Friday Letter The snows of Niseko

What an Aussie-filled Japanese ski town says about the future of hospitality investing. 

You think real estate investing is all about local demographic trends? You haven’t seen Niseko, an area on the northernmost Japanese island of Hokkaido known for its powdery snow and long ski season. And, according to a Japanese alternative asset manager who has been there, the local word for hello is “G’day.”

A visit to, a travel blog kept by one Stefan Schauwecker, reveals that Niseko was “visited mainly by Japanese tourists until a few years ago. . . Niseko has recently experienced something like an ‘invasion by foreigners.’ The number of overseas visitors to the ski resort, particularly from Australia, is overwhelming, indeed. I have never seen anything like it in Japan.”

You might say that the rising wealth of China has driven a boom in natural resources in Australia, which has further boosted the wealth of the adventurous Aussies and sent them in greater numbers to what is described by many as Asia’s best ski area, where real estate has in some cases doubled in value over the past year. Penthouse apartments in the area are selling for US$1 million or more. Australians are charmed by Niseko’s convenient time zone, great snow and relatively low altitude.

What has been missing are the hallmarks of a ski town – abundant condos, hotels, retail space, restaurants and bars. This is changing rapidly. Niseko is seeing a boom in development driven both by foreign visitors and foreign capital. According to a recent report in the Sydney Morning Herald, in 2006, Australians represented 80 percent of buyers of vacation real estate in Niseko from broker Hokkaido Real Estate. Developments are popping up everywhere, transforming this sleepy area into a foreigner entertainment zone. Over the summer, an Australian development company called Hutchinson Builders awarded to a Japanese construction company its first-ever foreign-backed project in Niseko – an apartment building that will be 95 percent occupied for its debut ski season.

This year, there are even more Australians showing up to buy properties, but according to Hokkaido Real Estate, a sudden surge in investors from Hong Kong, Singapore and China has changed the mix of buyers.

Among the major themes for globally minded private equity real estate investors is the need for hospitality real estate, particularly in Asia. As levels of wealth rise across Asia, people will travel in numbers that will dwarf all previous notions of holiday crowds. And they are headed to places nearby that most Westerners have never considered visiting. For example, Macau has already surpassed Las Vegas as a gaming hub, and, at least according to the bets placed by private equity firms, the trend will continue.

Real estate investors who are serious about seeing strong returns from the asset class and, within that, the hospitality sector, need to forget about Aspen and pay attention to the slopes favored by the new wealth of the Pacific Rim.