Professional Documents
Culture Documents
www.jll.com/hospitality
Globally, hotel operating fundamentals are poised to remain strong in 2013, but regional variances will persist. We forecast global deal volume of $33 billion, in line with the most recent three-year average. Hampering transactional growth, however, are economic pressures in a number of the worlds mature economies. Still, we expect that the global hotel investment market will be flush with equity capital that will support transactional activity. This publication provides a comprehensive analysis of the global hotel investment market, revealing key drivers of investment, emerging trends, markets to watch and investment opportunities in major markets across the globe. We hope you will find the report informative.
Mark Wynne-Smith Global CEO
Jones Lang LaSalles Hotels & Hospitality Group serves as the hospitality industrys global leader in real estate services for luxury, upscale, select service and budget hotels; timeshare and fractional ownership properties; convention centers; mixed-use developments and other hospitality properties. The firms more than 265 dedicated hotel and hospitality experts partner with investors and owner/operators around the globe to support and shape investment strategies that deliver maximum value throughout the entire lifecycle of an asset. In the last five years, the team completed more transactions than any other hotels and hospitality real estate advisor in the world totaling nearly US$25 billion, while also completing approximately 4,000 advisory and valuation assignments. The groups hotels and hospitality specialists provide independent and expert advice to clients, backed by industry-leading research. For more news, videos and research from Jones Lang LaSalles Hotels & Hospitality Group, please visit: www.jll.com/hospitality
Table of contents
Global overview................................................................2 Americas...........................................................................8 EMEA............................................................................. 16 Asia Pacific.....................................................................24 Sources and methodology..............................................32
Contributors
Arthur de Haast Chairman Mark Wynne-Smith Global CEO Arthur Adler CEO, Americas Jon Hubbard CEO, Northern Europe Christoph Hrle CEO, Continental Europe Craig Collins CEO, Australasia Scott Hetherington CEO, Asia David Green-Morgan Global Capital Markets Research Director Karen Wales Executive Vice President, Research, Asia Pacific Lauro Ferroni Vice President, Research, Americas Josef Filser Associate, Research, EMEA
Global overview
Highlights
Global hotel transactions reached $31.8 billion in 2012, a 5% decrease on 2011. For 2013 we are expecting a slight improvement to $33 billion, despite continued economic uncertainties, with activity supported by the primary investment markets of the U.S., U.K., France, Germany, Japan and Australia. Private equity players, sovereign wealth funds and family conglomerates together with REITs are set to dominate buying activity in 2013. Debt financing, while improving considerably in the U.S., will remain constrained across Europe where refinancing challenges will trigger a number of sales. Cross-border capital accounted for 30% of global hotel investment in 2012, trending above the recent average and driven by strong outbound capital flows from Asia and the Middle East. Improving transparency will continue to aid cross-border decision making. Prime assets in the worlds largest cities will garner the most investor interest, improving pricing. Hotels in secondary markets will see more sluggish interest until seller expectations reset. Globally, hotel operating fundamentals are poised to remain strong in 2013, but regional variances will persist.
Hotel transaction volume forecast snapshot
US$ billions Americas EMEA Asia Pacific Global total
Source: Jones Lang LaSalle
Trend
Our forecasts are based on how key drivers of transactions volume such as cost of capital, industry fundamentals, share prices of listed investment vehicles and the overall ownership compositionare expected to perform in 2013.
EMEA
Americas
Global
-1.0%
0.0%
1.0% 2012
2.0%
3.0% 2013F
4.0%
5.0%
6.0%
7.0%
2014F
200%
Sovereign wealth funds from Qatar and Abu Dhabi, as well as emerging capital from China and Indonesia will also scour the globe for trophy opportunities. To a lesser extent, U.S.-based private equity funds will make selective bids in targeted regions. On the sell-side, inadvertent owners such as banks and receivers will drive a significant share of product to market. Private equity firms and institutional investors are also expected to liquidate some previous acquisitions, either to divest select non-core assets or to fund life maturities.
