HOTEL
TRENDS
ASIA PACIFIC Q1 2015
Investor demand remains robust
Australia and Japan record strong activity
Fundamentals in Hong Kong and Singapore weaken slightly
Upward pricing pressure continues to build
Sector attracting new investors
Chinese buyers particularly active
Tourism arrivals increasing steadily
Growing interest in Myanmar
HOTEL TRENDS
Q1 2015
3
4
5
6
7
8
9
10
Overview
Hong Kong
Japan
South Korea
Singapore
Thailand
Australia
Myanmar
HOTEL
FUNDAMENTALS
INVESTOR
DEMAND
TRANSACTION
VOLUME
HOTEL TRENDS Q1 2015
OVERVIEW
TOURISM
ARRIVALS
Investors display strong appetite for hotels
• Investors displayed a robust appetite for hotels in Asia Pacific in Q1 2015, with strong
activity reported in Australia and Japan. There is more money than deals at present and
upward pricing pressure continues to build.
• Tourism arrivals continue to grow steadily and the industry remains resilient despite
political unrest and other events negatively impacting some markets. RevPAR growth in
many major cities has been positive and occupancy is high in most markets.
Robert McIntosh
Executive Director
Hotels
Asia Pacific
t: +65 6326 1200
e: robert.mcintosh@cbre.com.sg
Australia continues to see wave of Asian capital
• Asian buyers were particularly active in Australia in Q1 2015 and completed a number
of sizable deals. Prices hit new highs, supported by the shortage of saleable good quality
and well located assets.
• In Japan, investors displayed robust demand for hotel properties this quarter, with
interest coming from a broad range of local and international buyers. Demand
continues to be driven by the growth in visitor arrivals and the lack of supply.
Rising interest in emerging markets
• Investors are displaying an interest in emerging markets such as Myanmar although they
are wary of the lack of legal safeguards. Enquiries are also increasing in India but it is
challenging to find suitable assets for sale. Kuala Lumpur has been recording strong
interest but there continues to be a price mismatch.
• New buyers and new funds are considering investing in hotels. Most of these groups
prefer their first purchase to be in a gateway city but quality assets in these locations are
hard to find at present.
• The strength of Chinese buyers in recent quarters is of note, with investors from this
market looking to acquire assets within the region and also in Europe. Demand from
Chinese and Taiwanese insurance companies is increasing following recent policy
changes enabling them to invest in direct real estate abroad.
Asia Pacific Hotel Investment Turnover
14
US$ billion
12
10
8
6
4
2
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014 Q1 2015
Source: CBRE, Q1 2015
© CBRE Ltd 2015
.
3
HOTEL TRENDS Q1 2015
HONG KONG
HOTEL
FUNDAMENTALS
INVESTOR
DEMAND
TRANSACTION
VOLUME
TOURISM
ARRIVALS
Strong demand but almost no transactions reported
• Hong Kong continued to see strong demand for hotels from domestic and overseas
buyers this quarter but just one transactions was reported.
• High prices, the lack of assets for sales and government cooling measures continued to
inhibit deals and are making it very challenging to purchase a hotel in Hong Kong.
Slowdown in Chinese visitor arrivals
Robert McIntosh
Executive Director
Hotels
Asia Pacific
t: +65 6326 1200
e: robert.mcintosh@cbre.com.sg
• The period saw some negativity due to a slowdown in Chinese visitor arrivals.
Occupancy has been hovering at around 87% and there is little room for further growth.
Room rates have been flat for some time and the market is resisting increases.
• Guesthouses performed well during the quarter but other segments were flat or slightly
negative. The market is coming off record highs and is gradually slowing but this is not a
major cause for concern.
Some buyers sit back due to high prices
• Investment demand is solid in spite of the slightly weaker fundamentals. Investors
continue to look at Hong Kong from a long term perspective, although some buyers are
sitting back at present due to the high prices.
• Foreign syndicates and funds also continue to lodge enquiries. Local families and small
companies retain a strong appetite for mid to lower tier assets.
• New high quality stock in core locations is scarce and is confined to secondary office
and industrial conversions. However, concern is rising over this segment of the market
given the slowdown in tourism growth.
• The outlook is turning less positive but overall the market remains robust. Much will rest
on visitor arrivals from China and whether the slowdown continues. One major asset
and a sizable hotel and serviced apartment portfolio are currently being marketed and
are expected to close before the year-end.
Hong Kong Hotel Investment Turnover
1,600
1,400
US$ million
1,200
1,000
800
600
400
200
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014 Q1 2015
Source: CBRE, Q1 2015
4
© CBRE Ltd 2015
HOTEL
FUNDAMENTALS
INVESTOR
DEMAND
TRANSACTION
VOLUME
HOTEL TRENDS Q1 2015
JAPAN
TOURISM
ARRIVALS
Strong demand driven by growth in tourism arrivals
• Investors displayed robust demand for hotel properties in Japan this quarter with interest
coming from a broad range of local and international buyers. Demand continues to be
driven by the growth in visitor arrivals and the lack of supply.
Kiyoshi Tsuchiya
Director
Investment Property Hotels
Japan
t: +81 3528 89534
e: kiyoshi.tsuchiya@cbre.co.jp
• The tourism market continues to boom, supported by the weaker Yen, relaxed visa
requirements and more promotions. The Ministry of Land, Infrastructure, Transport and
Tourism reported that a record 13.41 million foreign tourists visited Japan in 2014, an
increase of 30% y-o-y. The number is projected to top 15 million this year. Occupancy is
very high and approaching 90%. ADR is increasing.
