Investors seeking high-quality Asia Pacific hotel assets in 2021

By Valerie Kor

March 11, 2021 6:00 AM SGT

SINGAPORE (EDGEPROP) - Despite worldwide travel restrictions since last year that have curtailed the growth of the tourism and hospitality sectors, investors are still confident in the long-term future of hotels in Asia Pacific, according to JLL’s “Hotel Investment Outlook” report. The findings were concluded from polling around 100 clients in January this year.

Around 70% of respondents say that they are interested in deploying capital into the sector in 2021. JLL forecasts around US$7 billion ($9.4 billion) worth of transactions this year, which is 20% higher y-o-y.

JLL also says that over 80% of investors are looking for discounts between 20% and 30%, while sellers are willing to adjust their asking prices by around 10%. The gap between buyers and sellers will narrow when sellers accept the impact of operating cash flow on pricing.

Japan, Southeast Asia most desirable

Japan and Southeast Asia are emerging as the most desirable hotel investment markets in Asia Pacific, with 52% and 46% of respondents preferring them respectively. This is thanks to strong demand dynamics and positive long-term fundamentals. Investors also view Australia (31%) and China (22%) favourably.

On the other hand, a quarter of the surveyed investors are taking a more cautious approach to deploying capital before committing funds to the hospitality sector. Of the investors, 5% are looking to exit the sector and refocus on other asset classes.

Asset owners are also taking the downtime to invest in existing properties and focus on asset management initiatives, such as renovating the buildings and responding to changing consumer preferences.

Read more: Positioning investment strategies in a post-Covid world: BlackRock

“The past year has been all about protecting cash flow and this will continue for the coming 12 to 18 months. Seasoned owners realise that now is the time to invest in existing hotels, with little displaced business,” says Xander Nijnens, managing director, head of advisory and asset management, Asia Pacific, at JLL Hotels & Hospitality Group.

He adds: “However, it is a balancing act in keeping operating costs flexible, while investing ahead of the recovery to edge in front of competitors and meet guest needs. Value-add players will have the upper hand if they are willing to invest and reposition hotels with a view of selling them in three to five years.”

Sector to rebound by 2023

Colliers International’s “Hotel Insights Q1 2021 Report” also concurs that investors are on the lookout for high-value quality assets. Significant pricing adjustments make listed entities prime targets for mergers and acquisitions. While investment volumes remain low compared to 2019 levels, they are expected to start recovering around 3Q2021.

Source: Colliers International

In 1Q2021, the most liquid markets were South Korea, China, and Japan, while markets such as Singapore and Malaysia saw little investment sales, according to Colliers’ report. Markets with large domestic investment bases continue to have an advantage with international travel restrictions still in place.

Colliers also projects that the hospitality sector will rebound to 2019 levels by 2023 in a V-shaped recovery. Govinda Singh, executive director, head of Hotels & Leisure, Asia, points to an “inherent wanderlust”, relatively cheap cost of travel and pent-up demand as key factors.

In Singapore, Colliers believes that meetings, incentives, conferences and exhibitions (MICE) activities will pave a way for recovery. This is because the Singapore government has been actively promoting business travel lanes, which allow corporate and diplomatic travellers to skip quarantine on arrival. The “Air Travel Pass Programme” also allows leisure tourists from selected countries to apply for travel to Singapore without undergoing the 14-day quarantine period.

In addition, the World Economic Forum recently announced its plan to host its annual meeting in Singapore in August 2021, which will be a boost to Singapore’s MICE and hospitality sectors as it will show that the city can host global events despite Covid-19.

Recently, Singapore Airlines has announced a trial to test the International Air Transport Associations (IATA) Travel Pass, which is in a mobile app format. Passengers can verify their Covid-19 test results and vaccination status before departure. The trial will be conducted from March 15 to 28.

New attractions, infrastructure

Singapore has also planned new attractions and infrastructure to be launched between 2021 and 2030, which include the expansion of the two integrated resorts and Great Southern Waterfront. Although hotel investment sales in 2020 have dropped by 32.6% y-o-y, Colliers believes that investors and hotel operators will continue to seek out strategic hotel sites.

Asset owners are taking the downtime during Covid-19 to invest in existing properties and focus on asset management initiatives. For instance, UOL Group will be redeveloping Faber House from a 12-storey commercial building into a 250-key hotel (Photo: UOL Group)

The decline in development charge rates for hotels of an average 7.8% will attract developers to consider redeveloping hotel assets, especially in the central region. With low levels of new room supply, Colliers expects investment interest in Singapore hospitality assets to remain and capital values to stay firm.

Meanwhile, the city of Melbourne in Australia has the largest hotel development pipeline in the country, with 19 hotels currently under construction, totalling over 4,800 new rooms. This is in the current market of 130 hotels with around 19,600 rooms. The high level of new room supply that will enter the market in 2021 is anticipated to affect the recovery of existing hotels. In 2020, hotels in Australia operated at half the occupancy levels of the previous year’s figures, with demand coming from visitors under quarantine and intrastate leisure travellers.

Ultimately, the recovery of Asia Pacific hotels will be dependent on mass vaccinations in Europe and the US, Colliers’ report concludes.

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