Owner’s Representation for Real Estate Projects in Japan
with Bridging Cross-Cultural and Practical Gaps
Can It Survive When the Market Changes?
Looking at Myoko’s accommodation market—particularly minpaku and house-based lodging—through the example of PCG’s development
In using Myoko as a clear case study for this article, I have drawn not only on my own experience but also on actual data from the following reports and materials: Myoko City’s Fourth Tourism Promotion Plan; official materials from PCG, IHG/Six Senses, Accor/MGallery and Ikon Pass; and HotelBank / MetroEngines Research analyses on new hotel supply and “Supply Shock.”
Myoko provides a particularly clear example of why market conditions and business strategy need to be considered together. This is not simply a question of improving management or operations, or of whether an accommodation business should move further toward the luxury market. Before those decisions, there is a more fundamental question: whether the business itself is positioned to remain viable as the market around it changes.
PCG’s development is very likely to raise awareness of Myoko itself and attract more visitors from both Japan and overseas. At present, demand is particularly strong during the winter ski season, but PCG is aiming to create a year-round mountain resort. If people have more reasons to visit Myoko outside the winter season, annual accommodation demand could also become much larger than it is today.
In that sense, PCG’s development could create major opportunities for existing accommodation operators as well. Ken Chan of PCG is fluent in Japanese and has a deep understanding of Japanese culture, social norms, and the way things work in Japan. I believe this gives PCG a significant advantage, and there is much here that investors considering entering Myoko should seriously consider and learn from.
However, there is another important fact that both existing investors and those considering entering the market need to take seriously: a large-scale development increasing demand for the market as a whole does not necessarily mean that existing accommodation facilities will see more guests.
What I am interested in is whether today’s accommodation businesses will still be able to attract customers after supply increases and the overall standard of service and convenience improves.
Why is the current demand coming to that particular property?
Myoko currently has strong inbound demand during the winter season, with foreign overnight stays particularly concentrated in January, February, and December. Myoko City itself has identified skiing and snowboarding as major purposes of travel among international visitors.
In a market where demand is concentrated into particular periods, a shortage of accommodation can result in bookings flowing into properties that might not otherwise have been a guest’s first choice. At present, Myoko does not have enough accommodation, restaurants, and other facilities to fully absorb the increase in inbound winter visitors. From that perspective, entering the market because of this shortage can appear quite rational. In particular, minpaku and small lodging facilities often absorb needs that ordinary hotels cannot easily serve, such as families or groups wanting to stay together. This is not unique to Myoko; the same pattern can be seen in many places.
For example, a family or group of eight friends wants to travel to Myoko for skiing. Their preferred hotels are full, or there are no rooms that allow the entire group to stay together. They therefore book a whole house that sleeps eight and is around ten minutes from the ski slopes by car.
In this case, the property may not have been chosen because the guests specifically wanted to stay in that particular house.
The important difference is whether the property itself is genuinely attracting guests, or whether a significant part of its demand is simply flowing there because of the current shortage of accommodation. This is relevant to any accommodation business, but in a market such as Myoko, where major development is planned, I believe it becomes particularly important to consider this difference from a long-term perspective.
If we assume that a property is competitive simply because it is receiving bookings today, we may misjudge what happens when new supply enters the market.
Whether a property’s competitiveness comes from a clear business strategy, or whether a substantial part of its performance depends on current market conditions and a shortage of supply, is an important distinction when considering its long-term viability.
PCG’s impact is not simply an increase in the number of hotel rooms
When looking at PCG’s development, focusing only on how many hotel rooms will be added does not fully explain the potential impact.
Six Senses Myoko is planned to include 57 rooms and suites together with 21 Branded Residences. Lime Resort Myoko in Ikenotaira is being converted into a 38-room MGallery property. Additional hotels targeting different customer segments are also planned.
But the impact on existing accommodation will not come from room numbers alone.
PCG has acquired Myoko Suginohara Ski Resort itself and is developing a resort that includes slope-side accommodation, shuttle transportation, onsen, restaurants, wellness facilities, a Kids Club, and other services. Suginohara has also joined the Ikon Pass network, which will change both international awareness of the resort and the routes through which overseas skiers discover and access it.
This is not simply about adding more places to sleep in Myoko.
It changes how easy and convenient the overall Myoko experience can be for visitors.
Along with greater supply, new facilities will raise expectations for services and amenities. Their ability to reach international customers will become stronger. Some of the current inconvenience around transportation and dining will be reduced. And once guests have experienced these new options, they are also likely to become more conscious of how they compare with the properties they used previously.
I think this effect of being compared against new alternatives could be particularly significant for existing accommodation providers.
When a new hotel opens, people will naturally want to try it. At the same time, however, they will also compare it with the inns, lodges, and houses they have stayed in before.
Even if an existing property has changed nothing, its perceived value can change simply because the comparison has changed.
