JLL Forecasts US$7.5 Billion of Hotel Transactions in Asia Pacific in 2014

According to JLL’s latest Hotel Investment Highlights Report, transaction volumes in the Asia Pacific hotels market totalled US$3.9 billion during the first six months of 2014, up 6.5% on the same period in 2013.

Asian hotel markets recorded the lion’s share of activity with sales totalling US$3.5 billion, compared to Australasia’s US$0.6 billion.

Japan ($1.0 billion) and China ($1.0 billion) dominated, accounting for 60% of Asian deal flow.

Scott Hetherington, Chief Executive Office Asia, JLL’s Hotels and Hospitality Group said, “There is a definite trend amongst hotel investors to look further afield and consider markets that may not have been on the radar just a few years ago. In the first half of this year we saw deals across 15 countries. This willingness to look beyond the more established markets is a reflection of there being limited opportunities in gateway cities. As yields are being squeezed in many markets, we are seeing investors look further afield to markets such as Australia, Maldives, Korea and Thailand.”

While investment is becoming more geographically widespread, the major gateway cities remained the largest hotel transaction markets in H1 2014, which is in part because asset prices are higher in those markets. Volumes were highest in Shanghai, Sydney, Tokyo, Thailand’s resort markets, Melbourne, Osaka and Hong Kong. Individual high-value assets also traded in Kota Kinabalu and Manila. Together these top ten markets accounted for more than 70% of deal flow.

Cross Border Investment

Cross border investment accounted for a quarter of total investment activity in Asia Pacific in H1 2014, partly due to increased activity in China and Japan, much of which involved domestic sales.

Cross border investment in Asia Pacific is predominantly from within the region, though groups from outside the region are increasingly revisiting investments in Asia Pacific hotel real estate. As was the case pre-GFC, private equity/investment funds are most active, but there is also interest from HNWIs. These buyers are very open minded towards investing in the region but the challenge will be securing investment opportunities with an adequate level of return, particularly those targeting double-digits IRRs.

New sources of capital from across the region as well as domestic capital are also emerging as Asian corporates seek to place large capital reserves into alternative investment classes.

Country Focus

China was the most active hotel investment market in Asia Pacific during the first six months of 2014 with transactions totalling US$1.0 billion. This is approximately double the same time period in 2013. In total JLL recorded six hotel sales, dominated by Shanghai, which accounted for 85% of deal flow.

The Japanese investment market has remained robust during the first six months of 2014 with transactions totalling almost US$1.0 billion. Whilst representing an 18% decline on the same period in 2013, JLL expects a good finish to the end of year, with a number of transactions and portfolios currently being marketed and attracting solid interest.

Australian hotel transaction volumes remained robust in H1 2014, increasing 28.8% on the same period in 2013 to total US$571 million. Sixteen hotels assets exchanged during the first six months of the year, but with a further US$1.0 billion of hotels and development sales recently exchanged, in due diligence or being marketed for sale, we have increased our full year forecast from US$0.9 billion to US$1.6 billion.

Outlook

“With transaction volumes in the first half of 2014 higher than the same period last year and with some very large asset sales currently in play, we are increasing our full year projection for Asia Pacific hotels transactions from US$6.0 billion to $7.5 billion. This new forecast could well be surpassed if a number of other mooted sales materialise. This total of US$7.5 billion would still remain below 2013’s post-GFC high of US$10.7 billion, largely as activity is being held back by a lack of available stock,” said Hetherington.