The international hotel sector is set for exponential growth in 2015 as Chinese insurers continue their foray into prime property markets, the most recent acquisition being New York's Baccarat Hotel.
Sunshine Insurance Group, one of China's largest insurers announced the purchase of the as yet un-opened 114-room hotel for a record price of US$230m, working out to around US$2m per room.
Although the Baccarat Hotel is not scheduled to open until March 2015, the property will be the highest valued hotel in the United States when the acquisition goes through.
The hotel was jointly built by US developers Starwood Capital Group and Tribeca Associates and will feature super-deluxe suites costing around US$18,000 per night, targeting high-end guests including wealthy Chinese tourists.
China's insurance companies attracted by high-yielding hotel assets
Sunshine Insurance are not new to the luxury hotel market having paid a record US$463m to acquire Sydney's Sheraton on the Park hotel, the brand's first in Australia.
The 557-room Sheraton overlooks Sydney's Hyde Park and attracted investors from Singapore, Malaysia, the Middle East and mainland china, according to selling agent Craig Collins, chief executive officer of Jones Lang LaSalle Hotels, Australasia.
The sale was a key marker for Chinese investment in Australia as it represents the first large acquisition of a commercial property by an insurance group after China relaxed its rules for overseas investment.
The international hotel sector is a popular market with Chinese insurers and indicates a growing trend for investment in hospitality, particularly in prime markets. Business and leisure tourism saw huge growth in destinations all over the world during 2014, improving investor confidence in the hotel and hospitality sector.
2014 saw unprecedented growth in the hotel investment sector
However, hotel investment is no longer the domain of the rich and famous. 2014 saw a large increase in international investment opportunities in hotel rooms, appealing to buyers with much smaller budgets than massive Chinese conglomerates.
Hotel rooms hold a lot of appeal for those seeking income-generating assets within an existing, professionally managed hotel complex. With low points of entry and plenty of availability around the world, 2015 is expected to see the hotel sector boom, particularly after April when UK pension-savers will be able to spend their lump sums as they wish.
Investors in Europe's hotel sector witnessed strong growth in revenue per available room (RevPAR) of 5.2% in 2014, achieving an average of €73.51. The increase in RevPAR was on the back of 3.1% growth in demand in Europe and positive occupancy levels, up 2.1% on 2013.
London remained the European hotel sector's strongest performer in occupancy terms with rates at 82.3%, followed by Paris (81.1%) and Dublin (79.2%).
2015 to see continued growth in hotel room investment
According to a report published by hotel sector researchers ST Global covering 29 markets across Europe, Athens, Milan and Vienna are expected to see the most significant increase in RevPAR in 2015. Outside Europe, markets to watch for hotel investment opportunities this year are Thailand, Dubai, US and Japan.
Jones Lang LaSalle is optimistic for the hotel sector in 2015, highlighting the following 'takeaways' in their Hotel Investment Outlook 2015:
- US$68bn in global volumes expected in 2015
- A 15% increase on 2014 levels and the third-highest annual total on record
- Chinese capital to represent US$5bn in outbound hotel investment
- The Americas will drive global volumes with an expected US$34.5bn in transactions
- US$24bn in hotel trades expected to take place in Europe, the Middle East and Africa
- 13% more transactions expected in Asia Pacific, lifting deal volume to US$8.5bn
- Single asset transactions will drive more than two-thirds of deals in 2015
- 5%-8% growth in RevPAR is projected globally
With an exceptionally upbeat outlook for 2015, there is likely to be significant interest in the hotel sector in popular destinations around the world. Attracted by consistent rental incomes and promising capital appreciation in a rapidly expanding market, smaller investors are likely to snap up hotel room investments where demand levels are highest.
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- Wednesday 11 February 2015