Deal prospects increase as fundamentals strengthen

30 Jan, 2012 By: Andrew Sheivachman

As the global economy recovers in 2012, look for hotel transaction volume to increase. Reuters reports that U.S. hotel executives are confident that deal volume will increase in 2012, after six months of a relative lull following the U.S. government's debt negotiations last summer.

"People are expecting 2012 to be a pretty positive year, with solid performance by the industry in terms of the demand for hotel accommodations and the ability to get deals done," Arthur de Haast, chairman of Jones Lang LaSalle Hotels, told Reuters at the Americas Lodging Investment Summit last week.

The lending equation has shifted as well, with private equity replacing the REITs as a source of funding of acquisitions. "The mix of the investors probably will change," said Sri Sambamurthy, co-founder of real estate firm West Point Partners, to Reuters. Hotel owners can also expect a flood of foreign investors into the U.S. hotel world, as risk in Europe affects hotel investments abroad.

In terms of markets, India and Vietnam look to be strong locations for development. Bloomberg reports on the state of the hotel industry in India, which has undergone major growth as the country's middle-class has expanded.

“For the last nine years, inventory in India went from 67,000 rooms to 130,000 rooms," Raymond Bickson, CEO at Indian Hotels Company, told reporters in Hyderabad. "Overall, India is at between 65 percent and 70 percent occupancy. All of those new rooms have been absorbed by the market. Barring one or two locations like Pune, where maybe there is quite a bit of buildup, the market has totally absorbed those new rooms. We have now just hit 6 million inbound tourists, and the new number from the government for domestic travelers has now crossed 740 million last year. All of this together means that capacity is growing in the entire country. Inspite of new inventory, occupancy will still remain robust at between 65 percent to 70 percent. It is very sustainable for the next 10 years.”

A recent report from Savillis also shows that the Vietnamese hotel market is showing impressive strength despite a decrease in total product. VietnamNet writes that "Total supply in the hotel market has decreased by three percent in the fourth quarter of 2011 in comparison with the previous year (7150 rooms from 47 hotels). The report also said that the market has been performing better than the previous quarter. Especially, 3-star hotels had very high occupancy rate of 68 percent."