Ryokan and Hotel Market to Reach 6.5 Trillion Yen in Fiscal 2025, Setting a New Record; Market Expansion Accompanied by Urgent Need to Restore Financial Health as 'Insolvent' Companies Account for Approximately 30% of the Total

Teikoku Databank, Ltd. has conducted a survey and analysis of market trends and corporate performance (business conditions and sales) in the nationwide "ryokan and hotel" industry, based on its proprietary corporate credit report file, "CCR."

### SUMMARY

The domestic ryokan and hotel market for fiscal 2025 (April 2025–March 2026) is expected to reach 6.5 trillion yen in operator sales, marking a new record high. Supported by robust inbound tourism fueled by the weak yen and a recovery in domestic tourism and business travel, approximately 30% of companies reported "increased revenue" compared to the previous fiscal year. Conversely, the proportion of insolvent companies remains high at approximately 30%. Improving financial health and establishing operational systems that account for labor shortages are expected to determine future trends.

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### Ryokan and Hotel Market Expected to Reach 6.5 Trillion Yen in Fiscal 2025, Setting a New Record

The ryokan and hotel market in fiscal 2025 is increasingly likely to set a new record. Based on performance trends and forecasts for each company through the end of February 2026, the domestic ryokan and hotel market (based on operator sales) for the full fiscal year 2025 (April 2025–March 2026) is projected to reach 6.5 trillion yen. This exceeds the previous record of 6.0652 trillion yen set in the prior fiscal year and marks the fourth consecutive year of growth.

According to trends among approximately 3,800 domestic ryokan and hotel operators whose fiscal 2025 performance (including estimates) was known as of the end of February, 32.4% of companies saw an "increase in revenue" compared to the previous year. The business environment surrounding the domestic market was supported by the expansion of inbound tourism due to the weak yen, steady domestic tourism and business travel demand, and the hosting of large-scale events such as concerts and sports. In particular, major metropolitan areas like Tokyo and Osaka, as well as famous tourist destinations like Kyoto, saw room rates remain high due to tight supply and demand. Furthermore, even in regional cities, the increase in international visitors seeking "local experiences"—such as regional nature and unique culture—kept accommodation demand firm, acting as a factor that pushed up the overall market. In terms of operations, there has been a widespread shift toward package-type products that emphasize experiential value, such as introducing "room-only" plans to prioritize occupancy rates or adopting "all-inclusive" models that bundle meals, drinks, and activities into the room rate. In some cases, this has contributed to both higher guest satisfaction and increased revenue per guest.

On the other hand, the percentage of companies reporting "decreased revenue" exceeded 10% for the second consecutive year. Facilities in regional tourist areas or those with poor transportation access saw limited inbound tourism, leading to sluggish occupancy rates. Due to weak demand, these operators were forced to worry about losing customers if they raised prices, making it difficult to pass on rising operating costs, such as labor expenses, to consumers. Additionally, a certain number of companies saw revenue decline due to constraints on their ability to accept guests caused by chronic labor shortages and intensified competition from a rush of new openings by major hotel chains.

### Approximately 30% of Companies Insolvent; Gap Between Scales Widens

By prefecture, the highest percentage of ryokan and hotels with "increased revenue" in fiscal 2025 was in "Tokyo" (54.1%), followed by "Shiga" (47.6%), "Osaka" (47.2%), "Okinawa" (45.6%), and "Kyoto" (44.3%). The Kinki region accounted for three of the top five prefectures, indicating a trend of a high proportion of revenue-increasing companies in that area. With the Osaka-Kansai Expo starting in April 2025, tourists from across the country concentrated in the Kinki region for an extended period, significantly increasing accommodation demand, particularly in Osaka and Kyoto. Furthermore, as accommodation prices rose, demand spilled over into surrounding areas with easy access to tourist destinations, such as Otsu City in Shiga Prefecture, benefiting many lodging operators over a wide area. In "Okinawa," the opening of new theme parks and the recovery of resort demand acted as tailwinds, expanding both domestic and international tourism. Facilities that captured demand for medium-to-long-term stays and high-value-added experiences saw improvements in both unit prices and occupancy rates.

While the market size is expanding, structural issues remain regarding financial health. Looking at the percentage of companies in "insolvency" (negative net worth), which indicates an increased risk of bankruptcy, they accounted for 28.6% of the total in fiscal 2025. This is a 3.8-point increase compared to fiscal 2019 (24.8%) before the COVID-19 pandemic. In fiscal 2021, during the pandemic, earnings deteriorated significantly due to a sharp drop in accommodation demand. Because many operators relied on borrowing to maintain cash flow, the percentage of insolvent companies rose to the 40% range. Although there has been an improvement trend since then, many businesses, particularly small and medium-sized ones, remain dependent on debt.

Currently, major players are resuming and accelerating capital investment that was suppressed during the pandemic, leading to a series of new facility openings and renovations, as well as the liquidation of unprofitable facilities. Conversely, small-scale operators with limited capacity for capital investment and facilities with poor locations are unable to renovate aging buildings and equipment due to tight cash flow, raising concerns about further declines in competitiveness. Even as demand recovers across the market as a whole, the disparity based on business scale and location remains unresolved, and the polarization in financial standing has become clear.

### Market Expansion Expected in Fiscal 2026; Widening Profit Gaps and Labor Shortages Remain Challenges

Recently, the yen's depreciation has intensified, and given the relative affordability of travel to Japan, inbound demand is likely to remain at a high level in fiscal 2026. Both the number of international visitors and their travel spending are at record highs, continuing to serve as a tailwind for domestic ryokan and hotel operators. On the other hand, following the attacks on Iran by the U.S. and Israel on February 28, oil prices have surged, leading to rising airfares and flight restrictions. This creates downside risks for the future, such as concerns over a potential decrease in visitors from European countries.

Regarding domestic travel, many operators anticipate that selective consumption—such as prioritizing high-value-added travel experiences—will further increase due to a growing trend toward frugality amid rising prices. Whether a business can offer products and services that match not only the price point but also the location, regional appeal, and target customer base will be a critical factor determining profitability.

Overall, while the hotel and ryokan industry is expected to maintain firm demand in fiscal 2026, it is entering a phase where "market expansion does not necessarily lead directly to profit expansion." While there remains significant room for long-term market growth under the government's tourism-oriented nation policy, in the short term, differences in management capabilities—such as pricing strategy, investment decisions, and operational efficiency—may become more apparent as differences in profitability. Furthermore, as labor shortages become more severe, the presence or absence of the financial and management foundation to execute capital and labor-saving investments and recoup those costs will also be a key factor determining competitiveness.