For example, suppose a whole-house rental costs ¥80,000 per night, while a new accommodation facility costs ¥100,000.
The whole house may have a kitchen and a spacious living room, but guests may also need to rent a car, drive on snowy roads, shop for groceries, and drive to the ski slopes every day.
The other property may offer a shuttle, onsen, restaurants, staff support, and ski facilities.
The difference in room price is ¥20,000, but ¥20,000 is not the only thing the guest is comparing.
A cheaper room is not necessarily cheaper for the overall trip
In Myoko, “transportation” was the most commonly cited source of dissatisfaction among accommodation guests, at 31.1%.
Without a car, shopping can be difficult, restaurants can be difficult to reach, and guests need transportation to reach the ski slopes. In winter, “ten minutes by car” does not mean the same thing as it does from spring through autumn, and a person’s experience with driving in snow also matters. For inbound travelers, additional hurdles may include obtaining an international driving permit and understanding Japanese traffic rules.
When comparing accommodation, it therefore makes sense to consider not only the room rate, but also how much travel, effort, and planning are required in order to use that property. Meals, shopping, and what happens in an emergency are also important points to consider.
There is no need to assign a monetary value to every inconvenience. But simply saying that “the whole house is ¥20,000 cheaper than the hotel” does not tell us whether it is actually the more economical option for the traveler. In addition to comfort and convenience, safety and peace of mind are also factors that many guests will care about.
At the same time, if a whole-house property offers enough value that cannot be obtained from a hotel, there will still be customers who choose it.
How valuable is simply being able to accommodate a group?
One of the commonly promoted advantages of whole-house accommodation in Myoko is the ability for larger groups to stay together. Hotels may require a family or group of friends to split into several rooms, so being able to use an entire house together certainly has value.
However, I think we also need to distinguish between the current supply environment and the environment that may exist after more accommodation enters the market.
For example, even where a Japanese house is advertised as accommodating eight guests, it is not unusual for that capacity to be achieved by laying futons in tatami rooms. The maximum number of guests permitted under lodging regulations and the number of people who can comfortably stay in the property for several days are not necessarily the same.
Ski travelers also carry much more luggage than ordinary travelers. In addition to suitcases, they may have ski wear, boots, helmets, and other equipment.
There may be enough space for eight people to sleep, but can eight people comfortably eat together? Can they spend time together in the living room? Are there enough bathrooms and toilets? Is there space to store luggage and dry wet clothing and ski equipment?
At present, simply being able to accommodate eight people may already differentiate a house from a hotel. But if more group-oriented hotel rooms, Residences, and better-designed whole-house properties enter the market, guests are unlikely to compare options based only on maximum occupancy.
As minpaku has increased and differentiation has become more important, professionally operated and increasingly sophisticated minpaku businesses have appeared in many areas. In Myoko, however, I do not think it will be enough simply to differentiate one minpaku from another, because new accommodation being developed may incorporate some of the same features that minpaku operators have traditionally used to differentiate themselves from hotels.
In particular, properties that have relied heavily on one selling point—allowing families or groups to stay together—need to think carefully about how strong that advantage will remain.
Whole-house and house-based accommodation can still have different strengths
At the same time, I do not believe that the development of large resorts such as PCG’s automatically puts every whole-house or house-based accommodation business at a disadvantage.
If PCG helps Myoko become recognised not only as a winter ski destination but as a place to stay throughout the year, the market could become considerably larger. Some of that demand will naturally come from travelers who prefer whole-house accommodation over large hotels.
Even so, it would be far too simplistic to conclude that “more people will come to Myoko, therefore existing minpaku and whole-house accommodation will automatically benefit.”
This is the part of the development I think deserves more attention.
Demand may increase, but supply will increase at the same time. And the new supply will not simply consist of more beds. It will include accommodation that improves the overall stay through transportation, dining, onsen, skiing facilities, staff services, and other conveniences.
In that environment, existing whole-house accommodation will face greater scrutiny over why guests should choose it.
Are “cheaper than a hotel,” “sleeps a large group,” and “ten minutes from the ski slopes by car” enough? Or is there separate value in staying at that particular property?
Is there a large property where children and dogs can play? Are there enough bathrooms and toilets? Can guests enjoy BBQs in the garden? Is the kominka itself part of the experience? Is it a place where people would genuinely want to spend several slow days?
And if the property has been targeting only winter ski visitors, how strong will its advantage be compared with the new accommodation coming into the market?
One whole-house accommodation business I found in Myoko provides a useful example. In winter it targets foreign ski visitors and longer stays, while in the green season it promotes different reasons to stay, including BBQs, river activities, a pizza oven, a goemon-buro bath, and play areas for children.
If PCG increases overall interest in Myoko and expands annual accommodation demand, properties like this may have an opportunity to attract new customers.
Whether an existing property benefits from a growing market will depend on whether it still gives people a reason to choose it within that larger market.
