2015, in many respects, was the year of the Asian buyer, as the hospitality industry witnessed an influx of capital outflow from the likes of China and South Korea. In their sights were such destinations as gateway cities in the U.S. and Australia.
But in Europe, transactions in 2015 still skewed heavily toward U.S. and Middle Eastern buyers. 2016, however, could be a different story altogether. What is the appetite for hotel investments in Europe by Asian investors? How do they make their investment decisions?
This topic, among others impacting the Asian buyer, will be discussed during a can't-miss panel at IHIF entitled: "The Rise of Asian Investors." The panel will be led by Jileen Loo, director, head of Asia desk, international capital markets, CBRE EMEA hotels, in discussion with Roc Huang, board director, executive deputy general manager, HK CTS Hotels Co. Ltd.; Pierre-Frederic Roulot, chairman & CEO, Louvre Hotels Group; Sanjay Singh, managing director, FICO Corporation; and Forrest Wang, VP & general manager of outbound investment, Foriseland Hotels.
Ahead of IHIF, Chris Horton, IHIF's Asia correspondent, spoke to Loo, Huang and Wang about these very issues. Here's what they had to say in this exclusive report.
Asian buyers in the European hotel market made waves this year with numerous high-profile portfolio acquisitions, but for all the hype, Asian buyers only accounted for €16 billion—or 13 percent—of hotel investment in Europe in the first three quarters of this year.
“Chinese and Asian buyers make headlines in Europe, but in fact they are a minority in terms of total transactions,” said Jileen Loo, CBRE Hotels Limited’s director for international capital markets. “People are used to the Americans in the market, so it’s perhaps less newsworthy, but they’re the biggest buyers.”
American investment accounts for 40 percent of European hotel investment these days, with Middle Eastern investors not far behind at 30 percent. That said, it appears that Asian buyers, partly driven by growing Chinese interest in European hotel assets, are likely to account for a bigger piece of the pie in 2016. As Loo notes, Asian investment in the first three quarters of this year is five times what it was during the same period in 2007.
Not all Asian investors are the same, of course.
“Different investors have different purposes or needs,” said Roc Huang, board director and executive deputy general manager at HK CTS Metropark Hotels. “As far as Chinese state-owned enterprises, our government encourages overseas investments.” HK CTS acquired Kew Green Hotels last August, and is looking to expand in the UK and continental Europe.
Huang said that HK CTS Metropark is currently focused on four-star first-class category hotels. “We are looking at expansion by using the Kew Green platform to take over more management contracts,” he said. “In the meantime, we are also looking for the right portfolio to acquire in order to deliver reasonable IRR. Other Chinese companies may act differently from HK CTS, looking at budget hotels or luxury properties.”
HK CTS Metropark’s purchase of the 44-hotel Kew Green portfolio for £450 million fits the profile CBRE’s Loo sees in many Chinese investors who prefer larger-scale portfolios that provide instant scale in what for many investors is a new market. Chinese investment is driven by institutional investors or owner-operator groups, she noted.
Other Asian investors have more extensive experience in the European market, each bringing their own strengths and preferences. “I see a lot of owner-operator groups coming out of Hong Kong, including Mandarin Oriental, Rosewood and Langham,” Loo said. There are also many pet purchases by high net worth individuals from Hong Kong, she added.
Malaysian and Singaporean investors like to look at development possibilities and are very opportunistic in how they buy, Loo said. They look at cycles and will invest during downturns in smaller markets such as Dublin. Chinese, on the other hand, are unlikely to look at markets such as Dublin when entering the UK or EU, as they prefer entering via larger markets or gateway cities more familiar to the typical first-time tourist, eg London, Paris, Barcelona and Berlin.
Singaporean investors in the EU possess some advantages, in terms of their Commonwealth background, experience with British common law and the English language. They are also very advanced in terms of international acquisitions. Moreover, Singaporean developers are active in the UK market, enabling investors to take on development risk.
For Chinese investors, however, it’s still early days in a massive and important market, which is illustrated by investment strategies at present. “Chinese investors are learning the European market by acquisition or piggybacking off others,” Loo said. “Once management is in place and they have more experience, they’re ready to operate their own brand.”
The March completion of Shanghai Jin Jiang International Hotels Development Co’s €1.3 billion acquisition of Groupe du Louvre and its 100-percent indirect subsidiary Louvre Hotels Group from Starwood Capital Group was another instructive acquisition this year. The acquisition of Louvre Hotels Group, Europe’s second-largest hotel group, provided Jin Jiang with instant scale—and a chance to deepen the co-branding alliance that the two companies have pursued since 2011.
In light of deals such as the Jin Jiang acquisition of Louvre, it is likely that Chinese hotel brands will begin entering the European market in the not-distant future, but the market is not quite ready ready yet. “The Chinese brands understand this,” Loo said. Standalone Jin Jiang-branded hotels popping up in Europe is possible, but probably only after firs successfully expanding upon the past four years of co-branding efforts, she said.
Forrest Wang, vice president and general manager of outbound investment at Foriseland Hotels, also said that the European market is not quite ready for the arrival of Chinese hotel brands.
“There’s a long way to go before we see the integration of Chinese and European hotel brands,” Wang said. “Chinese investors will have more patience than before and realize the importance of operational know-how and the need to accumulate and absorb experience in Europe. Mutual respect is also very important.”
Looking forward, one of the biggest forces driving Asian investment in European hotels next year could be downward pressures on China’s currency. With markets expecting a significantly weaker renminbi in 2016, Chinese investment in European hotels could boom.
“Devaluing of the renminbi will not slow down international investment in hotels by the Chinese,” Loo said. “I actually see it accelerating interest because they want to get their money out before it loses further value.” Loo noted that this had already been observed in recent months with investors based in Thailand and Malaysia, where the baht and ringgit have weakened substantially. “Savvy investors want to park their money where it’s safe,” she said.
Concerns of a weaker renminbi are not the only factor that will drive Chinese hotel investment in 2016, said Huang of HK CTS Metropark.
“The renminbi going global is definitely happening and the exchange rate will be more flexible than it was before,” Huang said. “In view of this, Chinese companies will diversify their assets globally, especially in the hotel industry. There will be more hotels opening in China in the next three to five years. However, this will definitely be slowing down, as many of these projects were planned and started a few years ago. The fact is that in many cities, hotels are over-supplied. As a result, Chinese investors will look at overseas opportunities to capture the outbound Chinese tourist business.”