The biggest trend of 2015 was the number of blockbuster acquisitions of high-profile, gateway market hotels by Chinese investors. This year, JLL expects investors to go after secondary markets. According to JLL’s Hotel Investment Outlook, global hotel investment volume is projected to reach $70 billion in 2016. Although down 15 to 20 percent from 2015, the projection for this year is still above 2014 volumes, positioning last year as an outlier boosted by marquee deals. JLL expects the Americas region alone to post $37 billion in transactions, down from $46 billion in 2015.
“Public markets are rewarding growth, creating a strong case for hotel brand consolidation," Mark Wynne Smith, global CEO of JLL’s Hotels & Hospitality Group, said in a statement. "Hotel brands are on a never-ending quest to bolster their pipeline and, with the natural attrition in properties and limits to new supply growth, the surest way is often by acquiring operators with strategic management or franchise contracts. These larger, consolidated companies also have an additional benefit of more clout to readily respond to broader influences in the industry.”
“For the first time in more than five years, real estate investment trusts (REITs) in the U.S. will be net sellers, as they seek to exploit the disconnect between their share value and asset values by selling non-core assets and buying back their stock," Arthur Adler, managing director and CEO of JLL’s Americas Hotels & Hospitality Group added. "We expect to see additional privatizations of REITs given that they are trading below net asset value and hotel assets being privately held are currently worth more those being held publically. Given this dynamic, offshore investors and others stand to become the second-largest buyer type after private equity.”
JLL predicts the following trends for 2016:
· More consolidation – Hotel companies made headlines in 2015 announcing purchases of other parent companies. Several of these large deals are expected to be completed in 2016 and more consolidation is likely. The lodging industry remains considerably more fragmented than other large consumer industries. JLL expects to see more consolidation among operators and real estate owners alike, whether in the form of portfolio transactions or public-to-private trades.
· Growth of secondary markets – With primary market yields close to historic lows, secondary markets are the next spot for investors in that they offer more room for profit growth and valuation increases. Specifically, investors are actively targeting secondary cities in the U.S., U.K., Germany, Spain and Japan.
· Cross-border interest – Globally, some $30 billion in capital acquiring hotels crossed national borders in 2015, signifying the ever-growing appeal of the sector. While overall volume will temper in 2016, JLL expects to see a significant proportion of cross-border activity, with inbound capital predominantly targeting Western Europe and the U.S.