SINGAPORE (EDGEPROP) - Investment volume in the Asia Pacific hotel sector rose 33% y-o-y, totalling US$6.8 million (S$9.47 million) in the first half of the year, according to JLL’s hotel market report released on July 13.

“This demonstrates a return to pre-pandemic levels of capital deployment into the Asia Pacific hotels sector,” the report reads.

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A total of 19,822 rooms were transacted in 1H2022, a 29.9% y-o-y increase from 1H2021and a 9.4% increase from 1H2019. The increase in investment activity was due to a spike in portfolio transactions from institutional investors, who are sitting on capital reserves seeking to deploy their capital more efficiently, says Nihat Ercan, the senior managing director of investment sales (hotels and hospitality) at JLL.

“The two-year lull in investment activity has largely subsided, demonstrated by record levels of capital raised for deals across Asia Pacific gateway markets and resort destinations,” Ercan observes.

However, he cautions that 2H2022 will likely be challenged by macroeconomic and geopolitical headwinds.

Investment activity was spread across various Asia Pacific markets as they transitioned from reliance on domestic demand towards inbound leisure and corporate business, says  Mike Batchelor, CEO of JLL hotels and hospitality, Asia Pacific.

“However, the convergence of current favourable travel market conditions and the long-term economic outlook is creating a disconnect between pricing expectations of buyers and sellers,” he adds.

Japan recorded the highest hotel investment volume in 1H2022 at US$1.8 billion, followed by Korea at $1.7 billion and Greater China including Hong Kong at US$1.6 billion. Singapore, Maldives and Indonesia show strong recovery at $900 million, $200 million and US$160 million respectively. Activity in Australia and Thailand was more subdued, totalling US$146 million and US$38 million respectively, but Batcehlor anticipates 2H2022 to be bolstered by the closing of several marque deals.

“A more sustainable recovery in travel will intensify the largest challenge faced by many investors of successfully deploying capital into investment-grade products across the region,” says Batchelor.

Australia: Hotel transaction volume was down 66.0% y-o-y in 1H2022, according to JLL. Deals worth US$700 million have been exchanged but not concluded; this will drive transaction volumes in 2H2022. Investors are eager to deploy capital in Australia and New Zealand through a “flight to quality” strategy or in mid-market properties where active asset management or conversion of use can reap notable returns.

China: Hotel transaction volume fell by 43.8% in 1H2022 due to strict lockdown measures imposed in major cities in response to a resurgence of Covid cases in China. Many hotel transaction activities are likely to be delayed to 4Q2022 or 1Q2023. JLL anticipates China’s “Three Red Lines” and “zero-Covid” policies to repress prices of hotel assets,  and estimates the country’s total transaction volume to total US$2 billion this year.

Japan: The market has seen a notable recovery in 1H2022, as key metros tracked by JLL are up 91% y-o-y. Investors expect strong domestic and international tourism demand due to the recent devaluation of the Japanese yen, and remain steadfast in acquiring hotel assets. Japan’s debt financing environment remains attractive against the backdrop of global rate hikes. JLL transaction volumes are expected to remain strong for the rest of the year.

Singapore: Singapore was the fastest to bounce back, and investment activity crossed pre-pandemic levels to reach US$900 million in 1H2022. The mid-market space saw the most activity, as investors identified opportunities for conversion of properties into co-living spaces to improve returns.

Thailand: More hotels are entering the market, as investors are under increasing pressure to sell, according to JLL. Potential investors are opportunistic in their pricing and conservative in making offers. JLL sees numerous private equity funds and family offices active in the Thai hotel market, as well as an increase in foreign interest with the easing of travel restrictions. JLL estimates transaction volumes to reach US$300 million for the year.