150%
100%
50%
Germany
France
Japan
China
India
United Kingdom
Australia
Brazil
U.S.
Italy
0%
2012
Source: IHS Global Insight
2013F
2014F
3%
5%
9%
11%
4%
100% 100%
North America Latin America Europe Middle East Africa Asia Australasia Global
1% 41% 77%
34% 25%
22%
% global investment refers to transactions funded by private equity funds and investment banks that raise capital across a number of countries globally. Absence of arrow connecting two regions indicates that no cross-border investment was tracked in 2012. Percentages of each of the regions add up to 100%. Source: Jones Lang LaSalle
Success playbook
As previous cycles provide few clues to what lies ahead in the next few years, investors look to new indicators to calculate investment roadmaps. While markets around the world continue to cultivate transparency and interdependence becomes more prevalent, the deal arena is increasingly globalised and therefore, a bigger playing field. Economic challenges are having a worldwide impact on how and with whom investors conduct deals. At the same time, the availability of data and information is expanding, increasing decisionmaking capacity. Unexpected events, such as political unrest and natural disasters, seem to have become the norm. During this period of uncertainty and rapidly changing dynamics, greater flexibility will continue to be demanded from investors and all market participants. The ability to react to change will feature as a success indicator. In the future, victories will be predicated by players who adopt a culture and business model that incorporates effective risk assessment, strategic agility and flexible action.
2012 Composite Score 3.16 3.23 3.27 3.28 3.31 3.36 3.41 3.42 3.43 3.45 3.46 3.50 3.62 3.63 3.70 3.75 3.76 3.76 3.78 3.79 3.81 3.82 3.85 3.85 3.87 3.88 3.88 3.93 3.95 3.97 4.04 4.05 4.09 4.15 4.20 4.20 4.23 4.31 4.38 4.41 4.44 4.48 4.49 4.52 4.57 4.58 4.59
High
Transparent
Low
Semi
Honduras* Guatemala* Venezuela Mongolia* Tunisia Ghana* Iraq* Pakistan Algeria Belarus Angola* Nigeria* Sudan
Semi
*Denotes new market added in 2012. Markets that appear tied have slightly different scores at higher levels of precision. Source: Jones Lang LaSalle, LaSalle Investment Management
Opaque
Americas
Highlights
Healthy and growing operating fundamentals, an abundance of equity capital and an ever improving debt market will support a buoyant market for hotel trades in 2013. Transactions volume for the year is expected to reach $18.5 billion, continuing a moderate increase on 2012 levels. Our transaction volume forecast is based on the expected performance of key deal drivers in 2013. Among the factors which have shown high correlations to deal flow are availability and cost of capital, industry supply and demand fundamentals, REITs stock prices, the size and number of assets being brought to market and the overall hotel ownership composition, all of which notwithstanding some riskare moving in favor of an attractive environment for buying and selling. Private equity funds unleashed some $7 billion of capital in 2012 for hotel investments making them the largest net buyers. We expect this trend to continue in 2013. Together with REITs, we expect private equity buyers to comprise as much as 70% of total acquisition volume across the Americas.
Volume ($Billions)
Chicago
Miami
New York
Toronto
Mexico City
Rio de Janeiro
Los Angeles
San Francisco
Washington D.C.
2012 additions
2013 additions
Vancouver
2014 additions
Portfolio transactions
Our transaction volume forecast is based on the expected performance of key deal drivers in 2013. Among the factors which have shown high correlations to deal flow are availability and cost of capital, industry supply and demand fundamentals, REITs stock prices, the size and number of assets being brought to market and the overall hotel ownership composition, all of which notwithstanding some riskare moving in favor of an attractive environment for buying and selling. The U.S. will retain its position as the most liquid hotel investment market in the world.
