Luxury hotel development in Indonesia is accelerating outside Bali, and rate growth at the high end is delivering owners materially higher profits, according to STR Regional Vice President for Asia Pacific Jesper Palmqvist.

Speaking on the latest episode of the CoStar News Hotels podcast, Palmqvist said developers see room to expand luxury offerings across Indonesian markets beyond the country's best-known destination — and that Jakarta is already proving the thesis.

"You can see some of the new luxury happening in Jakarta, as well," he said. "And rate growth has given them much higher profits, which makes owners happy."

What could slow the Indonesian expansion?

Palmqvist cautioned that high-end rate growth is unlikely to continue indefinitely and could moderate going forward. But he expects the underlying development mindset to persist, driven by what he described as a distinctively aggressive business culture.

"The Indonesian spirit in terms of entrepreneurship and development is quite something," he said.

For hotel operators and investors, the implication is direct: the upside case for Indonesia no longer rests on Bali alone. Jakarta's ability to sustain rate growth at the luxury tier suggests demand at the top of the market can support new high-end supply — though Palmqvist's moderation warning signals that underwriting based on current rate trajectories carries risk if the cycle cools.

How is Japan's demand picture shifting?

Palmqvist also addressed Japan, where hotel demand is settling into a new normal after the loss of Chinese travelers. The country's resiliency has been impressive, he said, but the recovery has been uneven — a remix of feeder markets rather than a like-for-like replacement.

Tokyo, a favorite of Western travelers, is posting record average daily rates. Western Japanese markets such as Osaka, by contrast, are seeing a performance dip.

The shift in source markets is reshaping segment-level performance and stay behavior, not just headline occupancy.

"The Chinese tend to have a shorter length of stay because it's a shorter trip [to Japan] ... They would have a shorter flight to come over and stay more in the midscale places," Palmqvist said. American travelers, he noted, favor high-end properties.

The consequence for sellers of travel is a two-speed Japanese market: upscale and luxury product in Tokyo benefiting from long-haul Western demand and record ADRs, while regional markets that leaned on Chinese visitation — and on midscale and shorter-stay demand — face pressure until those feeder markets return or are replaced.

Palmqvist's broader read on the region pairs an Indonesia story built on new luxury supply and owner returns with a Japan story built on demand remix — both of which point to revenue moving toward the premium tier in Asia Pacific's major urban markets, at least for now.