Asia Pacific competition to intensify in Year of the Monkey

Singapore
Singapore is one of the hottest hotel markets in Asia Pacific.
It is already more than six weeks into the new year but for much of Asia the more culturally significant lunar new year has only just begun. Regardless of whether your point of reference is 2016 or the new Year of the Monkey, the 12 months ahead are poised to be big, barring external shocks. Even Australia’s normally lethargic summer holiday has been upended this year by a flurry of deals and M&A queries.

JLL Hotels & Hospitality Group estimates that $8.5 billion in investment will flow into Asia Pacific hotels in 2016, following a record $9.2 billion in 2015. Put simply, one banner year for deals is likely to be followed by another, and many of those deals are likely to be quite big although the pickings won’t be as bountiful as in 2015, when 33,000 rooms changed ownership across the region.

“There are still good opportunities for acquisitions in some markets, but now you need to dig deeper and fight harder for those, as long as interest rates are still low,” said Daniel Voellm, the Hong Kong-based managing partner for Asia Pacific, a hospitality industry intelligence provider.

For investors, this new reality will translate into a need to be both more aggressive toward their acquisition targets this year and more competitive in their bids. It will also require investors to keep an eye on any moves that central banks might make, especially the US Federal Reserve and the People’s Bank of China.

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“Overall, the outlook is still interested in interest rates and how capital markets will respond to that,” Voellm said. Fed policy this year will impact whether funds involved in Asia Pacific hotels decide to hold, purchase or exit, he added.

And Chinese government policy can also have a significant impact on the flow of investment into and out of the largest economy in the region, which is currently hemorrhaging capital in search of higher returns. Recent tightening of regulations in China’s insurance sector that had been a popular channel for moving funds abroad has some wondering if additional capital controls are in the offing.

China’s once-torrid growth has slowed significantly, but you might not know it in Japan, where Chinese tourists have taken advantage of a strong renminbi and weak yen to inject new vitality into the domestic tourism industry.

Given current market conditions across the region, Voellm said, “Japan is the biggest benefactor for the time being, it’s still riding the China wave.”

And without any obvious upside in most markets, Voellm believes some investors – including high net worth individuals and corporation – are taking a renewed interest in development. Major developments in this space will be constrained by the difficulty of execution.

In terms of regional markets, Asia Pacific’s “Big Four” – Singapore, Japan, Hong Kong and Australia – are generally expected to dominate investment activity in the Year of the Monkey.

With limited available stock and plenty of competition the next question is who will be fighting most aggressively for top properties that may become available in Asia Pacific this year? Among the top options are Chinese and South Korean pension funds, overseas institutional investors, Chinese state-owned enterprises, Singaporean real estate investment trusts (REITS) and the better-heeled individual buyers, Voellm said.

Among the more prominent such investors is likely to be the city’s own Gaw Capital, both alone and with partners.

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