2013F
Sao Paulo
-30%
^Net shift = the difference between the respective groups market share as a buyer and its market share as a seller. A positive net shift indicates group was net buyer; a negative net shift indicates net seller during 2012 Source: Jones Lang LaSalle
This competitive bidding, driven in part by the scarcity of this type of product on the market, will push up capital values and drive down yields, resulting in favourable opportunities for sellers. Quality assets with in-place cash flow will be best positioned to transact in 2013 and we expect the average asset price of single assets to tick up during the course of the year.
Americas average single-asset deal size 1998 - 2013F
60 50 40 US$ (Millions) 30 20 10 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013F
REITs, on the other hand, have a penchant for branded institutional quality assets with in-place cash flow in the countrys 15 largest urban centres. REITs will largely target single-asset acquisitions or small portfolios with up to four to five hotels. The exact force of REITs will depend on their share prices and ability to raise capital. While REITs have been on an acquisitions run again since mid-2012 as their stock valuations increased, they do face risk in 2013, and had generally lowered guidance during late 2012.
On the other end of the spectrum are the sellers who continue to be pressured to sell due to debt service repayment issues or looming loan maturities. Owners may also be moved to sell in cases where they are unwilling or unable to invest capital for needed property improvements. In addition, lenders are taking a more aggressive stance with troubled loans, showing a greater willingness to foreclose as well as sell notes and real estate owned properties. Pricing of assets in secondary and tertiary markets that are subject to brand and management encumbrances will be under pressure in 2013 and these assets will face a smaller audience of buyers. Resort assets could become an interesting play in 2013 as group meeting business continues to improve and leisure travel remains strong. Further, resort development will continue to be sparse, providing significant runway for demand increases to result in improved operating performance. Pricing for these types of assets will be well below the levels which the higher quality prime assets will garner. Nonetheless, they often present solid opportunities and strong current returns that will appeal to a segment of the market that is chasing current yield.
RevPAR falling
RevPAR rising
Washington, D.C.
Off-shore demand
Middle Eastern and Asian investors will continue to actively pursue opportunities in the countrys gateway markets. The U.S. saw $800 million in inbound capital from these two investment groups, and we expect the incoming volume to increase to approximately $1 billion in 2013. The most active Middle Eastern investors in the U.S. are those from Abu Dhabi, Qatar and Kuwait. From Asia, the key investors are those from China and Southeast Asia, though conglomerates from India have their eye on several U.S. assets as well. Collectively, these investors motivation is political, economic and currency diversification, and the fact that hotel assets typically act as a hedge against inflation, as rate growth outpaces inflation. European investors, on the other hand, are expected to be quiet as they sort out economic difficulty at home. Canadas hotel transaction activity has not recovered to the same degree as it has in the U.S., though Toronto saw several large transactions in 2012. While Canada benefits from a relatively healthy demand outlook, investors in the market have retained a domestic focus. Sellers of Canadian assets have not attracted bids from U.S. REITs and face a narrower buying audience. The relatively limited stock of hotels available for sale will continue to hamper a large uptick of deal volume in 2013.
10%
5%
0%
2008
2009 Canada
2010
2011
2012E Mexico
2013F Brazil
2014F
United States
Just 15% of room supply in Brazil is affiliated with an international hotel brand and the country still lags with respect to the product differentiation seen in mature lodging markets. Over the medium term, Brazil will attract an increasing level of brand differentiation to serve different demographic groups, particularly the emerging middle class. While numerous hotel companies and private equity funds explore large-scale market entry/expansion strategies, there are few forerunners. Those who find success will likely make headway in 2013. South Americas hotel transaction market is still relatively undeveloped, though it too is expected to continue to open up over the medium term. The full service hotels that transacted in So Paulo and Rio de Janeiro over the past several years will help set the market in 2013 and beyond, though only a limited number of assets will come to market, due to its domination by long-term holders both domestic and intra-regional. The next largest South American growth economies, Colombia, Chile and Peru, are increasingly on the radar of intra-regional investors who are seeking to acquire hotels on a selective basis, driven by their strategy of earning greater returns in hotels than in other asset types. Argentina, on the other hand, is sorting through economic and political challenges and investment decisions have been placed on hold.
