JLL research projects that the Americas will garner US$31 billion in hotel transaction volumes in 2017. Coming off of a year when liquidity was underpinned by offshore capital, one of the most notable shifts anticipated for the U.S. lodging market in 2017 is buyer composition.
Last year, offshore investors were the largest hotel group, ratcheting up 43% of acquisitions by volume. This year, JLL expects to see a shakeup in the buyer pool for U.S. hotels.
Transactions in 2017 will generally be driven by funds reaching the end of their hold period and the subsequent restructuring of portfolios, rather than high-income growth.
Offshore capital ebbs, flows
In 2016, North America was the largest recipient of off-shore capital, garnering almost US$14 billion from investors in Asia, Europe and the Middle East. Mainland China, the primary driver of that capital, is expected to reduce its outbound volume in 2017, amid tighter measures on outbound capital from the Chinese government.
As China pulls back, the U.S. likely will see a drop in the number of transactions with Chinese investors. However, Chinese investors are still interested in assets in gateway markets such as New York and San Francisco.
Europe is expected to increase its outbound capital flows as its institutional investors target high-profile assets. Having deployed just over US$1 billion in hotel transactions in 2016, Europe is projected to ramp up its outbound capital, and U.S. hotel assets will continue to be a focus for European investors.
Domestic groups take stage
Real estate investment trusts are expected to occupy a larger share of the buyer pool for U.S. hotels. In 2016, the Dow Jones U.S. Hotel & Lodging REIT Index rallied 44%, an impressive increase that paves the way for more acquisitions. Public REITs’ hotel acquisitions in the U.S. averaged US$4 billion per year from 2011 to 2015, putting into perspective just how active they could be this year.
Private equity funds also are expected to become more active players in the U.S. lodging market throughout 2017. Having raised a significant amount of new capital last year, many of these investors plan to get back in the game after not being very active on the buy side in 2016.
Stability, consistency ahead
This year is poised to be one of relative stability for the U.S. lodging sector. More involvement from domestic investors, particularly REITs and private equity groups, will help offset the expected slowdown in investments led by Chinese buyers. Mergers and acquisitions—both with regard to brands and real estate—will spur some shake up among the lodging’s sectors biggest players, and domestic investors are projected to drive a large portion of U.S. hotel transactions this year.
JLL is a professional services firm specializing in real estate.