According to Jones Lang LaSalle Hotels’ latest Hotel Investor Sentiment Survey, hotel trading across Asia Pacific is on the rise, and investors are taking notice. Operating incomes are increasing, regional economies are strong and there is limited new supply on the drawing board, so investors see blue sky ahead.
“Interest in the sector remains high, with 31.5% of respondents looking to buy hotels and a further 36.3% looking to hold,” said Mr David Gibson, CEO, Jones Lang LaSalle Hotels.
The survey, which targets the world’s 2,000 largest investors and owners of tourism properties, is the only global survey of its kind.
“Sentiment for trading performance in Asia Pacific remains overwhelmingly positive and reflects confidence in the sector both now and into the future,” said Mr Gibson. “Investors are most bullish about short term trading in Beijing and Shanghai,” added Mr Scott Hetherington, Managing Director Asia, Jones Lang LaSalle Hotels. These markets are now trading above the peak of the last cycle in 1994.
Investors are also betting on solid trading growth from Mumbai, New Delhi and Hong Kong in the short term. “The recent opening of Disneyland in Hong Kong will offer an added leisure appeal to what is already a key business destination,” said Mr Hetherington. Hong Kong also benefits from its location to mainland China, with the availability of cheap flights from low cost carriers stimulating inbound travel.
2005 saw a continued softening in yield expectations, consistent with a moderation in trading outlook as well as an unwillingness on the part of investors to reduce yields any further. “Throughout 2005, most markets recorded strong growth in operating incomes, causing investors to realign their expectations for future growth,” said Mr Gibson. He added, “Nevertheless, the limited amount of hotel stock available for purchase has meant that competition remains strong and purchasers have met the low yield expectations of vendors.”
Investors’ expectations for leveraged IRRs for new acquisitions across Asia Pacific have trended upwards to 18.8% - a level not seen since June 2002. “This represents an increase when compared to April 2005 and indicates the higher returns now being sought throughout the region,” said Mr Gibson.
Hong Kong, Osaka and Tokyo continue to exhibit strong trading performances and a high level of market transparency. “Investment yield expectations for these markets are typically lower, with initial yield requirements in the 8.0% to 9.0% range,” said Mr Hetherington. Investor interest continues to strengthen in China and India, but remains somewhat speculative.
Yields tightened in just six markets: Phuket, Manila, Macao, Osaka, Ho Chi Minh City and Guangzhou.
The queue of aspiring investors is lengthening across Asia Pacific, with 31.5% of respondents indicating a buy intention during November 2005 - up from 29.6% in the last survey. “But the majority are still keen on holding hotel property,” said Mr Gibson.
The strongest buy sentiment was for Tokyo, with 68.2% of investors seeking opportunities in this strategic city. “Increased competition for assets in Tokyo is expected to continue, most notably between Japanese and US investment funds,” said Mr Hetherington.
The number of investors looking to sell also increased across the region. This indicates that some investors may feel that values are nearing cyclical peaks in select markets. Mr Gibson added, “And with aspiring buyers outnumbering potential sellers 2:1, this is likely to continue - at least in the short term.”
Mr Hetherington said, “We expect that development activity will largely be limited to mixed-use developments with hot spots in India (Bangalore, Mumbai and New Delhi) and China (Beijing, Shanghai and Macao).” Construction costs remain high across the region, making it difficult for developments to be viable.