Hotel market cycle 2013 Latin America
RevPAR falling
Bogot
RevPAR rising
Buenos Aires
Colombia is witnessing a considerable amount of development by local investors, with little direct activity from the U.S. The countrys stable economy, large population, greatly improved business environment and government tax incentives have led to a considerable amount of new supply. Investors have grown more cautious about a potential temporary oversupply, but the longer-term outlook looks bright as demand continues to grow. Chile has long enjoyed macroeconomic stability, an open business environment and consequently, relatively sophisticated capital markets. Peru has also followed pro-growth policies that have resulted in the country posting the highest sustained economic growth rates in all of South America. This, together with Perus rich cultural heritage has increased its commercial and tourism appeal; thus hotel demand should continue its upswing in 2013. Lima has seen a lesser degree of institutional-grade hotel development. The market still lacks the depth of international hotel brands seen in other South American capitals and the market will be receptive to new development.
EMEA
Highlights
Despite the economic challenges in Europe, hotel investment volumes in EMEA in 2013 are anticipated to hold up and are forecasted at roughly $11 billion. Although the economic situation in Europe will remain complex, several indicators give cause for optimism and could lead to an improvement in investor confidence in 2013. Positive signs include the emergence of new sources of debt in the form of debt funds and alternative lenders such as insurance companies which are entering the hotel arena. The hotel investment market will also benefit from a narrowing pricing gap for secondary assets between buyers and sellers. Sellers pricing expectations have already become more realistic, especially in provincial U.K. and Ireland where prices have been adjusted and we expect other European markets to follow suit. Operating results are also holding up comparatively well and some gateway markets are likely to see a further rise in RevPAR due to the continued growth in global travel and tourism.
Despite the economic challenges in Europe, hotel investment volumes in EMEA in 2013 are anticipated to hold up and are forecasted at roughly $11 billion. Although the economic situation in Europe will remain complex, several indicators give cause for optimism and could lead to an improvement in investor confidence in 2013.
EMEA average single-asset deal size 1998 - 2013F
70 60 50 $US (Millions) 40 30 20 10 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013F
Volume ($Billions)
Portfolio transactions
Assets in secondary locations evoked limited interest due to lower growth in trading fundamentals and investors perception of higher risk. Investors remained uncertain of future trading in these markets, which are more heavily reliant on fragile domestic and corporate markets. Pricing for regional assets was therefore more opportunistic and a number of assets sold significantly below their guide price. Hotels in stable secondary cities in Germany were an exception. These assets, often sold under long term leases or with vacant possession, attracted a lot attention and were predominantly sold to high net worth individuals (HNWIs) and institutional investors. The majority of transaction activity occurred in Western and Northern Europe with nearly no activity in Central and Eastern Europe (CEE). There was virtually no debt availability for hotel acquisitions in this emerging region and the economic and political outlook in some of the countries remains uncertain. Nonetheless, Poland, one of the most stable economies in Europe, received significant buyer interest especially for good quality product in Warsaw.
Positive signs include the emergence of new sources of debt in the form of debt funds and alternative lenders such as insurance companies which are entering the hotel arena. The hotel investment market will also benefit from a narrowing pricing gap for secondary assets between buyers and sellers. Sellers pricing expectations have already become more realistic, especially in provincial U.K. and Ireland where prices have been adjusted and we expect other European markets to follow suit. Operating results are also holding up comparatively well and some gateway markets are likely to see a further rise in RevPAR due to the continued growth in global travel and tourism.
