JLL Hotels & Hospitality has released its annual "Hotel Investment Outlook," describing global investor sentiment as "cautious yet confident."
The report projects global hotel investment volume will reach $67.2 billion, nearly equal to 2018’s total of $67.7 billion.
While the firm expects moderate economic growth and geopolitical uncertainty, hotel property performance remains strong, travel and tourism are anticipated to reach another record year and investors seeking more yield are increasingly turning their sights toward hotels.
Key Investment Drivers
Close-ended private funds raised $28.8 billion globally in vehicles with either a hotel focus or a hotel component as part of a broader strategy in 2018. JLL anticipates these funds will pursue more large-scale investments to efficiently deploy capital and shift strategies toward private debt fundraising.
During the past five years, approximately 70 percent of global hotel investments were made by generalist investors who invest in multiple asset classes. Given hotels’ attractive yield profile, JLL expects investors will to continue to seek entry into real estate, particularly hotels.
In 2018, the largest capital inflows targeted Europe, driven by Middle Eastern and Asian investors. JLL anticipates international activity will increase in 2019, driven in part by inflows to Europe, North America-based investors turning focus toward markets across Asia and cross-border capital exploring portfolio opportunities, including those with assets located outside of primary markets.
Top hotel brands account for less than one-third of hotel rooms globally and in 2019, JLL expects to see more targeted acquisitions of unique concepts and locations to complement existing product offerings.
“Investment activity exceeded expectation in 2018 and we believe 2019 will be another strong year for global hotel investment, with a significant amount of debt and equity liquidity and competitive bidding for assets, given continued strength in fundamentals,” Mark Wynne Smith, global CEO, JLL Hotels & Hospitality, said in a statement. “Notwithstanding the more cautious backdrop, ongoing large portfolio and entity-level activity, hotels’ attractive yield profile and record levels of dry powder will drive global hotel investment momentum.”
Europe Driven by Single-Asset Deals
JLL expects investment volumes across Europe, the Middle East and Africa to soften between 5 and 10 percent. The market will be driven mostly by single-asset deals and less by portfolio trades, given the sheer volume of such transactions during the past two years.
Diverse sources of core and core-plus capital are increasingly evaluating investment into hotels. Private equity groups and other yield-driven investors will face more competition from investors with a lower cost of capital, therefore continuing to move into more secondary markets like Portugal and Italy.
JLL predicts that political uncertainty in the U.K., France and Italy will continue to distract investors, but tourism and business fundamentals remain solid thanks to strong infrastructure developments in the region. As such, the firm to see investors still seeking strong assets and opportunities in these markets.
Asia Pacific Transaction Activity to Rise
The APAC region is expected to stand out from a growth standpoint, the report claimed, with hotel investment volumes poised to grow 15 percent year-over-year in 2019.
Japan likely will be among the most active markets in 2019, with investor sentiment buoyed by the Rugby World Cup in September 2019 and the Tokyo Olympic Games in 2020, the report found. Investment momentum is expected to build as investors explore selling their hotel assets to ride the anticipated tourism boom.
Singapore also is on investors’ radars, and hotel transaction activity in China continues to rise. The positive trend in hotel trading performance will continue to push pricing higher.
This, together with a favorable tourism outlook, sets the scene for a more liquid marketplace in 2019.
Americas: 2018 performance, 2019 projection
Activity in the Americas last year was fueled by luxury hotel and resort hotel sales in the U.S., which posted a 76 percent and 40 percent year-over-year volume increase, respectively, and helped drive a 42 percent increase in total U.S. transaction volume over 2017. In 2019, JLL anticipates total transaction volume for the Americas to match 2018’s figure of $36.5 billion.
According to the "Hotel Investment Outlook," Americas transaction volume in 2019 will be driven primarily by high-profile resorts, upper-tier select-service hotel portfolios and asset and entity-level portfolio activity. JLL expects private equity to continue its role as the largest buyer group of hotels and for hotel real estate investment trusts to become more active in acquisitions.
“Hotel investment and strategy will be heavily linked to opportunity—what is available in the market?” said Gilda Perez-Alvarado, Americas CEO, JLL Hotels & Hospitality. “Irreplaceable properties, access to methods to efficiently deploy large amounts of capital and top locations are all key factors affecting 2019’s investment environment.”