Hotel sales worldwide are on target for an outstanding year after totalling more than €39bn in the first half of 2015, boosted by an increasing appetite among Asian and Middle Eastern investors.
Transactions in the international hotel sector jumped 56% year-on-year in the first six months of this year, according to real estate broker JLL’s Hotels & Hospitality Group. The astonishing pace is short of the record of €57bn set in the first half of 2007.
The rise in global hotel activity this year reflects investors increasing risk appetite in pursuit of higher yields at a time when interest rates remain near historic lows. Hotels typically generate higher returns than traditional property assets like offices or retail space.
Transaction Volumes Exceeding Expectations in H1 2015
Mark Wynne Smith, CEO at JLL Hotels & Hospitality said: “Institutions are getting more comfortable acquiring hotels and the hotel market is benefiting from that”.
Sales in the first six months were also driven in part by a number of sovereign wealth funds and corporate investors entering the hotel market for the first time or increasing their exposure.
Chinese mega-insurers feature prominently in the international hotel market with major deals including Anbang Insurance Group Company which paid €1.8bn for the Waldorf-Astoria hotel in New York and the Sunshine Insurance Company, acquiring The Grand Salon at the Baccarat Hotel in New York for €212m earlier this year. The price per room for the Baccarat of about €1.85m was a record valuation for a U.S. hotel.
Middle East Investment up on Falling Oil Prices
Falling oil prices have also encouraged Middle-Eastern investment funds to diversify through property holdings abroad. Qatar Investment Authority in April acquired a trio of high-end London hotels – namely Claridge’s, the Berkeley and the Connaught – for €1.85bn. Overall investors from Asia and the Middle East spent more than €9bn on hotels in the first half of the year, compared with €2.1bn last year.
The US hotel sector has received capital inflows totalling €22bn in the first half of 2015, representing a 73% increase from the same period last year, while hotel sales of €13.5bn in Europe, the Middle East and Africa is up 55% on H1 2014.
The US is expected to continue in pole position in the international hotel sector in 2015 with transaction volume projected at €32bn. Investors have been seen to be disposing of hotel assets purchased at the onset of the recovery cycle and taking capital gains. Momentum in the US market is fuelled by the weight of private equity pursuing portfolio deals.
US Hotel Market Still Leading the Charge
Hotel sectors in Europe, the Middle East and Africa are expected to continue striding towards the target of a projected €23bn in hotel trades this year. The bulk of sales activity is driven by large single asset transactions let by London and Paris, while portfolio deals are anticipated in the UK and Germany.
Outbound capital from the Middle East will continue to remain strong; particularly in view the region’s currency is pegged to the all-powerful dollar. Over in Asia Pacific, Japan is looking to be the best performer in the hotel sector bringing 13% more transactions to the market in H1 2015 and lifting deal volume to €7.8bn. Australia remains an active hotel market with a stable government, rising tourism and increasing investment interest from China creating a safe haven for moderate growth.
At the beginning of the year, IPIN predicted an exceptionally upbeat outlook for the international hotel sector in 2015. Recent reports confirm the significant rise in 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, hotels will continue to be snapped up by investors in markets where demand levels are the highest.
- Wednesday 05 August 2015