Asia Pacific is the only region expecting growth in hotel transaction volumes this year, according to JLL's latest Hotel Investment Outlook report. The global real estate consultant anticipates total transaction volumes for Asia Pacific to reach $9.5 billion in 2019, a 15 per cent lift compared to 2018.
Last year, transaction activity was fuelled by single-asset trades, which drove more than 83 per cent of the total US$8.3 billion invested into the region. Developers and private equity firms were the biggest buyers, acquiring more than half of all the properties traded.
Building on 2018, investment momentum is expected to accelerate as investors look to sell assets and ride the anticipated tourism boom, especially in Japan and Singapore. The most notable buyers will be Pan-Asian private equity funds that raised capital last year but have yet to deploy it. Listed REITs, particularly Japanese REITs, will look to Asia's most liquid markets for purchases, while conglomerates and owner/occupiers will buy selectively in key markets.
"Despite a series of natural disasters, Japan's hotel market captured investor interest globally. Nearly 30 per cent of all investment into Asia Pacific was in Japan, overtaking China for the top spot," said Nihat Ercan, Head of Hotel Investment Sales Asia for JLL's Hotel & Hospitality Group.
According to the report, investor sentiment in Japan will remain buoyed by the Rugby World Cup and the Tokyo Olympics – the market has already seen an 8.7 per cent growth in tourism year-on-year. Similarly, Singapore's hotel market pulled in seven per cent more tourists last year, driving positive RevPAR increases across all chain scales. In China, tourism demand outstrips supply -- JLL tracked record high growth in RevPAR across major Chinese cities in 2018, including Chengdu up 20 per cent, Beijing up 15 per cent, Chongqing up 13 per cent and Wuhan up 12 per cent.
"While we remain in a late-cycle environment where yields remain low with limited potential for further compression, most investors do not see a major downturn coming. After a subdued final quarter in 2018, enquiries and deal making have perked up at the beginning of the year. Interest rates are now stabilised, so investors can focus on income growth and in markets where fundamentals remain strong," concluded Ercan.
JLL expects investors looking at Asia Pacific will factor into their valuation assumptions less upside in income; however, liquidity across key cities and lower return requirements will drive transaction volumes. On the global front, hotel occupancy rates and underlying property performance will remain strong while travel and tourism are slated for another record year. Investors seeking more yield are increasingly turning their sights toward hotels amid slower economic growth projections and geopolitical uncertainty.
"Investment activity exceeded expectation in 2018 and we believe 2019 will be another strong year for global hotel investment, with a significant amount of debt and equity liquidity and competitive bidding for assets, given continued strength in fundamentals," said Mark Wynne-Smith, Global CEO, JLL Hotels & Hospitality. "Notwithstanding the more cautious backdrop, ongoing large portfolio and entity-level activity, hotels' attractive yield profile and record levels of dry powder will drive global hotel investment momentum."
JLL's Hotels & Hospitality Group has completed more transactions than any other hotels and hospitality real estate advisor over the last five years, totalling more than $63.2 billion worldwide. The group's 350-strong global team in over 20 countries also closed more than 5,420 advisory, valuation and asset management assignments. Its hotel valuation, brokerage, asset management and consultancy services have helped more hotel investors, owners and operators achieve high returns on their assets than any other real estate advisor in the world.
For more information, please download the Hotel Investment Outlook 2019 report here.
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