Global hotel investment volumes totalled US$6.6 billion in the first quarter of 2012, representing a 17% decline on Q1 2011.

However, this drop does not reflect underlying market activity and, for the year as a whole, volumes are expected to remain steady at US$31 billion. EMEA and the Americas regions registered similar levels of activity in Q1 2012 compared to the same period last year and continue to benefit from a buoyant pipeline of quality product for sale.

In Asia Pacific, although investment activity has been slow in the first three months of this year, several substantial deals are in well-advanced negotiations and are scheduled to close in Q2 2012, including the 389-room Novotel Nathan Road Kowloon in Hong Kong. LaSalle Asia Opportunity Fund II has agreed to sell this substantial asset to Gaw Capital Partners and CSI Properties for approximately US$305 million.

Chart: Hotels – Global Real Estate Investment Volumes, 2005-2012



Investor demand in key U.S. cities strengthening

Transaction activity in the United States continued at a comparable pace to last year with volumes totalling US$3.2 billion for Q1 2012 against US$3.5 billion for Q1 2011. 64 deals were settled in the first three months of 2012, a similar number to the prior-year period. Offshore capital featured modestly with most deals still predominantly funded by domestic capital.

Investor demand for hotels in key U.S. cities is set to strengthen further as demand for hotel rooms has rebounded to peak levels and rates continue to rise within both the corporate and leisure segments. According to STR, January and February 2012 marked the highest demand ever recorded with 150 million rooms sold. Year-to-date (February) RevPAR increased by 7.3% in both New York and Los Angeles.

Intra-regional capital flows decelerate in EMEA

Activity in EMEA in Q1 2012 kept level with last year's quarter despite the fact that financing remains a real challenge. The market is some way behind the Americas in that alternative sources of debt are yet to commit to the hotel market. This is likely to change in the second half of the year with the benefit mainly confined to the more mature markets with good recovery plays. In total, 49 transactions were concluded in Q1 2012 (versus 43 last year) totalling US$3.2 billion.

Domestic activity in EMEA continued to be largely unchanged although intra-regional capital flows slowed slightly from 11 deals in Q1 2011 to eight deals in Q1 2012 (and from US$1.6 billion to US$507 million respectively). Overall portfolio activity was similar in the first quarter of the year compared to the same period last year, and is set to strengthen further in the second and third quarters of 2012.

A number of markets in Central and Eastern Europe have performed exceptionally well posting double-digit year-to-date (February) RevPAR growth, including Moscow (+11.3%), St. Petersburg (+18.9%), Krakow (+36.8%), Prague (+19.4%) and Warsaw (+11.6%).

Australia dominates Asia Pacific market activity

Hotel transaction volumes declined by 75% in Asia Pacific as only seven deals were recorded in the region, four of which took place in Australia. On a rolling 12-month basis, volumes only softened by 5.5% and activity is predicted to pick up as several prominent assets are currently in final stages of negotiation or have exchanged, and are expected to close in the second or third quarter of this year.

The most notable deal that settled in the first quarter involved the 300-room Esplanade Hotel Fremantle in Perth. Perth is one of the fastest growing economies in Australia, serving as the business and administration centre of the resource-rich state of Western Australia. According to STR hotel, RevPAR soared in the first quarter this year by 28% compared to last year, driven by 10.4% in occupancy and 15.9% in ADR - figures that are strongly enticing investor interest in Australia's fourth-largest city.

In Asia, RevPAR growth has been remarkably robust in the upscale segment in Jakarta (+21%), midscale segment in Hong Kong (+21.7%), top-tier hotels (5 star) in Shanghai (+31.9%) and luxury segment in Singapore (+22.9%). Average daily rates have improved notably in the Maldives and Fiji Islands by 35.6% and 9.1% respectively year-on-year.

Hotel operators stepping up acquisitions

Hotel operators are increasing acquisition activity, a trend which emerged last year and which is gathering pace into 2012. After the disposal activity of 2005-2007 where 'asset light' was the overriding strategy, hotel operators have returned to buying assets, mainly to facilitate brand expansion in a small number of key cities.

In the first quarter of this year, operators accounted for 21.7% of total acquisitions compared to only 5.4% in Q1 2011. They have also more than doubled their acquisitions volumes in the past 12 months compared to the same period a year ago, from US$2.3 billion to US$5 billion globally.

REITs, on the other hand, reduced acquisition volumes by nearly 50% in the Q1 compared to last year's quarter, from US$2.1 billion to US$1.1 billion, and instead are increasingly switching to selling assets, with first quarter disposal volumes expanding from US$152 million to US$592 million. Notably, FelCor Lodging Trust recently announced they are planning to sell six non-core assets to an unnamed buyer for US$103 million; the transaction is expected to close in Q2 2012.

Chart: Global Hotel Investment – Buyers and Sellers, Q1 2011 v Q1 2012



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