Global investors follow demand trends to find next big deal

Global investors are keeping tabs on traveler demand patterns and using them to source out their next hospitality deal. This is especially true for China-based investors, who are tracking Chinese travel habits and investing in platforms outside mainland China. 

Savills’ latest 12 Cities report found that around 901 million domestic and overseas visitors were attracted to the top 12 global cities, spending a total of 1.05 billion nights in hotels or other accommodation. In some cases, such as New York and London, the visitor populations hosted were the equivalent of another city in themselves.

“As global tourism continues to rise, demand for bed space in many city markets is now outstripping supply," noted George Nicholas, Savills' global head of hotels. "For example, Tokyo has had an influx of tourists from China following the relaxation of visa requirements and the city now has a chronic shortage of rooms; in London, the fall in the value of the sterling is attracting visitors who previously thought the UK’s capital too expensive. The net result of this is that we’re seeing a shift in where investor appetite for hotel assets and platforms stems from, with Asian capital in particular coming to the fore in Europe over the past 12 months."

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Nicholas cites three, post-EU referendum London transactions that have all gone to Asian domiciled money, while China Life has just invested nearly USD $2 billion into a select-service portfolio of hotels in the U.S. alongside Starwood Capital. "We continue to receive significant interest from Asian investors, particularly those from China and Hong Kong, for hotels in London and across Europe’s gateway cities," he said.

Taking Advantage of Travel

The report came as the UNWTO World Tourism Barometer reported that international tourist arrivals worldwide grew by 4 percent between January and June 2016 compared to the same period last year. Destinations worldwide received 561 million international tourists, 21 million more than in 2015.

China, the world’s top source market, continued to report double-digit growth in expenditure on international travel (+20 percent in the first quarter of 2016), benefiting destinations in the region and beyond.  

Playing a leading role in the hotel sector is HNA Group, which most recently acquired a 25-percent stake in Hilton Worldwide. The company is limited in its actions at Hilton for two years, but has already built a strong position in the market through its acquisition of Carlson Hotels, which is due to close in November.

The Carlson deal is expected to cascade into Europe, triggering a bid for Rezidor Hotel Group, in which it will have a 51.3-percent stake. Under Swedish rules, once the deal is complete, HNA has four weeks to decide whether it makes an offer for the remaining shares in Rezidor or sell down its ownership to below 30 percent. Management at Rezidor, which has already met with HNA, has described a takeover as the logical next step, a move which would give the combined group a platform in Europe, as well as in emerging markets such as Africa.

The outlook is less welcoming at Spain’s NH group, in which HNA has a 29.5-percent stake, and where the Chinese group has filed a lawsuit calling for a vote in June in which the CEO was ousted to be reversed. HNA is widely expected to acquire the remainder of NH, but said that it would not be forced into doing so by other shareholders. Access to NH gives HNA a position not only in Spain, but also Latin America.

Chinese insurer Anbang, having missed out on Starwood Hotels & Resorts, is also thought to be continuing to stalk the sector, with sources close to us suggesting that InterContinental Hotels Group is setting up a defensive acquisition to protect itself from a change in ownership.

AccorHotels is having a less-than-easy time with its own China-based investor, Jin Jiang, which has been gradually stake-building to the position of a 15.06-percent stake by June and comments that it was looking for seats on the board. AccorHotels, which has a strategic agreement in China with China Lodging, is thought to be resistant. Sébastien Bazin, AccorHotels’ chairman & CEO said of the two: “We listen to each other. These discussions continue but we have not yet found the right solution to advance.”

Jin Jiang previously commented that: “If two major hotel companies in Europe and Asia could join hands, our complimentary resources and advantages could be better leveraged to gain an edge in the fierce global competition.”

The interest is not only in mainland Europe. Rob Stapleton, director of Savills, told us: “Investor appetite for hotels in the UK remains undimmed [post-Brexit]. Demand for London assets is higher now than it was 12 months ago; indeed it is across most regional markets in the UK and across all segments of the market.

“The depreciation of sterling has made the UK a more affordable market and there has been a marked increase in overseas investor activity as a consequence but there is also significant liquidity at a national level and from a diverse range of sources of capital. By the far the largest increase in appetite however is from Asian capital—from private individuals to REITs, institutions and Fortune 250 conglomerates.

“Much of this capital is strategic. Take HNA as an example: their core business is an airline and they also own stakes in several global hotel companies, so why not own the properties these tourists will stay in, too? It is just another level of vertical integration.

“Others are seeking capital preservation in this low interest-rate environment whilst for the Asian institutions, it is the search for income growth. Like everywhere, Asia has an ageing population and against a backdrop of low prime yields across the hotel investment markets in Asia, pension funds and insurance companies are having to look further afield for attractive investment opportunities.”

The fall of sterling has already made its presence felt in increased visitor numbers. VisitBritain data indicate that the UK welcomed its highest-ever number of inbound tourists in August this year, with the 3.8 million visits marking a 2-percent increase. Tourist spend rose 4 percent year-on-year, driven by a 13-percent increase in visitors from North America.

China’s natural resources and wealth give it huge amounts of firepower financially, which is finding a home as West sells to East. A state most parties are, so far, embracing.

Katherine Doggrell is an editor at UK-based news analysis service Hotel Analyst.

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