Jones Lang LaSalle Hotels expects Asia Pacific 2007 Hotel Investment Transactions to Top US$7 billion

Underpinned by the positive macro-economic environment, buoyant tourism markets and strong hotel trading performance, Asia Pacific enjoyed record growth in hotel investments in 2006. Jones Lang LaSalle Hotels (JLL) estimates in its 2007 edition of Hotel Investment Outlook that total transaction volume in 2006 was around US$5.25 billion - 73% higher than the previous record recorded in 2004 and more than double 2005’s levels. This however is expected to make way for an even more robust 2007, with hotel investments projected to exceed US$7 billion.

Mr. Scott Hetherington, the JLL’s Managing Director in Asia, said, “The limited availability of assets, growing competition and strong operating performance all supported a rise in value. Yields have compressed as a result and we see this persisting as the weight of capital seeking investment in the region continues to outweigh the number of assets coming to the market. The markets in the region still present good value with opportunity for capital growth.”

In 2006 Singapore, Hong Kong and Japan emerged as the most favoured investment destinations. High transaction volumes were also achieved in China, Thailand, Taiwan, Australia and New Zealand. Of these Singapore, Thailand, China and New Zealand, were record years.

Capital chasing after hotel real estate is expected to remain plentiful in 2007 and the foreseeable future – the key issue for this region remains availability of stock. The majority of the hotel stock in Asia is still tightly held by major family companies from Hong Kong, Singapore, Indonesia and Thailand. Investors are beginning to travel down the paths less travelled due to a scarcity of quality investment-grade hotel assets. 2006 witnessed the most diverse investment flows to date with transactions occurring in 16 countries across the region as more markets start to open up. Multiple transactions occurred in Thailand, China, Malaysia, and Macao, while individual transactions took place in Taiwan, Vietnam, Laos, Cambodia, Myanmar and Bali.

“We expect to see more transactions in more markets throughout 2007 as investor interest spreads into new markets especially China, India, Vietnam, although Singapore, Hong Kong and Tokyo are expected to remain investment hot spots in 2007,” said Mr. Hetherington. “US opportunity funds, over the last few years, have become owners of a significant stock of Asian hotel assets and we are beginning to see some churn from these players. This will continue in 2007 as they take advantage of the favourable global environment while some companies are also taking the opportunity to dispose of non-core assets.”

While domestic players used to command the lion share of transactions as they are able to better defray risk given their familiarity with their home markets as well as political and commercial connections, 2006 witnessed an increase in cross-border activity in the region. According to the JLL’s research, domestic players accounted for about half of total transactions in 2006 with the balance being cross border or global investment. This compares to the 70:30 spread in 2005 and 60:40 distribution in 2004. “There is resurgence of interest from the Middle East in 2006 and we expect to see more investments by Middle Eastern investors, and to a smaller extent, European investors during 2007 as the trend for offshore investment and global diversification gains pace,” said Mr. Hetherington.

For the first time in two decades, trends in hotel investment in the major regions of the world have fallen in line, with strong growth in transaction activity experienced in Asia Pacific, Europe and the Americas. Nearly US$70 billion worth of hotel transactions were registered in 2006, approximately 53% higher than 2005’s volume, which was itself a record year – 60% higher than 2004. “Each region has in turn posted historical highs and the momentum is set to persist in 2007, although overall global volumes are expected to be marginally lower than 2006, predominantly due to a slow down in portfolio transactions in Europe where we have seen exceptionally high portfolio sales in the past two years as large hotel chains dispose of their real estate assets across Europe,” said Mr. Arthur de Haast, Global CEO of Jones Lang LaSalle Hotels.

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