According to a new report from JLL, investors
are acquiring hotels for conversion into apartments to meet a
growing demand for residential rental properties in China’s tier 1
In August 2018, China's home prices
accelerated at their fastest pace in nearly two years, according
to China’s National Bureau of Statistics, and many young
professionals are choosing to rent rather than buy. By converting
hotels into apartments, investors are able to get supply into the
market more quickly than by building from scratch.
“Housing prices in China have risen rapidly due
to a convergence of strong fundamentals: economic growth, a
growing urban population and higher disposable income,” said Nihat Ercan, Managing Director, Head of Investment Sales, Asia,
JLL Hotels & Hospitality. “While the government has imposed
cooling measures, these fundamentals continue to exert an upward
pressure on price. Recent government policies are now skewed
toward boosting the rental housing market in China, spurring
investors to acquire underperforming hotel assets in tier 1 cities
for rental apartment conversion.”
China delivered more than 25% of hotel
transaction volumes in Asia for the year to September 2018. The
sale of Ariva Beijing West Hotel & Serviced Apartments
(pictured) was the
biggest transaction for the first nine months of the year, at
US$242 million or US$765,000 per key.
Another notable transaction involved the sale of
the Novotel & ibis Beijing Sanyuan by Ascendas Hospitality Trust
(A-HTRUST) to a joint venture between Huazhu Hotels and TPG
Capital, amounting to US$186 million. The purchase price was a 100% premium over its latest valuation and was more than 1.5
times higher than the purchase price in 2012. In this case,
however, the hotel is expected to be converted into an office.
“Aside from a booming residential market, there
is also high demand for office space in China as the economy
continues to expand. Office rents are among the highest in the
region in Beijing, Shanghai and Guangzhou, and investors are keen
to acquire hotels in these cities to convert into offices for a
steady return on investment,” Mr Ercan added. “While the
investment market in China has cooled because of the government’s
measures to control financial risk, and domestic investor interest
has dampened slightly, foreign investors continue to keep a keen
eye on assets that are ripe for conversion.”
Asia Pacific hotel transaction volumes reached
US$5.2 billion for the first three quarters of 2018, down 28% year-on-year. Rising interest rates affected investor
sentiment, resulting in smaller deal sizes despite more hotel
properties changing hands compared to the same period last year.
Across Asia Pacific, private equity firms and
property companies were the biggest investors in hotels at US$1.6
billion and US$1.5 billion respectively for the year to September.
Seven out of ten hotel properties sold in the region were located
in China, Japan and South Korea.
The hotel industry continues to boom in Japan,
with the number of international visitors reaching a new high. The
government has doubled its inbound tourism target to reach 40
million by 2020, when the Summer Olympic Games takes place in Tokyo. Transactions
in Japan consisted of mainly limited-service hotels located in
Sapporo, Tokyo, Osaka and Fukuoka. Japan REITs were relatively
active in 2018, accounting for almost 20% of hotel
“Existing hotel owners in Japan are generally
adopting a wait-and-see approach in light of the upcoming 2019
Rugby World Cup and the 2020 Tokyo Olympic Games. We expect
transactions of full-service hotels to be limited in the next two
years, with mid-sized developments of leased limited-service
hotels located in Tokyo, Kyoto and Osaka likely to be available
upon completion. Japanese investors are also setting their sights
on emerging markets such as Vietnam, Maldives and the
Philippines,” says Mr Ercan.
In South Korea, foreign investor interest is
expected to continue despite the decline in Chinese visitors last
year as a result of geopolitical tensions.
“South Korea’s tourism market has
remained resilient despite the decline in Chinese visitors. The
shortfall has been filled by a growth in visitors from secondary
source markets in Southeast Asia. Chinese tourists have started
returning to South Korea since March and we expect to see a strong
rebound across all hotel segments this year,” said Mr Ercan.