Market growth and an individual property’s ability to attract customers are different questions
A large increase in new supply does not automatically cause accommodation prices or occupancy across an entire destination to fall. In other markets I researched, there have been cases where existing hotels increased their room rates even after new accommodation supply entered the area.
If PCG raises Myoko’s international profile and attracts people who would not previously have considered visiting, accommodation businesses outside PCG’s own properties may also capture some of that demand. If the destination successfully develops into a year-round resort, green-season demand—which is currently much weaker—could also increase.
At the same time, facilities, operations, and services that cannot compete with the new supply are likely to be pushed out of the market. This is not unique to accommodation. We see similar patterns when a major shopping centre opens and changes the competitive environment for existing local retailers and restaurants.
In Japan in particular, demand for minpaku and small lodging businesses using condominiums or detached houses remains a niche within the overall accommodation market. That specific feature of the Japanese lodging market also needs to be considered.
Build the business plan before searching for the property
If real estate is being acquired for a business purpose, the business plan needs to come before the property purchase.
When financing is used in Japan to acquire real estate for business purposes, financial institutions will normally require a business plan and financial projections.
However, overseas buyers purchasing properties entirely with their own cash can acquire them without going through that process.
As a result, there are many cases where a property is purchased without the business plan that should have been prepared first.
If someone buys a “cheap and spacious house” first, the business then has to be designed around whatever that property happens to allow. If they later realise that they needed a garden, one cannot simply be added. Increasing the number of bathrooms and toilets may require substantial additional cost. The transportation environment cannot easily be changed either.
Real estate is also normally held for several years, and sometimes much longer, so changes that may occur during that period cannot be ignored.
Some owners may intend to hold a property for a certain number of years for tax reasons. But before that period has even passed, a large development such as the one in Myoko may be completed, or further accommodation supply may enter the market. Regulations affecting accommodation businesses may change. Cleaning, snow removal, repairs, labour, and other operating costs may also rise.
We cannot stop regulations or market conditions from changing, but the ability of the project and the property to withstand uncertainty—and to remain flexible when circumstances change—should be considered before the property is purchased.
It is also risky to assume that if the accommodation business does not work, the property can simply be sold.
Changes in the market environment will obviously affect the exit, but that is not the only issue. As successes and failures accumulate in a market, the knowledge and decision-making standards of future buyers also change.
For example, suppose that after PCG becomes fully operational, ordinary house-based accommodation becomes oversupplied and profitability falls. Perhaps regulations on accommodation businesses have also become stricter, while operating costs have risen. Any future buyer looking at the property will be able to see those conditions as well.
Japan has already experienced various investment booms: resort-home booms, landlord and rental-property booms, minpaku booms, and earlier waves of interest in vacant houses well before the current inbound-driven akiya boom. Knowledge has accumulated through each of them. As a result, experienced investors and later entrants often become more cautious.
We are already seeing a shift toward more professionally operated minpaku, greater emphasis on differentiation, stronger attention to local relationships, and more focus on compliance. Against that background, investors are becoming more selective when evaluating accommodation businesses and rental properties. There is every reason to consider that the same process could occur in Myoko.
In other words, when an owner eventually decides, “This business is no longer working for me, so I want to sell,” the question becomes: how many buyers will still want to pay a high price for the same property in order to operate the same business?
If the property also has value as a residence, works well as a second home, or could be rented as corporate housing, the pool of potential buyers becomes broader. If its usefulness outside the accommodation business is limited, the exit from the real estate itself can become narrower at the same time that conditions for the accommodation business deteriorate.
Thinking about an Exit does not simply mean predicting what price the property might sell for after a certain number of years. It also means considering how many options will remain available depending on the circumstances: continuing to hold the property, changing its use, changing the business model, or selling it.
What I think the Myoko case can teach us
I have looked at Myoko and PCG in considerable detail, but I do not see this as an issue that applies only to people who want to invest in Myoko.
Myoko is simply a very clear example because we already know that major development is coming and that the market environment is likely to change.
When buying a property, it is of course reasonable to examine current accommodation demand, surrounding room rates, and existing occupancy. But all of those numbers reflect the market environment as it exists today.
A few years from now, a major development may have opened. New competing facilities may have entered the market. Transportation conditions or customer segments may have changed. Regulations and operating costs may also be different.
We cannot accurately predict all of these uncertainties, nor can we identify every possible risk before purchasing a property.
But when major changes such as PCG’s development have already been announced, and when current developments in the local market can already be observed, it is possible to analyse how those factors may affect the future market environment.
Rather than jumping at an apparent “investment opportunity” or a seemingly “good-value property,” it is necessary to consider the sustainability of the business and the property, the flexibility available if conditions change, and the possible exits.
An accommodation business is not simply a passive investment in which someone owns a property and waits.
That is why considering these issues before the purchase should form an important part of the business strategy.
I believe that looking at changes in the market and in the business itself before making a property purchase is also an important part of Project Due Diligence.