Hotel markets, Global perspective in Q3 2015
JLL release sector intelligence on Hotel markets, Global perspective in Q3 2015…
Global hotel investment going from strength to strength
Continuing the robust growth from Q1 2015, global hotel transaction volumes have gone from strength to strength, reaching a new high of US$42 billion in H1 2015, up 55 per cent from the same period last year. Of the three regions, the Americas takes top position with volumes at US$24 billion. It has also achieved the highest year-on-year growth at 73 per cent, followed by EMEA, up 55 per cent. Conversely, Asia Pacific has seen a slight decline in investment volumes, down six per cent to US$4 billion.
Hotel Investment Volumes, 2014-2015
Cross-border investors remain active. EMEA is still a magnet for foreign investment, attracting the largest amount of capital of all the regions, worth US$9 billion. Meanwhile, North America and Asia Pacific received US$4 billion and US$2 billion respectively. Investors from the Middle East and mainland China have been the major exporters of capital.
Hotel Transactions: Capital Flows, H1 2015
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<Sub head> Chinese investors highly active
Mainland Chinese investors continue to play a major role in global hotel transactions. Its volumes rose from US$1 billion in 2014 to US$4 billion in the first half of 2015, equating to 80 per cent of our 2015 forecast, and they are showing strong interest in luxury properties in both North America and Europe. Australia is also seeing inflows from Chinese investors, with the Hilton Sydney changing hands at the beginning of July.
China’s insurance companies have been the most dominant buyer, snapping up a total of US$2 billion of properties in H1 2015 and accounting for 58 per cent of all hotel transactions completed by Chinese investors. Investment volumes are expected to grow, due to the Chinese government relaxing the investment threshold towards foreign investment. In addition, only two out of the 10 largest Chinese insurance companies have currently invested in hotels globally, representing big opportunities ahead.
The Americas – private equity in the spotlight
For the first half of 2015, the Americas region witnessed a 73 per cent year-on-year increase in deal volumes to US$24 billion with 96 per cent of transactions occurring in the United States. New York and San Francisco were the top two cities in terms of volumes, at US$4 billion and US$1 billion respectively.
On the buy side, investment funds and private equity firms were the most dominant players in H1 2015, accounting for 42 per cent of transaction volumes. Their primary focus was portfolio deals, which made up 65 per cent of purchases.
Investment funds and private equity firms demonstrated an equally strong appetite in the seller market, representing 60 per cent of total activity in the first half of the year, a big jump from the 44 per cent share in the same period last year. This is its strategy to make profit by recycling capital.
Investors from mainland China and the Middle East were the most prominent foreign investors into the U.S. market with investment volumes in H1 2015 totalling US$4 billion, a staggering 308 per cent uplift from H1 2014.
EMEA – UK steals the show
EMEA transaction volumes rose 55 per cent or US$5 billion to US$15 billion in H1 2015, with the UK securing 54 per cent of total deal volumes, up 200 per cent year-on-year. While London remains attractive, there were a high number of deals in UK regional cities such as Edinburgh, Liverpool and Manchester. Trading performance (RevPAR) for hotels in the UK’s regions has been stronger than London, making properties more desirable for potential investors.
Germany posted the second highest growth in hotel transactions in EMEA, up 29 per cent to US$2 billion in H1 2015 compared to H1 2014, followed by Spain, increasing by 17 per cent to US$1 billion.
Portfolio sales in the first half of 2015 accounted for 65 per cent of total deals in the region, a significant increase from the 39 per cent in H1 2014. The largest portfolio deal in Q2 2015 was the sale of the Maybourne portfolio in London to a Middle Eastern investor for c. US$2 billion. In addition, Accor disposed a number of properties in the UK and Germany as part of the company’s asset-recycling strategy.
Investment funds and private equity firms were the most active buyers in H1, representing 30 per cent of transactions, followed by hotel operators (22 per cent) and REITs (eight per cent).
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Asia Pacific – focus on single-asset deals
Investment volumes in Asia Pacific totalled US$4 billion in H1, a slight decline of six per cent or US$0.2 billion from the same period last year. Single-asset transactions dominated the Asia Pacific market, accounting for 82 per cent (US$3 billion) of total deal volumes.
Sovereign wealth funds were the most active buyers in Q2, thanks to the 50 per cent sale to ADIA of three hotels in Hong Kong (Renaissance Harbour View, Hyatt Regency Tsim Sha Tsui and Grand Hyatt) worth circa US$1 billion. These transactions pushed Hong Kong to the top seat in terms of both transaction volumes and growth among Asian cities.
Japan came second in terms of deal volumes in H1 at US$1 billion, a drop of four per cent compared to H1 2014. All transactions continue to be acquired by domestic investors, with J-REITs dominating the buyer market, securing 38 per cent of all sales. The largest transaction in Q2 was the sale of the 5B portfolio, which included five properties sold for US$170 million.
Outlook – on track to hit forecast
Six months into 2015, global hotel transactions total US$42 billion, equating to over 60 per cent of JLL’s forecast volume of US$68 billion for the full year. The future looks positive but there are some underlying apprehensions, which adds uncertainty to the global hotel investment landscape.
In EMEA, the Greek debt crisis and its impact on the Eurozone are the key issues for the second half of 2015. While short-term volatility may affect the financial market, it is highly likely that the ECB will impose measures to ensure liquidity and low financing costs, and this will be beneficial to the investment market. Moreover, countries such as the UK, Germany and France, with its solid economic fundamentals, are expected to be viewed as ‘safe havens’ by potential investors.
The outlook remains upbeat for Asia Pacific, with Japan and Australia being the most active markets. The Maldives is also attracting strong interest from Chinese investors and developers to undertake resort projects targeted purely at the mainland Chinese market. With Chinese tourists accounting for almost a third of total tourism arrivals in Maldives, JLL expects the strong appetite of Chinese investors here to continue.
The recent decline in China’s stock market may also represent greater domestic buying opportunities, pushing hotel assets to the market for sale.
For the Americas, investors are attracted to the strength of the U.S. economy and stability of the dollar. Major cities such as New York, San Francisco, Los Angeles, Chicago and Miami are all experiencing positive demand growth. All the aforementioned factors translate to a buoyant market for the second half of 2015.