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012E
2013F
In addition, mezzanine lenders will help plug the financing gap and we have witnessed increasing activity from lenders such as Blackstone, Starwood Capital and Duet, encouraged by higher returns on their debt provisions than senior lenders. Bank lending is also predicted to improve and a few banks have reopened their credit lines in the second half of 2012. This improving picture is likely to be the first stage in a return to more normalized debt markets, which in time will help refocus transactional activity, although these alternative sources of debt are typically more expensive than traditional banks.
Istanbul Dusseldorf Munich, Paris Vienna Copenhagen, Warsaw, Krakow St. Petersburg Moscow Dublin Prague
RevPAR falling
Cologne
RevPAR rising
Budapest
Hotels in Southern Europe that are more heavily reliant on domestic or corporate demand and, therefore, more dependent on their local economies, will continue to struggle in the short term. Economies in Southern Europe are forecast to remain in recession and Tourism Economics predicts a decline in international arrivals in this region in 2013. Some of these hotels could, therefore, very well experience a stagnation or a decline in average room rates and occupancy levels when compared to 2012.
Hotel demand had recovered impressively in the Middle East since the Arab Spring, led by hotels in Dubai which recorded high occupancy levels, with RevPAR moving towards its peak of 2008. For 2013, we expect a further improvement in trading performance in the UAE on the back of continued growth in international arrivals. Dubai, the safe haven of the region, is expected to achieve a further growth in RevPAR whereas hotels in Abu Dhabi will continue to recover from an oversupply situation. Saudi Arabia will also achieve improved performance linked to new infrastructure projects driven by public spending policy. We anticipate performance to remain constrained in Bahrain due to the ongoing local tensions. Trading performance in North Africa will further stabilise in 2013 as tourists return to countries such as Egypt, Morocco and Tunisia. Occupancy in Cairo will further recover, although room rates are likely to remain at low levels due to very competitive market conditions. Dynamic growth in trading performance is also anticipated for sub-Saharan Africa, especially for growing tourist destinations such as Tanzania and Kenya.
Hotel market cycle 2013 - MENA
Kuwait Abu Dhabi Doha
RevPAR falling
RevPAR rising
Muscat
Cairo, Manama
In Italy, we anticipate sustained hotel investment activity despite a struggling corporate and domestic tourism sector which will put pressure on trading performance. It is likely that investment activity will be driven by luxury/trophy hotels in high barrier to entry business and leisure destinations such as Rome and Milan. While the Italian hotel investment market remains primarily in the hands of domestic buyers, we expect capital flows from the Middle East directed towards trophy assets in core markets. In Central and Eastern Europe, we predict investment activity to be strongly correlated with the amount of debt availability. Although lending activity is expected to improve, it will remain challenging to finance transactions in this region and therefore hotel investment volumes could very well remain subdued. However, we can expect some activity from equity rich investors as well as opportunistic investors, although with a clear focus on prime assets. Nonetheless, we anticipate a potential uptick in hotel investment activity in Poland due to the countrys economic stability, buoyant hotel market and high yields for new hotel acquisitions relative to most mature markets. Some transaction activity is also expected in Prague, where hotels have recorded a significant improvement in trading performance and investor interest, particularly from local private equity companies.
Policy interest rates - Eastern Europe
14% 12% 10%
2008
2009
2010 Eurozone
2011
2012E Sweden
2013F U.K.
2014F
In 2013, many investors will look to Germany, which is expected to offer some of the most attractive risk-adjusted returns. In addition, the hotel market benefits from a buoyant tourism sector and solid economic fundamentals. Hotels are often still subject to long-term leases, which provide stable cash flows and will, therefore, continue to appeal to institutional investors such as Deka Immobilien, Union Investment and Invesco Real Estate. A positive buy sentiment from this investor group was moreover reflected in European real estate fund manager Internos capability of raising a sum of 75 million from four German institutional investors for its Hotel Real Estate Fund in July 2012. Hotels in key markets such as Munich, Frankfurt, Hamburg and Berlin will also experience significant buyer interest from private individuals and family offices, which are aiming for long and secure investments.
