Burba Hayes Hotel Trend Report

Hotel Trend Report

What’s hot and what’s not in Asia?  The results of BHN’s most recent survey of the hotel investment trends show that Southeast Asia (SEA) remains the darling of the region, Japan continues to steadily improve, and expectations for India have certainly gotten better.

Economic Outlook

The first survey question measured the economic outlook for Asia’s two largest countries (China and India), Europe, and the United States.  When compared to today, nearly two-thirds of survey respondents believe that India’s economy will be trending up in January 2015 – a substantial increase for India compared to last year.  The mood in India has not been positive the past few years, and this represents a substantial shift in expectations.  According to Vijay Thacker of Horwath HTL – India, “Business confidence and sentiment in India has changed very positively, with a forward looking and stable government voted into power in May 2014.  A single party majority for the first time since 1989 spares the nation from the restrictive travails of coalition governments.  Business fundamentals and need for cross-border and private sector investment remain strong, and revival of investment interest is already evident.”  Sixty percent of respondents thought the economy would be flat or trending downward in China in January 2015.  The United States remains mostly positive, while expectations in Europe were the lowest of the four regions measured.

Investor Confidence

The results reported for all six countries/regions surveyed were somewhat or very confident that hotel investment opportunities over the next 12 months will be greater than they were in the past 12 months.

Similar to last year, 93% of the survey respondents are either very or somewhat confident that the hotel investment opportunities in SEA will increase.  While the overall outlook is positive, the political reality of SEA countries makes it difficult to generalize such a broad region.  According to Robert Hecker of Horwath HTL, “SEA is generally a mixed bag, due mostly to the variety of political situations.”

SEA is followed by Korea at 84%, Japan at 80%, India at 78%, Australia/New Zealand at 77%, and last but not least, China at 67%.

Kavin Bloomer of Morgan Stanley sums up hotel investment opportunities very well by saying, “Our focus on core hospitality product in Asia’s top three or four cities will continue.  However, as supply for acquisitions decreases, more investors will naturally broaden their search horizons.  Some Southeast Asian destinations offer higher yield and value-add opportunities, and investors short to medium term sentiment for these markets should remain confident over the next 12 months.”

Interest in China may be lessening, as an Asian investor shared his view on China for the short-term by saying, “We see a hotel oversupply in China, especially in the luxury sector and subsequently, we have decided to freeze all hotel related projects until the tide turns.”

Development Outlook

Development will continue across the region, according to the survey results, with the majority of respondents expecting an increase in monies for new hotel construction in 2014 compared to 2013 overall.

SEA was by far the most optimistic, with 84% of survey respondents expecting an increase in money available in 2014, followed by India at 67%, and Japan at 61%.  On the other hand, China was the least optimistic, with 28% actually expecting a decrease in monies provided when compared to the prior year.

Regarding India, Thacker commented, “The confidence level for new hotel investment opportunities will improve as the sector sees better performances in the second half of 2014 and recent supply gets absorbed more effectively.”

Both Hecker and Bloomer expressed some optimism about Japan for 2014 and beyond.  Hecker stated, “Japan is now fully recovered, business activity is strong, and the reduced value of the Yen is attracting a lot of regional tourists.”

Bloomer advised, “There are many factors that are driving a new level of interest in Japan: strong hotel operating metrics, encouraging economic indicators, market liquidity, availability of low cost debt, the 2020 Olympics, the potential for casino development, etc.  On the other hand, land prices remain high and construction costs have been on the rise since the end of 2011.  As such, my expectation is that new hotel construction in Japan will increase, but perhaps only marginally over the next couple of years.”

Hot Spot Cities

Lastly, in terms of “hot spot” cities for hotel investment in 2014, the top three cities identified in the survey were Singapore, Jakarta, and Tokyo.  Last year, in the same survey the top three cities were Jakarta, Yangon, and Manila.

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