Strong demand in mature markets, growth in emerging ones, spurs Asia Pacific hotel investment and opportunity

BANGKOK, Thailand—Hotel investment and development both within the Asia Pacific region and outside it by opportunistic investment groups are under the microscope during the Asia Pacific Hotel Investment Conference here at the Dusit Thani Bangkok. 

More than 200 delegates have come together to discuss a range of topics impacting the hotel industry in Asia Pacific, including investment opportunities, strategies and partnerships in such destinations as China, Japan, Australia and ASEAN.

Growth Opportunities
During a pre-conference panel (pictured here), talk turned to Southeast Asia, in particular Thailand, and the country’s non-traditional or untapped areas for hotel investment. While the bulk of travel still remains centered in Bangkok and Chiang Mai, other resort destinations beyond Phuket appear to have caught the eye of hotel investors. To wit, Krabi and Khao Lak. 

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“Greater Phuket development is moving north to Krabi and Khao Lak,” said Christopher Chung, managing director of Lewis Trust Group. “Some hotels are surpassing Phuket levels,” he added, noting the JW Marriott in Khao Lak. “Land costs are still in check in these places,” he continued. “The case is stronger now.”

Chung did allow that places like Koh Samui are easier to underwrite. “There is evidence of high ADR at the deluxe level. We don’t see that in Khao Lak yet, so it’s easier to make the case with a bank. My gut feeling is that Khao Lak has potential.” 

Phuket International Airport is currently undergoing an expansion project that will see it double capacity by 2016.

While resort hotels dot the coastlines of Thailand, Ian Lien, managing director of SC Capital Partners, is bullish on the development of the midscale space in Thailand’s urban centers. (Note: What the U.S. refers to as midscale hotels, are considered budget in Asia Pacific.)

“Budget hotels are a good space to be in,” Lien said. “Resorts are high up in risk. If you are going to be in hotels, it’s better to be in the economy space in urban areas. There’s more demand.”

Echoed Ronald Barrott, CEO of Pro-invest Group, which is currently developing a portfolio of Holiday Inn Express hotels across Australia, “The economy sector in Bangkok is ideal: the right brand and rate product. Traveler’s want their dollar to go a lot farther. It puts pressure on full-service hotels. The select-service model is growing throughout Asia.”

An investment panel on the conference's first full day touched on capitalizing on global hotel investment opportunities in 2015. For Megat Shahrul Azman Abad, COO of the hospitality division of Felda Investment Corp., hotel investment outside its main base of Malaysia is very much based on demand being filled by native Malaysians. Case in point is the groups’ two hotels in London. “They are packed with Malaysians,” he said. “That’s the motivation. It’s a safe bet.”

Alvin Mah, CIO of Alpha Investment Partners, goes where the deals are,” he said. “Where are travelers going to?” His group likes Taiwan, he said, because “it is under supplied,” though, admitting, “It is hard to convince owners to sell there.”

Further, Mah said, “We like mature markets where there is consistency of demand, like Seoul and Tokyo.” He added that in those destinations he has attained IRRs of 30 percent.

Beyond the mature markets of Asia, Kevin Wallace, managing director Australasia for Plateno Hotels Group, cited secondary markets in Indonesia and Sri Lanka. “We are motivated by getting the flags out there,” he said. “Location is critical whatever segment it is. And the right partner to work with long-term.”

Investment Models
Investment and operating models, in Asia Pacific and elsewhere, are skewing further and further toward midscale. That was one case made by Dr. Sabine Schaffer, managing partner of Pro-Invest Group. “Our focus is in the three-star level,” she said. “We make money through an efficient operating model.”

Teddy Zhang, managing director of China for Thayer Lodging Group, noted that different regions require different strategies. “We are always looking at increasing RevPAR,” he said. “Cutting costs is not always the solution.”

For Simon Champion, CEO of easyHotel, a chain of no-frills properties mainly in Europe, cost starts and ends the discussion. “We have no F&B, windowless rooms, it’s a value proposition and about optimizing real estate space,” he said. Champion, who said his hotels achieve 80-percent margins, also added that easyHotel distributes 0 percent of its product through OTAs. “We keep operating costs low.”

Zhang is less concerned about OTAs than he is about new brands. “Hoteliers always complain about OTAs commoditizing the product,” he said. “Hotels are commoditizing themselves with new brands.”