Why China is in charge of outbound hotel investment

Investors around the world are playing it a little bit safer when it comes to hotels these days. 

According to the latest report from JLL, a combination of lower confidence around income growth and geopolitical events pushed hotel investors to “adopt a more conservative strategy” in their investment decisions last year. 

Global hotel transaction volumes in 2016 reached $60.1 billion—the same as 2014’s numbers but a 35-percent drop from 2015’s. 

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Why China is in Charge

As we noted earlier this month, the proportion of investments funded by off-shore capital reached an all-time record of 33 percent in hotel deals. In 2017, with more uncertainty regarding how capital from mainland China will shape up, JLL expects this proportion to decrease, but remain in line with the recent multi-year average.

Mainland China is now the largest source of outbound capital, accounting for around half of total outbound hotel investment in 2016. Last year, the country overtook the Middle East as the largest source of outbound capital, with investment levels reaching a new high at $9.8 billion, a 75-percent increase from 2015. 

This is not likely to change any time soon. In fact, with only slow upward movement in oil prices, JLL expects outbound hotel investment from Middle Eastern investors to hold largely flat in 2017.

Top Markets

Source: JLL, February 2017

 

The United States continued to be the most liquid market in 2016, despite deal volumes falling 35 percent short of 2015’s numbers. International investors remain active buyers of U.S. hotel assets despite the strong currency and global economic uncertainty. JLL expects that the U.S. hotel sector will continue attracting significant international investment given the ongoing financial instability abroad, relatively attractive yields and the country’s continued status as a financial safe haven.

Germany overtook the UK as the second most liquid global market in 2016, with a number of high-profile portfolio deals transacting over the year. The UK saw a 73-percent drop in hotel investment transactions, with much of the decline attributed to the decrease in portfolio transactions. While London is still the most desired investment destination nationally, the lack of available product for sale and the gap between buyer and seller expectations has drawn investors to key regional markets, evident through the significant increase in transaction activity in Birmingham and Manchester.

In the Asia Pacific region, Japan’s booming tourism industry has caught the eye of Chinese investors eager to get a piece of the country’s hotels. This sector could become a prime target in the years to come. 

Last year, more than 10 hotels and hospitality assets were sold in Bangkok and Thailand’s major provincial destinations. (JLL brokered five of those assets.) Most of the hotel deals were domestic—but institutional investors from Hong Kong and Singapore were also active purchasers, accounting for around 45 percent of the total transaction volume.

At the same time, investment volume in Thailand declined by 15 percent from 2015 to Bt9.6 billion because of the lack of large assets available. For this year, the Bt10.8-billion sale of Swissotel Nai Lert Park is scheduled for conclusion.

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