Hotel markets: Global perspective, Q1, 2013.
Monday, 11th February 2013
Source : Jones Lang LaSalle Hotels
At the start of 2012 we anticipated that hotel investment volumes would reach US$31 billion for the full-year; amid a slow 'deal pace' in Q3 we then lowered our forecast to US$28 million.

However, with a particularly robust fourth quarter, fullyear volumes in fact exceeded our expectations, hitting US$31.8 billion and representing a modest 7% decline on 2011 levels. Moreover, activity is set to remain healthy in Q1 2013 as several high-profile deals that had already exchanged last year are scheduled to close.

Hotel Investment Volumes, 2011-2012:
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2013 outlook and beyond

For 2013 we expect global deal volumes of US$33 billion to be in line with the last three-year average. Deal activity, though, is expected to remain hampered by economic pressures in several of the world's mature economies and constrained by the availability of financing and long-term ownership structures in emerging markets, notably in Asia.

Even so, the key drivers are positive and increased competition among alternative lenders, who are willing to provide senior and mezzanine debt following cutbacks by the large banks, is anticipated to improve the overall lending landscape.

Beyond 2013, global economic growth rates for 2014-2015 are projected to be well above current levels. This should further underpin hotel trading performance as well as capital values. Over the medium term, global hotel transaction volumes could grow further to range from US$50 to US$70 billion, as recorded before the 2007 peak.

U.S. experiences strongest quarterly transactions volume since 2007
The Americas experienced a particularly strong Q4 2012 with volumes totalling US$6.4 billion (up 54% on Q4 2011 and up 62% on Q3 2012). Nearly US$1 billion was traded in New York alone, including The Manhattan at Times Square. In addition, several large portfolios changed hands including Accor's Motel 6 sale to Blackstone for US$1.9 billion.

Transaction volumes in the U.S. and Canada for full-year 2012 were in line with 2011. Debt returned to the market in a meaningful way and drove activity, though it still remains far from previous peak levels. On top of the sale of hotel assets, performing and non-performing hotel debt also traded at a substantial level which, if fully quantifiable, would show even greater total lodging transaction volumes for 2012.

In Latin America, volumes rose 60% in 2012 compared to 2011, largely on the back of Accor's US$275 million acquisition of Grupo Posadas. Mexico's hotel transactions market, which has been defined by illiquidity as of late, saw deal flow double to US$400 million in 2012. Evidence points to an increase in transactional activity in Mexico, with 2013 set to bring several more sales of prime assets, as well as forced sales.

The Caribbean Islands also experienced increased activity, driven largely by improving fundamentals attracting investor interest, but also by forced sales. Hotel owner/operators emerged as the most eager buyers in the sub-region. This trend is expected to continue in 2013, particularly in the upscale and luxury segments.

Regional Hotel Investment Volumes, 2011-2013:
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European portfolio sales fuel Q4 volumes

In EMEA, volumes ended 10% lower in 2012 compared to 2011 as activity was adversely impacted by a combination of ongoing uncertainty surrounding the sovereign debt crisis, limited availability of debt and subsequent high financing costs. Moreover, the buyer pool for hotel real estate in EMEA has contracted compared to a few years ago as fewer parties feel they can be competitive (in terms of cost of capital) in the market today; they are also being discouraged by notable yield contraction in key gateway cities.

Nonetheless, deals are happening and EMEA experienced an impressive 'rush to the finish line' in 2012 with Q4 volumes up 130% on Q3 2012. This uptick in activity is anticipated to trail into Q1 2013, with several high-profile (portfolio) deals scheduled to close.

Uptick in activity in Switzerland, Ireland and the Netherlands

Even though the UK continues to be the most liquid market in Europe, transaction volumes showed a 21% decrease on 2011, totalling US$2.9 billion. Meanwhile, investment volumes in France totalled US$1.8 billion, in line with 2011 volumes, whereas Germany posted a 32% increase, totalling US$1.5 billion. The vast majority of deals in Germany took place in key markets, with Berlin (nine deals), Frankfurt (seven deals) and Hamburg (seven deals) accounting for 85% of volumes.

Significant growth in hotel investment volumes in 2012 also occurred in Switzerland, Ireland and the Netherlands:
  • Investment activity in Switzerland was primarily driven by low yield prospects in other asset classes, making real estate an increasingly attractive option. Activity is expected to continue as solid benchmarks are being set in the market, even though buyers remain primarily domestic as the current exchange rate of the Swiss Franc forms an evident barrier.
  • In Ireland (notably Dublin), volumes were propelled by healthy market fundamentals, limited supply and an economic turnaround, and ended the year totalling US$240 million compared to only US$14 million in 2011.
  • Amsterdam is enticing substantial investor interest due to its healthy and diversified market fundamentals and, as such, investment volumes were up from US$36.8 million in 2011 to a little over US$400 million in 2012. The most active buyers are institutional investors, particularly in the case of leased properties where yields range from 6.2% for Amsterdam to 8.2% for provincial locations. Activity is anticipated to continue at this level into 2013.
Volumes fall short in Asia Pacific

Hotel trading activity slowed in Asia Pacific 2012, reducing by 30% to US$3.3 billion as bank inaction in Japan along with a notable absence of sales in Asia's key gateways (against a backdrop of investor conservatism) led to lower-than-anticipated volumes.

The gap between buyer and seller expectations, which emerged in 2012 after the strong appreciation of assets over the past four years, has impeded sales activity in markets such as Hong Kong and Singapore, and this trend is expected to continue in 2013. While the long-term fundamentals remain strong, the recent softening in trading has tempered investor enthusiasm.

Australia dominated 'deal flow' in 2012, boosted by a number of record sales including the largest ever single asset (Shangri-La Sydney) and portfolio sale (Marriott portfolio). Capital was primarily sourced offshore, accounting for nearly 80% of the overall dollars invested. 2012 will provide a good barometer for the Australian hotel investment landscape in 2013.

Investment benchmarks are being established in India

Investment activity is gaining momentum in India with a number of deals completing in 2012, and with the expectation of more to come in 2013 as investment benchmarks are being established. A total of five deals were recorded in 2012 totalling just over US$100 million, up from two deals in 2011.

New Thai REIT law to improve liquidity

Thailand is increasingly emerging as one of the region's hotel investment 'hot spots'. Investment volumes totalled just over US$250 million in 2012 and are forecast to remain robust in 2013 with more deals expected in Bangkok and Phuket. The imminent signing of a new REIT law is also likely to increase liquidity in the hotel and property investment market. It is anticipated that property transactions will increase materially once the law takes effect, although it may take a few years for the market to become established.

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