|Hotel investment volumes set to exceed expectations.|
Wednesday, 7th August 2013
Source : Jones Lang LaSalle
Hotel investment activity has continued to show strong growth, with global investment volumes reaching US$21 billion in the first six months of the year, representing a 51% increase on the same period last year.
Given the current weight of activity, coupled with improving financing conditions and market sentiment, we now expect full-year 2013 volumes to exceed our initial forecast of US$33 billion.
Hotel Investment Volumes, 2012-2013
Source: Jones Lang LaSalle, July 2013
During Q2, the Americas continued to dominate in terms of volumes, whereas Asia Pacific led in terms of the year-on-year growth. Investment activity in the Americas and EMEA was almost equally weighted in terms of portfolio versus individual transactions, whereas in Asia Pacific the vast majority of the deals were single-asset transactions.
A focus on prime assets in key locations
Prime assets in key locations continue to be most sought after, and secondary markets are featuring a wide pricing gap between buyers and sellers. Although investors remain cautious about timing and are reluctant to become overexposed, a number of creative and opportunistic players in pursuit of yield have found attractive buys, notably in the UK.
Private equity shapes an upward trend
Counter-cyclical buyers, such as private equity investors in the United States and Europe, continue to lead the pack, seizing opportunities to acquire rare assets in displaced capital markets. Given their significant buying power and risk tolerance in a volatile environment, they are taking advantage of current market conditions to achieve opportunistic returns.
Sovereign wealth funds, from Qatar and Abu Dhabi in particular, have been scouring the globe for trophy assets – the average size of such deals completed in H1 2013 stood at US$630 million. REITs, who have a lower risk profile, have continued to make headline acquisitions, seeking to diversify their portfolios, particularly in North America. In Asia Pacific, REITs in Japan have remained the most active players.
Meanwhile, the successful listing of two new hotel REITs in Singapore has already resulted in some high-volume transactions.
On the sell-side, private equity firms and institutional investors have been active (37% of transaction volumes) as they continue to liquidate some of their previous acquisitions, either to divest selective non-core assets or to meet fund life maturities.
Hotel operators have become the second largest player on the sell-side (18% of transaction volumes), disposing of some of their assets in pursuit of additional capital to repay their loans and finance a stronger pipeline.
Hotel Investment Volumes by Buyer Type
Americas remains the front runner
Transaction volumes in H1 2013 in the Americas marked a 50% increase compared to the same period last year. The significant uptick is supported by the advantageous combination of improved economic prospects, low new supply, strong hotel trading fundamentals and the increasing availability of debt financing.
The market continues to be dominated by private equity buyers, which accounted for 40% of acquisition volumes in Q2. The current position in the market cycle is favourable for private equity buyers that have significant capital to place.
Another driving force in the U.S. has been the greatly increased liquidity in resorts. Resort markets had initially lagged the recovery curve, but occupancy levels have now returned to previous peaks and the sector is attracting significant attention.
Positive outlook for EMEA
Although the economic situation in Europe remains complex, several indicators give cause for optimism and have led to an improvement in investor confidence. Despite H1 2013’s soft performance in terms of trading fundamentals, there is a positive outlook for H2 backed by an accelerated booking pace in a number of key markets.
The first half of 2013 has re-emphasised the importance of Middle Eastern capital which almost tripled from US$991 million in H1 2012 to US$2.8 billion in H1 2013. Key players were once again sovereign wealth funds from Qatar and Abu Dhabi which have continued to deploy capital in core European markets. Global investors such as Westmont, Starwood Capital and Morgan Stanley were the second largest group of investors in H1 2013 with a market share of 19% of invested capital, followed by domestic investors with an 18% market share.
Given the compression of portfolio yields in the U.S., EMEA has become comparatively more attractive from a yield perspective and is expected to continue to receive interest from U.S. investors, notably private equity.
Whereas transaction activity in Q1 was driven by portfolio deals, Q2 has seen a significant shift towards individual assets (92% of investment volumes in Q2 versus 28% in Q1) and was marked by various trophy deals (see Recent Key Investment Transactions).
The UK remains Europe’s most active transaction market with investment volumes totalling US$3.0 billion (40% of total EMEA volumes), followed by France at US$1.7 billion (23%) and Germany at US$840 million (11%).
Strong pockets of growth across Asia Pacific
Asia Pacific continues to see accelerated growth in hotel investment activity. Investment volumes in H1 2013 were up 82% compared to the same period last year. Such dynamics have been driven by increased activity in Japan, China, Singapore and Australia, which collectively accounted for three-quarters of the regional total.
Japan topped the acquisition and disposal market with total volumes of US$800 million in H1 2013. Such outstanding results were supported by improving global economic prospects as well as by the policy-led pickup. REITs were the primary driver of transactions, being involved in more than half of all the transactions in H1.
Singapore continues to be a hotspot in Asia Pacific. While there was only one deal recorded on the market for the whole of last year, three transactions totalling US$397 million had already taken place in Singapore by the middle of this year.
Despite the recent slowdown in economic growth and the weaker economic outlook, China has yet again proved to be the second largest investment arena in Asia Pacific with total volumes of US$665 million in H1 2013.
The investment pace in Australia has moderated with transaction volumes totalling US$337 million in H1 2013, compared to a record US$955 million during the same period last year. This is due to lower levels of liquidity in regional centres and key leisure markets.