8% 6% 4%
2% 0%
2008
2009
2010
2011 Hungary
2012E Poland
2013F
2014F Russia
Czech Republic
Source: IHS Global Insight
In Russia, hotel investment activity will be confined primarily to Moscow. The market is still dominated by domestic investors who will invest in high quality products in central locations with a focus on three to fourstar properties, with yields typically ranging between 9% and 11%.
Number of rooms
2012 additions
2013 additions
2014 additions
-15%
^Net shift = the difference between the respective groups market share as a buyer and its market share as a seller. A positive net shift indicates group was net buyer; a negative net shift indicates net seller during 2012 Source: Jones Lang LaSalle
In the Middle East, development activity will pace ahead with financing often provided by public funds. The region is expected to open 150 new hotels in 2013 with the majority opening in Saudi Arabia and the United Arab Emirates. Nonetheless, development activity has started to slow down in Dubai as the market is nearing maturity. One of the development hot spots is expected to be Sub Saharan Africa, which has politically stabilized in some regions and started to restore investor confidence. Many of these emerging economies, such as Ghana and Nigeria, are seeing strong economic growth due to an abundance of natural resources and the benefit from growing levels of direct foreign investments from the U.S., Europe and China. We believe that these countries will offer much growth potential especially in terms of business tourism and, therefore, will attract a growing amount of international hotel operators that would like to expand into these emerging markets. Development activity will be supported by improved accessibility to financing due to the recent creation of African hotel funds with capital provided by African and international investors. However, risks remain very high and strong relationships with local development companies and governmental institutions are critical when entering these markets.
Asia Pacific
Highlights
Asia Pacific transaction volumes are projected to record a slight uptick in 2013 to reach $3.5 billion with the lions share of deals in Australia and Japan. The gap between buyer and seller pricing expectations which emerged in 2012 will continue to feature in 2013. Inter-regional capital will remain active in Asia Pacifics hotel investment market in 2013. The successful listing of two new hotel REITs in 2012 and more planned for 2013 is likely to result in higher volumes by these groups, for whom diversification is crucial. REITs have been willing to consider assets in secondary locations to ensure overall viability. Australia remains a target for cross-border capital with interest from Asian groups in prime hotels still exceptionally strong and selective interest from new capital sources such as the Middle East and China. As operating companies digest an oversupply of luxury rooms in major cities in China, the mid-market will be an exciting space to watch over the next five years. Investment benchmarks are being established in India. The dynamics in 2013 will favour both buyers and developers with a slowdown in development activity and more opportunities to acquire. Transaction volumes in Japan are expected to improve with trading performance returning to pre-quake levels. The market offers significant leverage opportunities with interest rates at near zero and lenders more willing to originate non-recourse loans. Thailand has emerged as one of the regions hotel investment hot spots with more deals expected in Phuket and Bangkok in 2013. The introduction of a new REIT law is also expected to increase liquidity in the hotel and property investment market.
Development in the regions two most liquid hotel investment markets Australia and Japan continues to be held back by the cost versus value equation. Therefore, low levels of new supply will continue to be an attractive driver for global investment capital.
Asia Pacific hotel development pipeline through 2014F
120,000 100,000 80,000 60,000 40,000 20,000 0
Number of rooms
New Delhi*
Tokyo
Bangkok
Beijing*
Melbourne
Auckland
Hong Kong
Mumbai*
Sydney
Shanghai*
Singapore
Jakarta
Phuket
Bali
2012 additions
2013 additions
2014 additions
0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E Single asset transactions
Source: Jones Lang LaSalle
Portfolio transactions
The gap between buyer and seller pricing expectations, which emerged in 2012 after the strong appreciation of assets over the past four years, will also remain a feature in 2013. While the long-term fundamentals for Asia Pacific hotel markets remain strong wealthier travelling middle class, improved connectivity, rapid urbanisation, rising education, high savings rate and lower taxes there has been a subtle softening in trading performance across the region, tempering investor enthusiasm. With such low levels of established product available for sale, investors continue to consider development in order to achieve sufficient scale across the region. Asia remains the global hotel development hot spot with supply increases projected to average 5.5% per annum across 23 major markets over the next two years although commencements have slowed in India, South East Asia and China as cities suffer indigestion following significant new hotel openings in recent years.
