2014 outlook for hotel investment in Asia

February 28, 2014 / By  

Hotel investment activity across Asia in 2013 defied market forecasts with total year volume recording USD 7.5 billion, an annual increase of 218%. Strong investor sentiment and importantly, the availability of investment-grade hotel assets (particularly in Singapore and Tokyo) were key reasons behind the stunning result. This was the highest year end figure recorded in the post-GFC era.

Looking ahead at 2014, intra-regional investment will characterise the hotel landscape. Japan, Indochina and the Indian Ocean are likely to attract the most investor attention but increasingly, buyers will also consider emerging hotel markets such as Myanmar and Sri Lanka. Deals will need to be opportunistic, priced in some cases above current market value.

However, we remain of the view that sales volumes will moderate with fewer landmark transactions and portfolio deals in the key gateway cities but overall deal flow will remain robust. Buying opportunities may be limited and it is likely that investors will look further afield and consider development.

In a highly competitive environment, deal timeframes are also shortening and only the most proficient will succeed. As opportunistic investors, buyers are targeting markets which represent good value or where stronger growth in trading fundamentals is forecast.

Thailand’s current political upheaval will give any potential investor pause for thought. While the current political turmoil presents near-term risk to the Thai hotel investment market, our long term view remains positive. Thailand has a history of being incredibly resilient. The country has gone through a number of political incidents over the past decade, and every time it has managed to recover.

New sources of cross-border capital are also emerging with funds being raised allocated to Asian hotel assets, as well as investment by sovereign wealth funds with a global mandate. The Chinese government’s announcement in 2013 to provide better access to state bank financing for private investors will make it easier to invest offshore. This is expected to result in more Mainland Chinese groups emerging as hotel investors not only across Asia, but globally.

Asian investors will continue to be in the market, dominated by high net-worth investors, family conglomerates and sovereign wealth funds. Interest in trophy assets in gateway cities show no signs of slowing, while secondary markets now present improving fundamentals and new investment opportunities.

In 2014, total hotel transaction volume is forecast to record around USD 4.0 billion in Asia, primarily due to the lack of stock on the market despite strong investor interest which remains unabated. For more on the hotel and hospitality sector in Asia, please read our recently released Hotel Investment Outlook 2014. This can be viewed here.

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