GLOBAL REPORT— The Asia/Pacific region should see its fair share of activity this year, according to a group of hotel experts. On top of all other movements in the area, everyone is watching what Chinese companies in particular will do.
Hotel News Now reached out to hoteliers and consultants in the region to share their perspectives on development and transaction potential in the Asia/Pacific in 2017.
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Tony Ryan, managing director, global mergers and acquisitions, Jones Lang LaSalle’s Hotels & Hospitality Group
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Michael Moret-Lalli, executive director of acquisitions, Mantra Group
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Bill Barnett, managing director, C9 Hotelworks
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Jonas Ogren, director, Horwath HTL Singapore
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Where do you anticipate the largest transaction volume around the region?
Tony Ryan, managing director, global mergers and acquisitions, Jones Lang LaSalle’s Hotels & Hospitality Group: “Two of the most sought-after markets right now are Japan and Australia, followed by Thailand, Singapore and the Maldives. For Japan and Thailand, there are some good buying opportunities, while stock remains limited in Australia and Singapore. Also worth noting is that in Japan, most of the transactions to date have involved domestic buyers, whereas in Australia it is more skewed toward offshore investors. Other markets to keep an eye on would include Vietnam, Cambodia and Myanmar, where JLL has undertaken landmark transactions in 2016 and we expect these sales to prompt further transactions in these markets for next year.”
Michael Moret-Lalli, executive director of acquisitions, Mantra Group: “Gateway CBDs will continue to be the center of transaction activity within Australia and New Zealand. More specifically, we anticipate Sydney’s robust fundamentals will see elevated activity in both the churn of existing hotels and new-build opportunities across the midterm, while Auckland will start to see opportunities for new supply within three to five years. Traditionally strong leisure markets, such as Cairns and the Gold Coast, will also be in demand as airline capacity and (the) low Australian dollar continue to stimulate both domestic and inbound visitation and trading performance.”
Bill Barnett, managing director, C9 Hotelworks: “The sleeping giant for transactions is clearly inside China. We’d expect in the next 12 to 24 months to see overseas investors look at stressed (assets) on the Mainland. In my opinion that’s the next great trading play.”
Ryan: “Industry reports indicate about a 5% increase in rooms under contract in Asia compared to the same time last year, with China, India, and Indonesia ranking the highest in terms of rooms under construction. On the whole, transaction volumes do not correspond with development activity. China is an example where despite the large development pipeline (460 hotels and over 131,000 rooms in the year to August 2016), transaction values are low ($1 billion in 2015). There are a number of important factors that might influence M&A activity—industry structure, macroeconomic performance and outlook, title issues, legal and/or regulatory barriers.”
Moret-Lalli: “Future activity does not necessarily correspond to current activity. Current development activity has been most pronounced in Perth, Brisbane and Melbourne (which will all see significant new tranches of inventory over the next one to three years). After delivery, the new supply pipeline will slow and these markets will move into a stage of absorption.”
Ryan: “On the whole, established international brands (both Western and Eastern) are enjoying very significant growth in Asia, compared to other more mature markets such as Europe and the U.S. The established brands do bring a cache along with strong distribution and operating performance. However there are certain markets in Asia, such as Indonesia and the Philippines, where the local brands have a preeminent position due to a strong local following, and intimate understanding of the local development process and guest needs. We are aware that international brands are also starting to target these countries.
“Another interesting development to note is Accor’s recent deal with Banyan Tree—a strategic alliance including a relatively small stake in the company. Accor will now have access to Banyan Tree’s unique and respected local brands with a view to growing it within the region and beyond. Banyan Tree will benefit from Accor’s global reach and distribution.”
Moret-Lalli: “The brand landscape will remain similar to the past where we’ve seen a balanced mix of both domestic and international brands. That said, the increased pipeline of luxury hotels in key CBD locations will see the introduction of high-end brands not seen in country before. Further, the weight of Asian capital is also likely to result in the introduction of some Asian brands not seen before.”
Barnett: “Branding remains a key value in China and the reality is that Western brands hold a significant amount of value is key to the storyline. The Chinese travel for new experiences, hence the allure of the West versus the East in term of global hospitality tags.”
Jonas Ogren, director, Horwath HTL Singapore: “There is likely going to be more of both—international Western brands as the global management groups grow their portfolio, not only new developments but also through repositioning of independent properties. At the same time, most countries in the region have their own local brands—many of which are starting to grow internationally and in many cases successfully so.”
Where in the region is Chinese capital landing?
Ryan: “Chinese capital continues to look for trophy assets in the preeminent global markets such as London, New York, Paris and Tokyo. More recently they have branched out into portfolio hotel real estate plays that have extended to large hotel real estate portfolios such as Strategic Hotels and Resorts, Kew Green Hotels, and China Life’s recent investment in a portfolio of 280 select-service hotels in the U.S. Another recent trend is the interest in luxury and midmarket properties located in destinations favored by Chinese outbound tourists such as Hawaii, Thailand, Maldives, Japan and Australia.”
Moret-Lalli: “Asian capital continues to be the dominant force in transaction activity across the last three years. We expect this trend to continue but see Asian investors now starting to seek value outside of gateway CBD markets and look more regularly at core leisure and fringe CBD growth corridors.”
Barnett: “Capital flight out of China is continuing, and we are seeing this filter down from portfolio deals now down into single assets.”
Ogren: “There is really no market in the region that has not been touched at least once by interest and capital out of China. That said, we’ve seen lots of appetite for trophy assets in Europe and North America lately.”