Asia Pacific hotel markets rebounding from dropping sales

Singapore is among the markets with the highest buy sentiment, with 44.4%, next to Hong Kong and Ho Chi Minh City both at 45.5%.

Addressing an audience of hotel industry leaders at a recent Hotel Investment Conference (HICAP Southeast Asia 2010) in Singapore last Thursday, Jones Lang LaSalle Hotels’ (JLLH) Managing Director for Investment Sales Asia, Mike Batchelor presented an encouraging outlook on the Asian Hotel investment market.

According to Mr. Batchelor, 2009 saw the emergence of a new trend with Asia Pacific hotel transactions exceeding the Americas in terms of total sales volume for the first time ever. Asia Pacific’s contribution and emergence as a global player is set to continue with sales from this region forecast to contribute approximately USD 3.7 billion or 29% of global sales. Total global transaction volume is forecast to reach USD 12.8 billion this year, according to a Jones Lang LaSalle Hotels report.

This trend has also been supported by the results of a recently released Jones Lang LaSalle Hotels’ Hotel Investor Sentiment Survey (HISS) which highlights Asia Pacific hotel investors’ expectations for the short and medium term trading continuing to trend upwards with Singapore and Sydney ranked the highest.

Despite global sales plummeting in 2008 and 2009, Asia challenged the trend growing 22% during this period demonstrating a much higher level of confidence seen in this region as well as overall stronger balance sheets enjoyed by both individuals and companies throughout this downturn.

Commenting on the trend, Jones Lang LaSalle Hotels, Managing Director Asia, Mr. Scott Hetherington highlighted, “As the trading markets entered a long awaited growth phase late last year, again investors initial yield expectations began falling for the first time in three years. A positive sign signalling the worst would seem to be behind us”

According to the HISS results for Asia Pacific, after a year of stagnation, investors are signalling Asia Pacific hotels as a ‘buy’. Markets ranked highest for buy sentiment include Perth (45.5%), Ho Chi Minh City (45.5%), Hong Kong (45.5%), Singapore (44.4%), Brisbane (43.2%), Chengdu (42.9%), Tokyo (42.9%) and Sydney (42.6%).

Mr Batchelor noted that in Asia, notwithstanding the recent disturbances in Thailand, Bangkok in particular, investors’ sentiment for medium term trading in Phuket and Bangkok is positive at 39.7% and 22.2% respectively.

After sitting quietly in 2007 and 2008, the Asian families and related companies made their move in 2009. Equally, the number of high net worth individuals re-entering the market has been significant. Some of the major transactions that have taken place over the last 12 months include Singapore company Keck Seng’s acquisition of the W San Francisco in early 2009, Hyatt Hotels in Canberra and Adelaide by Thai conglomerate TCC, Niseko Village in Japan by Malaysia based YTL and T.A. Securities of Malaysia on the Swissotel Merchant Court in Singapore.

Mr. Batchelor noted, “After a year of stagnation, rebounding confidence in the trading outlook has translated into an increase in buy sentiment, Buying is now the most favoured investment strategy across Asia Pacific which bodes well for an inevitable impact on pricing as investors compete to secure only a limited number of assets in the second half of the year.”

Mr. Batchelor added, “As valuations have stabilised and liquidity has returned to the investment market, banks are becoming more motivated to take action on assets which are poorly managed or where cash flows have declined significantly. While increasing, bank related sales are not expected to result in a flush of assets coming to market as many owners across Asia Pacific remain well-capitalised and lenders continue to take a staged and guided approach to portfolio rationalisations and asset sales. The exception may be Japan, where the start of the new banking fiscal year in April 2010 could act as a catalyst for more distressed sales, although we do not expect transaction activity to increase materially until the fourth quarter of 2010 and peaking in 2011.”

In addition, the survey noted that the value segment has also attracted investor interest. Having been overlooked for many years, the mid-scale and budget segments are starting to capture the interest of Asia Pacific investors. Investors increasingly recognised that these assets have the capacity to deliver significant returns in a market which is under-supplied across much of the region. Interest is centred on branded, well-run product where previously this space has been dominated by smaller owner operators. With limited existing product available for acquisition, investors are increasingly looking to the mid-scale and budget segments for development opportunities.

Mr. Batchelor concluded, “As one of the few markets around the globe where the recovery is underway, hotels in Asia Pacific are again in demand. It is looking increasing like a V-shaped recovery for the investment market. The buyer and seller gap which we witnessed in 2008 and 2009 has closed and we expect the overwhelming majority of Asian owners to continue to be the most active hotel buyers in the world.”