13 Mar 2014
The dominant role of family investors differentiates Asia Pacific from other hotel markets. As the region’s rank of billionaires grows and tourism demand from emerging markets booms, we explore the appeal of hospitality for wealthy individuals.
Institutional investors would like a bigger share of Asia Pacific’s booming hospitality market but they face stiff competition from the local tycoons who dominate Asia’s hotel investment scene. Well-established, with a longer-term position, big families represent a greater part of the investment market in Asia when compared to other markets around the world and control many of the Hotel REITS.
The number of billionaires is rising faster in Asia than any other region– according to the Hurun Global Rich List , published last month, there are now 358 in China alone, more than any other country apart from the United States – so the influence of Chinese high net-worth individuals and their future family funds looks set to grow further. They’re keen to venture far from home too, making a significant mark in Europe last year. In Belgium the Cheng family bought the Penta portfolio of hotels from the Blackstone Group, while in Ireland the Beijing- based Kang family acquired the 500-acre Fota Island Estate.
The burgeoning interest of family investors in Asia Pacific especially is testament to the region’s unique prospects, says Scott Hetherington, CEO of JLL’s Hotels & Hospitality Group in Asia.
Tourism in Asia Pacific tops international market growth charts as visitor arrivals, hotel occupancy rates, investment growth and business travel spend have grown steadily over the past decade. Asian travellers are projected to account for at least 50% of global tourism expenditure by 2020.
Hotel assets in the region have still often been perceived as risky, but as last year’s IPD Asia Pacific Hotel Index demonstrated, they are among real estate’s most resilient and best-performing options. Hotels and Hospitality in Asia Pacific rebounded more quickly and wasn’t as badly affected by the Global Financial Crisis than the office sector. It was less volatile and higher-yielding over the seven years to 2013. Hotels are also insulated from the negative impact of ageing demographics that is set to challenge other industries in developed markets, especially Japan.
But hotels also hold romantic appeal to family investors with an eye on the family fortune. "A hotel allows you to express yourself personally – the design, the concept, these are emotional drivers,” says Hetherington. “From our point of view it’s fantastic because we’re dealing with personalities and single decision makers. They’re institutionalised but not institutional in terms of decision-making. We get direct access to the Chairman."
One of the dangers of direct investment is a lack of diversification: individuals tend to stick to what they know best. Within the real estate spectrum however, hospitality is a business with which wealthy families are universally familiar, at least as customers and increasingly as owners.