Hotel investment volumes across Asia Pacific fell by 51% YOY in the first half of the year, as macroeconomic challenges and the increasing cost of debt impacted capital deployment.
According to the latest analysis by JLL, hotel investments moderated to $3.13 billion in H1 2023 compared to $6.41 billion in the same period last year.
During the first half of this year, hotel investment grew the strongest in Japan and Australia/New Zealand. While activity grew 56% YOY to $1.54 billion in Japan, it grew by 189% YOY to $820 million in Australia/ New Zealand.
However, activity plummeted in major gateway cities, like Singapore, which saw a 95% YOY decline to $30 million as the number of transactions dipped. Despite the poor performance in the first half, the outlook for the second half is estimated to be stronger, thanks to the recent record sale of Parkroyal on Kitchener Road for $388 million, which was advised by JLL.
At $300 million, China recorded moderate activity by 76% YOY. Despite the robust performance metrics, activity in the resort sector remained weak as assets were mainly tightly held.
Existing travel demand in China was driven by several factors, including the recent reopening of China this January, which was earlier than expected. As a result, there has been significant improvement in trading performance, primarily in the upscale and luxury segments, aided by a rise in ADR in the region’s hotels.
The increase in tourism arrivals since January 2022 was predominantly led by leisure demand, leading to continued growth in performance in the regions’ hotels, with occupancy rates leading to recovery as an increasing number of tourists return.
The impact of a continued disconnect between the strong tourism demand and macroeconomic and geopolitical challenges in H1 2023 has resulted in a gap between sellers’ pricing expectations and buyers’ access to capital, JLL said.
“However, trading performance of the sector remains strong and other fundamentals, including tourism arrivals and high occupancy rates, provide us with full confidence that the current investment environment is externally-based rather than industry-specific,” said Nihat Ercan, CEO, Asia Pacific, JLL Hotels & Hospitality Group.
As we progress into the new year, more specific opportunities are expected to emerge in some destinations in the region where prices were adjusted downwards, helping interested parties to reconsider, Ercan said.
“Investors remain very committed to the Asia Pacific hospitality sector and we see ongoing appetite among buyers to invest in key markets and strategic assets, with the ability to deploy capital.”
When considering factors like the macroeconomic environment and the project interest cycle, along with broad investor interest in assets posting a strong performance, JLL has revised its full-year 2023 forecast to $8.7 billion, down 24% from its initial prediction.
The long-term appeal of the hotel market in the Asia Pacific was recently reinforced by the completion of many recent marquee deals.
In June, JLL announced the completion of Southeast Asia’s first hotel portfolio sale this year — Pullman Jakarta Central Park, ibis Saigon South and Capri by Fraser (both in Ho Chi Minh City) — for a combined $106.1 million.