Burba Hayes Hotel Trend Report

Hotel Trend Report

It’s more of the same for the world’s most dynamic growth region – Asia Pacific – according to the results of BHN’s most recent Hotel Investment Survey, published in HOTELS’ Investment Outlook magazine. The results highlight several key themes including:

  • The outlook for Southeast Asia (SE Asia) remains the most optimistic
  • India continues to bounce back
  • Japan continues to steadily improve
  • The outlook for China is very mixed

These survey results largely follow those of the past three years, and clearly indicate that Asia Pacific, a large diverse market, can’t be painted with a broad brush.

ECONOMIC OUTLOOK

The first survey question asked about the economic outlook for the Asia Pacific region for 2015. When compared to 2014, two-thirds of survey respondents believe that both SE Asia’s and India’s economies will be trending up in 2015. The mood in SE Asia has been positive over the past few years, and the outlook in India has improved since the election of Prime Minister Modi in 2014. Survey respondents expressed uncertainty about China with a quarter expecting a downward trend in the economy this year, the largest negative response for any Asia Pacific country covered in the survey.

Fifty-five percent of survey respondents thought Japan’s economy would be trending upward in 2015. Travel and tourism have become an important focus of Japan’s economic policy, growing faster than expected, with a record 13.4 million foreign tourists last year. This bodes very well for Japan’s continued economic growth. Responding to this survey result Shunsuke Yamamoto, managing director for Fortress Investment Group, said, “The Japanese government had set a target of 20 million inbound visitors by 2020, the year of the Tokyo Olympics. However, due to initiatives such as loosening of visa restrictions, the introduction of low cost carriers, the expansion of airports and high speed rail lines, and economic growth in East Asia, the target will likely be hit in 2016.”

INVESTOR CONFIDENCE

About 80% of survey respondents were somewhat or very confident that the volume of hotel investment opportunities for SE Asia, India, and Australia/New Zealand would be greater in the second half of 2015 compared to the first half of 2015. This is a positive sign that momentum in these markets is building. The results for SE Asia were the most optimistic, which isn’t surprising, since some SE Asia destinations tend to offer higher yield and value-add opportunities. On the flip side, nearly a third of the respondents were not confident that China would see an increase in volume for the second half of 2015, this is the largest negative result yet again amongst the Asia Pacific countries identified in the survey.

Kenny Gaw, president and managing principal for Gaw Capital Partners, adds perspective to investor sentiment by saying, “On the back of rapid growth in outbound tourism from China, investors are confident about hotel investments in Asia. In particular, SE Asia, Japan, and Australia markets have been favored destinations.”

Shedding insights on volume of sales and buyers, Scott Hetherington, CEO Asia for JLL’s Hotels & Hospitality Group, said, “Based on the volume of sales, especially in the trophy sector in Sydney and Hong Kong and mid to upscale in Japan, we expect to see transactions volume increase in 2015 over 2014. Our full year prediction for 2015 is USD $8.5 billion, which represents an increase of circa 13% versus 2014. Investor demand far exceeds available stock with the most active buyers coming from Hong Kong, the Middle East, and in Japan, REITs and international opportunity funds. In the resort markets we are seeing significant activity in the Maldives and strong demand for Indonesia and Thailand.”

INVESTMENT CYCLE

If none of the other highlighted survey results have succeeded in grabbing your attention, take a stab at guessing in what stage of the hotel investment cycle we are in China and India. Slightly over a third of survey respondents believe that China is in the early downturn phase of a hotel investment cycle, while nearly half feel that India is in an early upturn. Two significant countries of Asia and two BRIC countries are at completely opposite points of the cycle – a most interesting survey result and a trend worth watching.

Focusing on India, Vijay Thacker, director for Horwath HTL – India, advised, “There is clearly an uptick in occupancies across various business cities, although rates remain unduly low with hotels lacking demand confidence to push through much-needed rate improvements. New developments are fewer, but more focused, and conversions/acquisitions will increase.” Assuming rates and yields improve following the increases in occupancies, it is logical to assume investor confidence and activity will continue to grow, which is what the survey is indicating.

DEVELOPMENT OUTLOOK

When survey respondents were asked about money provided for new hotel construction in 2015 compared to 2014, the most optimistic results were reported for SE Asia, India, and Japan, in that order. Nearly two-thirds of the respondents expect an increase for SE Asia in construction monies provided in 2015, just about half believe there would be an increase in India, and just under half believe the same for Japan. Turning to China, only a third expect capital for construction to increase while two-thirds expect capital to be flat or decrease.

For Japan, Yamamoto highlighted some construction opportunities by saying, “The surge in inbound travel has been fueling an unprecedented RevPAR increase in the major markets. Tokyo, Osaka, Sapporo, and Fukuoka currently lack hotel rooms in all categories from limited service to luxury. Emerging travel destinations like Kanazawa and parts of the Tohoku region also lack hotel rooms. Construction is constrained by the lack of capacity of general contractors, but the increase in revenue potential of hotel projects enables hotel developers to absorb some increase in construction costs.”

Read the complete story in HOTELS’ Investment Outlook magazine.

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