At the final day of the International Hotel Investment Forum in Berlin, hotel industry advisors and consultants shared their insights on the top trends affecting the business and what we can expect in 2016 and beyond.
2015, JLL Hotels CEO Mark Wynne Smith said, saw "a number of exceptional deals," with 26 transactions attracting prices above $1 million per room. "There is a different tone about the market in 2016," he said. "We had a lot of portfolios change hands both in the U.S. and Europe in 2015, and our sense is that we will not get the same number of portfolios coming through this year."
Specifically, Wynne Smith said that JLL is expecting an increase in single assets year-on-year. "Investors just feel much more comfortable paying a little bit more for a single-asset than a portfolio," he said.
The Cycle Game
Most insiders seem to agree that the industry is currently at the top of the investment cycle. "The question is how long the second half [of the cycle] is going to last," Wynne Smith said, noting that investors who purchased assets several years back are looking to bank their profits. "However, in terms of people coming into the market at this stage--clearly, they're underwriting less growth, that's logical. They're also, I think, experiencing slightly more expensive financing, that would also fit where we are in the cycle." At the conference, he said, he noticed a general desire to get money into real estate—"but priced correctly."
Hotel growth is strongest in Europe, Wynne Smith said, but the money may come from some different sources. While larger transactions will still see plenty of capital from China, Wynne Smith pointed out that the country's economy is still not where it was. "If you are the chairman of a conglomerate and you don't have RMB converted to dollars yet, you are unlikely to get permission to make that conversion," Wynne Smith said. As such, what he calls "chairman-type deals" will probably be fewer in number. "But those guys who have a real business plan around creating a vertically integrated travel company, I think, will see capital coming in, particularly as many of those Chinese companies are already earning dollars through previous investments."
The Middle East, meanwhile, is affected by sentiment, Wynne Smith said, but in spite of volatility in the public market, investors are more interested in real estate simply because they are more comfortable working with real, tangible assets.
And while tertiary markets may not see much sovereign wealth, secondary markets are poised to benefit. "There's definitely a higher interest in yield now, and surprisingly, this comes from the Emirates and Qatar," Wynne Smith said. "If you think about the evolution of their investment, many tertiary assets have been acquired." These tend to be trophy assets, so Wynne Smith predicts more interest in select-service portfolios. "As far as provincial markets in the UK, we've seen a lot of investment in those markets already. I think the takeout is probably less likely to be sovereign wealth for the time being. This is more family office money going back in."
In the wake of Marriott's acquisition of Starwood last fall, Wynne Smith believes that more brand consolidation is "highly likely," although the sales may not always represent 100 percent of a brand's portfolio. "That drive for consolidation won't go away," he said. "Among smaller groups, we know full well that once you get around 10,000 rooms and want to break out of a region or a country, it's very expensive to grow…It's an area of transaction that will be much more active in the next two years."
Another sea change for the industry us the rise of Airbnb, which many in the business tend to see as a threat. "I think you have to embrace it," Dirk Bakker, director of hotels, EMEA, for Colliers International, said. "You have to jump on the bandwagon." The room-sharing platform is only successful, he said, because tourism is growing and there aren't enough affordable hotel rooms yet in the most popular markets. Much as hoteliers have had to learn to work with OTAs, he said, they must also learn to work with Airbnb. "We're getting a new situation that we need to deal with," he said. "The industry needs to find an answer."