Hotel investment remains flat
Transaction volumes 18% below 2019 peak but signs of resilience still evident, says JLL
Hotel investment in Asia Pacific remained flat in the first half of 2021 with US$3.7 billion in sales, a decline of 3.7% year-on-year, according to JLL Hotels & Hospitality Group.
In total, 61 hotel investment deals were transacted in the first half across nine countries and representing over 10,000 rooms.
Hotel transaction volumes in the first half of 2021 were approximately 18% below the same period in 2019, which was the peak of the investment market in Asia Pacific.
However, the completion of several major transactions continues to demonstrate the resilience of the sector and the growing confidence of investors in the hospitality market despite the current challenging operating environment and travel restrictions.
"Confidence in the Asia Pacific hospitality sector's recovery remains high and investor sentiment continues to view the industry through a longer-term lens," said Mike Batchelor, chief executive for Asia Pacific of JLL Hotels & Hospitality Group.
"Volumes have held up well within the backdrop of government lockdowns and travel curbs, with the hotel sector's resilience remaining an evergreen theme throughout the pandemic."
Investment in the Asia region totalled $3.53 billion, accounting for 94% of the overall volume. China, Japan and South Korea represented the three most active markets, collectively accounting for 86% of sales.
China led regional deal volume at $1.3 billion worth of transactions, up 54% year-on-year, with conversions of serviced apartments for strata sale and the sale of older hotels for conversion to alternative use a key theme.
Traditionally the region's most active market, Japan had a slower start to the year with volumes down 47% to $1.1 billion, however, major sales by Japanese corporates that are underway or planned for the second half of the year will boost transaction volumes.
Activity in Australia also rebounded strongly in the first half of 2021 driven by the closing of the AccorInvest Portfolio for $134 million, advised by JLL. Overall volume of $215 million in deals closed represented a 312% year-on-year increase in investments, with scalable and core opportunities continuing to attract strong investor interest and in turn holding up pricing.
Additionally, a two-tier market is becoming evident evident across the region. Other than a handful of gateway markets where buyer demand is holding up pricing, investors eyeing the ongoing impact of the pandemic on travel and hospitality are continuing to adjust their risk expectations in most markets and are largely targeting opportunistic value-add plays, according to JLL.
"In our interactions, it is clear there remains a gap in pricing across most of the key markets," said Nihat Ercan, senior managing director and head of investment sales in Asia Pacific with JLL Hotels & Hospitality.
"However, for the most part, the region's hotel owners are not under any stress, owing to relatively low gearing, strong lender relationships and, depending on jurisdiction, broader government support."
Longer-term confidence in the sector remains high as buyers remain in the hunt for opportunities across the region. Record amounts of capital are being raised for investment in the real estate sector, with an assortment of buyers from private equity players to high net worth investors and corporations vying for positions.
According to a JLL analysis, Australia and Japan top the list for offshore capital, while domestic investor demand is driving activity in China and South Korea.
Additionally, leisure markets are seeing a resurgence of investor interest on the back of expectations for expedited recovery in view of the pent-up leisure demand. The Maldives, Phuket, Koh Samui and Bali are all set to see sales concluding during the second half of the year with the Maldives expected to be the region's most active leisure investment market in 2021.
"Thailand's hotel markets, particularly Bangkok, Phuket and Koh Samui, have continued to receive a high level of inquiries from regional investors with two transactions completed in the first half of 2021 and at least five transactions scheduled to complete in the second half of the year, according to our records," said Chakkrit Chakrabandhu Na Ayudhya, executive vice-president of investment sales for Asia.
While investors remain wary of some of the shorter-term challenges facing the Asia-Pacific hotel industry, highlighted by delays in vaccine rollouts and the impact of new strains and outbreaks, JLL's full-year outlook points to increased investment activity in the second half.
"We anticipate a sharper business cycle rebound, which will drive hotel investment momentum across the region," said Mr Ercan. "The strong finish to the second half of the year will likely be driven by a pipeline of major sales due for completion in Australia, Thailand, Japan and China.
"With this backdrop, our full-year forecast for the region remains in line with our forecast of $7 billion at the start of 2021, representing an approximately 20% increase in year-on-year transaction volume."