Cautious yet optimistic may best describe the global hotel market’s investor sentiment, so sayeth JLL Hotels & Hospitality’s latest annual Hotel Investment Outlook report. The report projects global hotel investment volume will reach US$67.2 billion, nearly equal to 2018’s total of US$67.7 billion. While there is anticipated moderating economic growth and geopolitical uncertainty, hotel property performance remains strong, travel and tourism are both anticipated to reach another record year and investors seeking more yield are increasingly turning their sights toward hotels.
HOTELS spoke with Gilda Perez-Alvarado, JLL’s Americas CEO, about the results and what it all means for the industry going forward.
HOTELS: So JLL’s latest report projects global hotel investment volume will reach US$67.2 billion, nearly equaling totals from last year. What signs point in that direction?
Gilda Perez-Alvarado: The biggest piece of evidence is the amount of capital that has been raised by investors who’ve indicated their appetite for hotels is as strong if not stronger than last year. We’re tracking quite a bit of equity in the sidelines all looking for a home in hotel investment. And the expectations that the debt capital markets are very strong and so financing is still available, but the lenders are being very disciplined and as it relates to new supply, construction financing is still hard to come by so hopefully new supply will be in check.
H: At the ALIS conference last week, the sentiment seemed to be that hotel brands were more optimistic than developers and owners as RevPAR growth keeps getting revised downward. Some even suggest only 1% growth in 2019 as group business shows signs of softness.
GPA: We’re so deep in the cycle and it’s hard to overgeneralize, but there are markets where we’re not necessarily seeing the general RevPAR trend. So, there are recovery stories happening in New York for example. So, we do expect for New York, which was the most liquid market last year, to continue to be very robust from a transaction and volume perspective. We know that there will be active sellers in the market and there’s capital that is looking to invest. People are sanguine but they’re also being more conservative than in prior years just by virtue of us being in a very mature phase of the market.
H: Last year, the largest capital inflows targeted Europe, driven by Middle East and Asian investors. What suggests this trend will keep up in 2019?
GPA: Again, a lot of this capital, especially Middle East and Asia, is very long-term focused and if you look at where that money was going to in Europe, a lot of it was going to the UK so obviously we have the Brexit cloud looming above us, but tourism trends in the UK are still very positive with the repricing of the British pound. So, there are still a decent amount of tourists going into London in particular, hotels are doing well. The currency fluctuations have been a net positive for tourism in that market so I can see investors from Hong Kong and Singapore who have a very big affinity towards the UK, wanting to continue to buy there because they’re long term holders. So, it’s kind of a “this too shall pass,” right? And these guys are generational investors so if I was in their shoes now, it’s a really good opportunity for people to secure prime real estate in some of the world’s most valuable markets, such as London.
One also has to remember that a lot of these are not hotel specific investors – these are conglomerates so they have other businesses and other investments in various countries. A lot of hotel investment we’re seeing is cluster investment around, say, other positions that they may have that are related to their core business.
H: And in the Americas, JLL predicts we’ll see transaction volume in the coming year driven by high-profile resorts, upper-tier select service hotel portfolios and asset and entity-level portfolio activity. Does that differ from previous years?
GPA: It’s in line, but the message has been more and more reinforced by the investor groups. If you look at the resorts segment which has one of the most favorable supply/demand dynamics, that’s a very attractive assets class. In terms of select service, there is greater appetite for high-quality select service portfolios and a lot of it is being driven by the new vehicles, including non-traded REITS. With select service, we’re also seeing foreign investors being interested in that asset class.
H: And JLL also sees an opportunity for REITs to become more active in acquisitions.
GPA: As long as their stock prices hold, they will want to continue to grow. The REITs have been very diligent in terms of investing in higher RevPAR assets and filling in the gaps where they have holes, from a geographic perspective, in their portfolio. The Pebblebrook, LaSalle situation is a great example. I think we do expect to see additional consolidation is this sector and the REITs, again, it will all be dependent on where their stock price is trading.