagano, an official of NBS Hotel Management Inc., who is knowledgeable about the accommodation facility business.

(This article was written by Hideo Sato, Junichi Kamiyama and Satoko Onuki.)