2013F
Osaka
9
Volume ($Billions)
60% 50%
Notwithstanding, REITs are generally more risk averse as they are marked to market daily and therefore subject to changes in sentiment in accordance with the external environment. While the global economy remains under pressure, movements in the political arena, which impacted in 2012, have now been resolved with the Chinese and U.S. presidential elections both held in November 2012. REITs now exist in many countries across the region and are permitted to invest offshore in Australia, Hong Kong, Malaysia, Singapore and South Korea, and to a lesser degree in Taiwan and the Philippines. The imminent passing of REIT legislation in Thailand will also allow offshore investment. Therefore, regional REITs are likely to remain net buyers of Asia Pacific hotel real estate over the next few years. We do not expect to see a major shift in the buyer profile in 2013. Investment will continue to be dominated by the aforementioned REITs, as well as Asian family companies, owner operators and possibly the re-emergence of opportunity funds in Japan.
Real GDP growth (annual %)
2008 North Asia and India China PRC Hong Kong India Japan South Korea Taiwan South East Asia Indonesia Malaysia Philippines Singapore Thailand Vietnam Pacific Australia New Zealand Fiji 2.5% -0.6% 1.0% 1.4% -0.2% -1.3% 2.5% 0.9% -0.2% 2.1% 0.5% 2.0% 3.4% 1.8% 1.2% 2.3% 2.7% 1.7% 2.9% 2.8% 1.9% 6.0% 4.8% 4.2% 1.7% 2.5% 6.2% 4.6% -1.5% 1.1% -1.0% -2.3% 5.3% 6.2% 7.2% 7.6% 14.8% 7.8% 6.9% 6.5% 5.1% 3.7% 4.9% 0.1% 5.9% 6.2% 4.8% 4.9% 2.0% 5.4% 5.1% 6.1% 4.3% 4.7% 2.9% 3.6% 5.3% 6.1% 4.8% 4.9% 4.0% 4.5% 5.9% 9.6% 2.1% 4.9% -1.1% 2.3% 0.7% 9.2% -2.5% 7.1% -5.5% 0.3% -1.8% 10.5% 6.8% 9.6% 4.6% 6.3% 10.7% 9.3% 4.9% 6.9% -0.7% 3.6% 4.0% 7.6% 1.8% 5.1% 1.7% 2.1% 1.2% 7.8% 3.7% 5.8% 0.3% 2.0% 3.3% 8.3% 4.6% 6.9% 2.0% 3.6% 4.4% 2009 2010 2011 2012E 2013F 2014F
40% 30%
20% 10%
0
2012E 2013F 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0%
Asia
Source: Jones Lang LaSalle
Australasia
-50%
-40%
-30%
-20%
0%
10%
20%
30%
^Net shift = the difference between the respective groups market share as a buyer and its market share as a seller. A positive net shift indicates group was net buyer; a negative net shift indicates net seller during 2012 Source: Jones Lang LaSalle
Diversification is a key component for REITs, limiting exposure to any one segment or geography. While such structures can be prohibitive for the acquisition of larger hotel real estate, REITs have been willing to consider assets in secondary locations in Japan and Australia to ensure overall viability, while also being yield accretive, and given the limited number of investment opportunities available in Asia.
