Mainland Chinese investors exported over $5 billion into the hotel real estate sector across the globe in 2015, and the country accounted for nearly half of all cross-border investment out of the Asia region and as Chinese investors brought a new perspective to deal selection, what are the trends that will shape the sector in Asia Pacific going forward? 

Experts including Tony Ryan, Managing Director, Global Mergers & Acquisitions for JLL Hotels & Hospitality and Yuval Tal, a partner in law firm Proskauer , identify four major trends that are likely to influence the industry in the coming years.

China as a safe-haven hotel investment destination in Asia Pacific

Asia Pacific has bucked the downward trend in global hotel investment. In the first six months of this year, transaction volumes in the region rose 13.2 percent to US$3.8 billion, according to JLL’s “Hotels Investment Highlights” report. By comparison, volumes in the Americas and the Europe, Middle East and Africa region dropped 51 percent and 60 percent respectively. 

Mainland China transacted US$ 252 million worth of deals in the first six months of the year, the third-largest volume in the region after Japan and Australia. As uncertainties continue post-Brexit, investors are beginning to see China as a safe haven. This is supported by the fact that the mainland has maintained its upward growth momentum while growth in major developed economies has slowed.

China is a major driver of outbound capital 

Chinese investment in commercial property and land deals totaled US$3.5 billion in the first quarter of this year, down 20.5 per cent year on year, according to JLL data. Still, China moved up one spot to become the second-most active cross-border investor after Germany. Chinese capital has been a major force shaping the global real estate market and likewise, its impact in the hospitality sector has been significant.

An Anbang Insurance-led group’s bid for Starwood Hotels, worth almost US$14 billion, earlier this year is an indication of Chinese insurers’ appetite for global hotels assets.  Chinese investors have also been active in Australia. Chinese money accounted for a third (by volume) of Australian hotel transactions last year, according to JLL data, with investors picking up some big names such as Hilton Sydney (AU$442 million), and Sydney’s Sheraton on the Park (AU$463 million).

“Chinese companies recognise the significance of the hotel and tourism industries as the global middle class swells, particularly in emerging markets.  Some Chinese players are aggressively acquiring hotel management companies to establish vertically integrated travel & tourism businesses (including travel agencies, transportation and accommodation),” says Ryan at a JLL and Prokauer co-hosted seminar - “China Hotels Mergers and Acquisitions (M&A)”-  in Hong Kong last month.“Other Chinese companies are looking to enhance and extend their domestic hotel businesses by acquiring hotel management platforms with recognised brands and world class expertise. Also in the mix are Chinese insurers, who are not yet investing in real estate to the same extent as their Western peers �" this will probably change and they are likely to emerge as a large buyer domestically and globally.”

China’s tourists will continue to shape the hospitality industry

China’s residents are travelling overseas in record numbers. Overseas travellers from the mainland hit 109 million in 2015, according to market research company GfK. More than half of Chinese travelers are likely to book 3 or 4-star hotels when they travel abroad with a further 17 per cent electing for a 5-star property and seven per cent preferring all-inclusive resorts, based on Hotels.com’s Chinese International Travel Monitor 2014.

In Australia, China was the country’s second largest inbound market by visitor arrivals last year and the largest market by total expenditure and visitor nights. Visitors from China generated AU$8.3 billion (US$6.2 billion) in total expenditure, a number that is estimated to increase to AU$13 billion by 2020. 

These numbers have prompted a strategic shift in mind-set, with hoteliers such as AccorHotels establishing China-focused initiatives to woo more spenders from the country and customising their service standards to meet Chinese cultural expectations. Hotel groups began to see potential in securing long-term demand, in view of the Chinese preference for quality accommodation.

China’s domestic hotel sector remains one of the hottest markets for M&A

Hotel developements in China have benefited from a strong upsurge in domestic tourism. In the last decade, the local tourism market has grown by 10 per cent on average each year. The expansions of numerous international hotel brands, the country’s modernized transport infrastructure and the upgrading of tourist spots have helped to enhance the appeal of China to visitors globally. This strong travel and tourism demand in China is driving growth in the hotel industry.

Frank Sorgiovanni, Senior Vice President of Strategic Advisory, Asia for JLL’s Hotels & Hospitality, expressed confidence that foreign investors “will no doubt continue to increase their footprints across China.” “Given the escalating size of China’s real estate investment universe and improving market transparency, investment activity is set to expand further in the years to come,” he said.

Tal from Proskauer said, “Many foreign hotel chains are trying to increase their foothold in the Chinese market, but when it comes to the lower tier market segments they are being outshined by local brands, which have been much more successful in growing their distribution.  As a result, in recent years international hotel companies are trying to gain market share in the midscale hotels sector through strategic alliance and joint ventures with local partners,” he added. “If you can’t beat them, join them”.

To find out more about JLL Hotels service, click to view JLL Hotels & Hospitality​ service page​.

About JLL: JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $59.1 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, www.jll.com. 

JLL has over 50 years of experience in Asia Pacific, with over 33,000 employees operating in 92 offices in 16 countries across the region. The firm won 15 awards at the International Property Awards Asia Pacific in 2016 and was named number one real estate advisor in Asia at the 2015 Euromoney Real Estate Awards. www.jll.com/asiapacific  

​ In Greater China, the firm was named ‘Best Property Consultancy in China’ at the International Property Awards Asia Pacific 2016, and has more than 2,200 professionals and 14,000 on-site staff providing quality real estate advice and services in over 80 cities across the country.  www.joneslanglasalle.com.cn