Private investment in hotels in Asia surged 218 percent year-on-year in 2013 to $7.5 billion of transactions, making last year Asia’s strongest year since 2007 for hotel transactions, according to a recent report by property services firm Jones Lang LaSalle.
Singapore, Japan and Mainland China were the region’s busiest markets, with investment volumes of $2.7 billion, $2 billion, and $1.1 billion, respectively. These numbers were boosted by several landmark transactions in 2013, such as the reported $1.15 billion purchase of Grand Park Orchard hotel and Knightsbridge retail by Chinese corporate Bright Ruby Resources, Singapore’s largest single-asset transaction to date.
Investor demand for hotels reached record levels last year because the performance of Asian hotel assets reached pre-crisis levels, thanks largely to increasing tourism, according to Frank Sorgiovanni, vice president of JLL hotels and hospitality research.
Increased supply was also a major driver of investment as multiple hotel developments were completed and several trophy assets were brought to market. “Landlords are starting to realize that market fundamentals and buyer appetite are both quite strong, and so they don’t want to wait to sell their hotel properties,” Sorgiovanni said.
Competition for hotel assets in Asia, however, is one battle that private equity real estate firms and institutional investors are losing. Indeed, according to JLL data, private equity and institutional capital only made up 38 percent of hotel transactions last year, with the remainder taken up by corporates, developers, REITs and high net-worth individuals.
“It’s going to be tough for fund managers and institutions to compete, because they’re always going to be up against families [and individuals] that want to hand these assets down to their children,” Sorgiovanni explained. With time constraints being less of an issue for them, family office and individual investors are willing to pay more and are not so concerned about exits.
But Sorgiovanni also expected that 2014 would be a less remarkable year for hotel investment given the current lack of supply. Most markets are well supplied with hotels and are not expecting any new developments, with the exception of China and Korea. Sorgiovanni said Singapore and Japan’s hotel markets in particular would probably be comparatively quiet in 2014.