10 Mar 2014
Off the back of a record year in 2013, hotel investor interest in Asia Pacific is at a high. Individual transaction numbers are set to rise this year thanks to plentiful debt and equity, but a lack of stock will see volumes reduce in an increasingly competitive environment.
Hotel trade activity in Asia Pacific surged last year fuelled by record low interest rates, plentiful capital and increasing regional confidence. Transaction volumes reached US$7.5 billion, with mainland China, Japan and Singapore enjoying the strongest year since the Global Financial Crisis.
Asian family companies, owner operators and REITs dominated the investor scene, as well as renewed activity among opportunity funds in Tokyo.
Japan topped the charts with a high average deal size and US$2.5 billion of disclosed transactions. Scott Hetherington, CEO of JLL’s Hotels & Hospitality operations across Asia, says the mood in Japan is high with more good news ahead in 2014. “Abenomics drove down the Yen and the winning bid for the 2020 Summer Olympics further fuelled the feel good factor.”
Hetherington says a lack of available stock will reduce investor options in Japan, as it will across the region, but a new area of opportunity is on the horizon in Tokyo.
“The sleeping issue people aren’t really talking about, but which will absolutely have an effect, is the new gaming legislation currently passing through parliament. If passed, it will legalise casino gambling, paving the way for new integrated resorts that will create extensive new infrastructure and further boost visitor numbers.”
Japan is tipped by experts to have the potential to become the world’s second biggest gaming market once the bill is passed. Betting on bicycle, horse and boat races is legal but, currently, casinos are not.
Resorts are making a come-back across the region, with the Maldives recording US$267.6 million in transaction volumes over the year, up a massive 614 per cent on 2012. Visitor numbers have received a significant boost from improved connectivity with mainland China where appetite for travel is booming. Thailand is another market that has benefitted from increased Chinese interest. Despite the recent chellenges in Bangkok its paradise beaches continue to attract new investment. “We expect more activity in markets like Phuket and Koh Samui, off the back of strengthening interest in resorts,” says Hetherington. “Thailand has experienced a series of crises over the past decade or so but if you look at visitor arrivals the overall direction is definitely up.”
But low availability of stock in established markets will force investors to get creative, especially new entrants with higher return expectations. They are increasingly eyeing new locations such as Myanmar and Sri Lanka, as well as revisiting investments in Cambodia and Laos. The hotel investment arena looks set to be much broader by the end of 2014.