In Japan, trading performance has recovered much better than anticipated in the wake of the 2011 earthquake. With interest rates at near zero and lenders more willing to originate non-recourse loans to hotels, the market offers significant leverage opportunities, driving down yields and pushing prices up. Transaction evidence remains limited however with sales in 2012 primarily undertaken by Japanese corporates and REITs and with few sales in excess of $50 million. The dynamic trading environment and lack of liquidity in emerging markets also presents challenges for potential investors. Hotel valuations in China remain low with cash flows under pressure given the oversupply in many markets. Yields are also given little regard as Chinese real estate is typically evaluated on a cost per square meter basis and these two metrics continue to diverge. The environment in India is more positive. With a few deals completing in 2012 and the expectation of more to come in 2013, investment benchmarks are being established. This includes both trading assets and those which are in the latter stages of development, as well as land cited for hotel development. This will provide greater clarity for investors to evaluate pricing and explore opportunities through a formal process. Improved transparency and visibility of the market will also result in higher capital inflows, thereby providing a free kick in terms of capital growth.
Exchange rates (local / USD, period average)
2008 North Asia and India China PRC Hong Kong India Japan South Korea Taiwan South East Asia Indonesia Malaysia Philippines Singapore Thailand Vietnam Pacific Australia New Zealand Fiji 1.4 1.7 1.8 10,950 3.5 47.5 1.4 34.9 16,977 6.8 7.8 48.5 90.8 1,259.5 32.9
2009 6.8 7.8 46.7 92.1 1,164.5 32.0 9,400 3.4 46.4 1.4 33.3 17,941 1.1 1.4 1.9
2010 6.6 7.8 44.8 81.5 1,134.8 30.4 8,991 3.1 43.9 1.3 30.2 19,503 1.0 1.3 1.8
2011 6.3 7.8 53.3 77.7 1,153.3 30.3 9,068 3.2 43.9 1.3 31.7 20,828 1.0 1.3 1.8
2012E 6.3 7.8 53.9 78.2 1,102.8 29.2 9,577 3.1 41.2 1.2 30.7 20,870 1.0 1.2 1.8
2013F 6.3 7.8 52.4 77.7 1,005.4 28.8 9,833 3.0 41.1 1.2 31.5 21,662 1.0 1.3 1.9
2014F 6.1 7.8 51.5 75.0 980.4 28.2 9,626 3.0 41.0 1.2 30.4 22,639 1.0 1.3 1.9
RevPAR falling
Adelaide
RevPAR rising
Fiji
Brisbane, Perth, Canberra, Melbourne, Sydney Cairns, Gold Coast Wellington, Auckland
Whilst Australia has had the complete focus of many active buyer groups over the past couple of years, increasingly assets will need to compete on a global scale as the great deleveraging gains pace. For now, Australia remains a target for cross-border capital with interest from Asian groups in prime hotels still exceptionally strong and selective interest from new capital sources like the Middle East and China. Regional REIT players will also continue to make acquisitions whilst balancing portfolios. Many offshore groups have the added bonus of relationship banking or corporate finance, which means they are not held back by the conservative debt facilities and lengthy approval processes, boosting buying power.
Policy interest rates Australia and New Zealand
6%
Seoul, Taipei
RevPAR falling
RevPAR rising
4%
Okinawa
2%
0%
2008
2009
2010 Australia
2011
2013F
2014F
6%
4%
2%
0%
2008
2010
2012E
2014F
South Korea
Indonesia Singapore
Source: IHS Global Insight
The new REIT law will supersede Thailands Property Fund law within 12 months of signing. It is more flexible than the existing Property Fund Law, and is based on REIT regulation in other Asian nations, notably Singapore. Property transactions are expected to increase materially once the law takes effect, although it may take a few years for the market to become established. Thai REITs will also be permitted to invest overseas and capital outflows are expected to increase as a result, some of which will flow into hotels.
Hotel market cycle 2013 South East Asia
Singapore Bangkok, Manila Kuala Lumpur, Bali, Hanoi
Jakarta Phuket
RevPAR falling
RevPAR rising
2013
COPYRIGHT Jones Lang LaSalle IP, INC. 2013 All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.