Outbound Chinese tourism an impetus for strong Q3 investment

Tracking the growth of outbound Chinese tourism and its increasing levels of sophistication, investors continue to acquire properties across Asia Pacific at a rapid pace.

The nearly $1-billion sale of the InterContinental Hong Kong and a flurry of activity in Japan and Australia were the highlights of transactions in Asia Pacific during the third quarter of this year, when total investment sales rose 12.4 percent year on year to $1.78 billion, according to a new report by Savills World Research.

A big driver of this growth is the demand many expect from Chinese tourists.

“Chinese tourists are now more interested in better hotels. Once upon a time they would have stayed in 2- or 3-star hotels, but they are now looking for more luxury offerings,” said Desiree Bollier, CEO of Value Retail, a company that specializes in creating luxury shopping destinations.

Bollier was speaking during the World Economy Tourism Forum in Macau, where much of the focus was on outbound tourism from China.

Chinese Travel Up, As Economy Down
According to the UN World Tourism Organization (UNWTO), Chinese outbound tourism continues to grow even as economic growth slows down, and the UN body expects growth to continue through this decade. Chinese travelers recorded 116.6 million outbound trips last year, up 18.7 percent from a year earlier. The top destinations are still Hong Kong, Macau and Taiwan, which account for a little more than two-thirds of all international trips for Chinese tourists.  

So investors are lining up, to take advantage of all this demand. And this is showing up in increases in transaction volumes, particularly in the higher-end markets.

Japan was home to the most transactions in Asia Pacific in Q3, with 17 properties changing ownership from July to September, with total transaction value reaching $516.7 million, or 29 percent of the total volume for the region. Morgan Stanley’s sale of its ANA Crowne Plaza portfolio to Hoshino Resort Co Ltd for $331 million was the largest of the bunch and included the sale of four hotels with 1,229 rooms plus more than 20 food and beverage venues.

Australia was the other major destination for hotel investment in Asia Pacific during the quarter, representing 14 percent of deal volume. Fourteen hotel sales added up to $242.3 million and reflected a 51.8 percent year-on-year drop in deals in local currency terms, according to Savills.  

Overall, however, this year is shaping up to be more active than 2014, with deal volume for the first three quarters of this year up by 100.7 percent.

Major Australian properties trading hands include the Four Points Sheraton in Perth, The Oaks Elan in Darwin and The Rendezvous Sydney. Strong demand and high ADR, much of it driven by inbound Chinese tourism, is expected to keep Australia popular with investors, at least when there’s stock available.

“Australia is still a top wish list destination for hospitality investors,” Savills’ report said.

Just as notable as the action in these three markets was the lack of deals in China and most of the 10 countries in the Association of Southeast Asian Nations, especially Thailand.

Savills noted that the absence of acquisitions of completed hotel assets in China during the three-month period was likely due to slower growth and the surprise devaluation of the renminbi on August 11.

Meanwhile, prospective investors in Thailand may be adopting a ‘wait and see’ attitude due to political tensions in the Kingdom related to the ruling junta and perhaps also the Erawan Shrine bombing in Bangkok in August.

Looking forward, eyes will remain on China’s overall economic health, and movement in the more expensive Asia Pacific markets.

“Should concerns over the macro economy begin to rise in Asia and particularly China, and the ‘bid-ask’ gap widens in Japan, Singapore and Hong Kong, we will expect to see a slowdown in hotel transaction activity,” Savills researchers wrote.

Still, investors are generally keen to acquire successful properties and up their margins, as Goodwin Gaw, Chairman and Managing Principal of Gaw Capital Partners.

“We intend to fully leverage our extensive experience in hotel management to ensure that the InterContinental Hong Kong remains a world class location,” he said after the transaction closed. 

As if to underscore the rising levels of investment, earlier this week Gaw Capital announced a $203-million deal to acquire Big Hotel in Singapore.