Hong Kong hotel investment surges 70.5% in the first half of 2022
JLL forecasts total Asia Pacific hotel investment volumes will reach USD 10.7 billion this year
HONG KONG, July 19, 2022 – Recovery in Asia Pacific's hotel sector continued to accelerate in 2022 with investment volumes for the first half of the year totalling USD 6.8 billion. According to JLL (NYSE: JLL) data and analysis, investments in the first half of 2022 represent 33.0% growth year-on-year and an 11.9% increase on 2019, demonstrating a return to pre-pandemic levels of capital deployment into the Asia Pacific hotels sector.
Hotel investments in Hong Kong have also turned active since 2021 and increased further this year. The total hotel sales volume surged 70.5% from USD 295.5 million in the second half of 2021 to USD 504 million in the first half of 2022, whereas the market recorded USD16 million only in the first half of 2021, which signals a strong return of investment interest for the hotel sector.
Jonathan Law, Vice President, JLL Hotels & Hospitality Group, said: "Acquisitions of hotels in the city are being backed by investment funds focused on value-add investment who are looking to employ a more active-creation strategy as opposed to simply investing for future price appreciation. The investors are picking up hotels to convert into co-living spaces with an eye on properties that are highly assessable to public transport in a bid to target young professionals who are attracted to convenience."
"Hotel transactions in Kowloon are the most active as the price per sq ft is lower. However, price per sq ft should not be the only metric when looking at hotels, as the efficiency of floor plates will impact the ability to generate returns from the asset, as well as management terms and facilities provided," he added.
In Asia Pacific, 75 transactions were recorded in the first half of 2022, down 20.2% year-on-year and 33.0% on the first half of 2019. However, the total number of rooms transacted during the first six months of 2022 was 19,822, representing an increase of 29.9% versus the first half of 2021 and 9.4% during the pre-pandemic period in 2019. The increase in deal activity was influenced by a spike in portfolio transactions as institutional investors sitting on dry powder sought to deploy their capital more efficiently. However, according to JLL, ongoing momentum will likely be challenged by growing macroeconomic and geopolitical headwinds in the second half of 2022.
Nihat Ercan, Senior Managing Director, Head of Investment Sales, Asia Pacific, JLL Hotels & Hospitality Group, said: "The resilience of Asia Pacific's hospitality sector and reopening of borders have accelerated further in 2022, with pandemic-induced pent-up corporate and leisure demand ensuring that travel demand will soon be on par with pre-Covid levels. As a result, the two-year lull in investment activity has largely subsided, demonstrated by record levels of capital raised for deals across Asia Pacific gateway markets and resort destinations."
Investment activity was spread across various Asia Pacific markets as the opening of borders ensured that many markets transition from reliance on domestic demand towards inbound leisure and corporate business. However, the conflux of current favourable travel market conditions and the longer-term economic outlook is creating a disconnect between buyers' and sellers' expectations around pricing.
From an investment volume standpoint, Japan (USD 1.8 billion), Korea (USD 1.7 billion), and Greater China including Hong Kong (USD 1.6 billion), received the most capital in the first half of 2022. Singapore (USD 899.7 million), Maldives (USD 205.5 million), and Indonesia (USD 159.6 million) continued to recover strongly. Activity in Australia (USD 145.5 million) and Thailand (USD 37.7 million) was more subdued but will likely be bolstered in the second half due to numerous marque deals closing.
Mike Batchelor, CEO, Asia Pacific, JLL Hotels & Hospitality Group, said: "A more sustainable recovery in travel will intensify the largest challenge faced by many investors of successfully deploying capital into investment grade product across the region. We remain steadfast in our conviction that total Asia Pacific hotel investment volume will cross the USD 10 billion mark despite the scarcity of assets coupled with macro and geopolitical headwinds that will continue to influence capital activity."
Country highlights, based on JLL analysis and research, include:
- Australia: Transaction volumes were relatively muted over the first half of 2022 and down 66.0% on first half of 2021 volumes. According to JLL, approximately USD 700 million of deals were exchanged but not yet settled, which will drive transaction volumes over the remainder of the year. Investors also remain eager to deploy capital into hotel assets in Australia and New Zealand with a 'flight-to-quality' strategy or in mid-market properties where active asset management or conversion of use can drive notable returns.
- China: Year-on-year hotel transaction volume decreased by 43.8% due to strict lockdown measures in many cities as a result of a resurgence of Covid-19 cases, with many hotel transaction activities likely delayed to the fourth quarter of 2022 or the first quarter of 2023. JLL expects the combined impact of China's "Three Red Lines" and "zero-Covid" policies to result in further price reductions of hotel assets and forecasts China's hotel transaction volume to total approximately USD 2 billion in 2022.
- Japan: The market has seen a notable recovery in the first half of 2022 with the key Japan metros tracked by JLL up 91% for the year-to-date 2022 versus the same period last year. Investors remain steadfast in acquiring hotel assets in Japan due to an expectation of strong domestic and international tourism demand due to the recent devaluation of the Japanese yen. Against the backdrop of global rate hikes, Japan's debt financing environment remains attractive to investors and, as such, JLL expects the country's transaction volumes to remain strong for the remainder of the year.
- Singapore: As one of the first countries to lift most travel restrictions in Asia, Singapore has bounced back the quickest with year-to-date transaction volumes close to USD 900 million crossing pre-pandemic levels. Transactions have been most active in the mid-market space where investors identified opportunities to convert properties into co-living product to boost performance.
- Thailand: According to JLL, more hotels are entering the market as sellers are under increasing pressure to sell. While buyers are actively looking, they are opportunistic in their pricing and more conservative when making offers on properties. There are numerous private equity funds and family offices currently active in the Thailand hotel market and JLL is seeing an increase in foreign interest with the lifting of travel restrictions. JLL forecasts transaction volumes to reach close to USD 300 million for the full year 2022.
Learn more here: JLL Hotels & Hospitality Group
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