• The market is turning increasingly competitive as there are very 5* assets for sale. This
resulted in a decline in the number of deals this quarter. Most transactions involved 3*
or 4* properties.
Fortress acquires Kyoto property
• The biggest deal of the quarter saw US-based Fortress Investment Group purchase the
Rihga Royal Hotel in Kyoto from Royal Hotel Ltd for around JPY 10 billion. The
acquisition will be completed through Fortress' Japan opportunity fund. Fortress
reportedly plans to invest in upgrading the hotel’s rooms and facilities.
• Also during the period, it was reported that Bain Capital LLC had agreed to buy a local
hotel and day spa group, Ooedo-Onsen Holdings. Other deals included Hong Konglisted SIS International purchase of First Cabin Tsukiji hotel in Tokyo for JPY 1.97 billion.
A few J-REITs completed portfolio deals.
Outlook remains very upbeat
• Most investors continue to focus on Tokyo, Nagoya, Yokohama, Osaka, Kyoto,
Fukuoka, Sapporo and Okinawa. There is also rising interest in mid-sized cities such as
Hiroshima and Sendai.
• The outlook is positive with several assets currently being marketed and a number of
transactions nearing completion.
Japan Hotel Investment Turnover
6,000
US$ million
5,000
4,000
3,000
2,000
1,000
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014 Q1 2015
Source: CBRE, Q1 2015
© CBRE Ltd 2015
.
5
HOTEL TRENDS Q1 2015
SOUTH KOREA
HOTEL
FUNDAMENTALS
INVESTOR
DEMAND
TRANSACTION
VOLUME
TOURISM
ARRIVALS
Tourism sector remains upbeat but investors stay cautious
• The market remained quiet this quarter as investors continued to be dissuaded by the
weak macro-economic outlook and concerns over the supply demand balance.
• The weaker Yen is negatively impacting arrivals from but the massive growth in Chinese
visitors is filling the gap to a certain extent.
Don Lim
Senior Director
Head of Capital Markets
South Korea
t: +82 22170 5852
e: don.lim@cbrekorea.com
• Local investors including funds and K-REITs continue to be reluctant to enter the market
as they lack operational expertise in the hotel sector. Foreign investors are inactive but a
few overseas buyers are looking at value added and opportunistic deals.
Steady enquiries for business hotels
• In spite of the subdued overall demand, there continue to be steady enquiries for
business hotels. Several assets in this segment are currently being marketed for sale but
only those with a value added or opportunistic angle are attracting strong interest. Very
few four or five star hotels have been traded in recent years.
• There is a price gap between buyers and sellers at present of around 20-30 bps in core
areas. In decentralised areas this gap can be as high as 50 bps.
• Concerns about potential oversupply persist as the government continues to offer
incentives for new hotel development in the belief that there will be a shortage of rooms
in the medium term. The private sector is more sceptical and believes the market is
adequately supplied.
Overseas buyers focus on value add and opportunistic deals
• Some sizable assets are up for sale at present and are attracting some interest from
overseas buyers, predominantly from Asia. However most such investors are focused on
value added and opportunistic deals.
• The medium term outlook for tourism is positive and will continue to be supported by
growth in visitor arrivals from China.
South Korea Hotel Investment Turnover
600
US$ million
500
400
300
200
100
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014 Q1 2015
Source: CBRE, Q1 2015
6
© CBRE Ltd 2015
HOTEL
FUNDAMENTALS
INVESTOR
DEMAND
TRANSACTION
VOLUME
HOTEL TRENDS Q1 2015
SINGAPORE
TOURISM
ARRIVALS
Strong demand but lack of transactions
• Hotels continued to attract strong levels of interest from investors this quarter but the
environment remained challenging for buyers. This continued to result in limited deal
flow during the period.
Junrong Teo
Assistant Vice President
CBRE Hotels
Asia Pacific
t: +65 6229 1152
e: junrong.teo@cbre.com.sg
• Visitor arrivals declined 3.0% y-o-y in 2014 and growth this year is projected to be
negligible as the stronger Singapore dollar negatively impacts the tourism sector.
However, one advantage the country has is its mixed arrival profile which makes it less
exposed to the risk of a slowdown in visitors from China.
• Luxury is the strongest segment of the market at present and occupancy remains high.
This has enabled operators to implement strong increases in room rates. Economy
hotels have also been performing well. The mid-range segment is under some pressure.
Market fundamentals remain solid
• Despite the loss of momentum, the overall picture remains positive with occupancy still
high and ADR one of the strongest in the region.
• Investors turned more cautious during the period and became more rational and
analytical when evaluating potential deals. As with the broader investment market, there
is a bit of a price gap at present with vendors under no real pressure to sell, although
CBRE does still see some opportunities in the market.
• The only deal recorded this quarter was a related-party transaction which saw Frasers
Centrepoint purchase Capri by Frasers at Changi City from Ascendas Frasers for US$
148 million.
High prices and lack of stock for sale will continue to impede deals
• The market is expecting to turn more challenging given the slower tourism growth. New
supply will impact room rates and will likely cause a slight drop in occupancy.
• On the investment side, Singapore will remain a tough market for buyers in the short
term as high prices and the lack of assets available continue to impede deals.
Singapore Hotel Investment Turnover
2,500
US$ million
2,000
1,500
1,000
500
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014 Q1 2015
Source: CBRE, Q1 2015
© CBRE Ltd 2015
.
7
HOTEL TRENDS Q1 2015
THAILAND
HOTEL
FUNDAMENTALS
INVESTOR
DEMAND
TRANSACTION
VOLUME
TOURISM
ARRIVALS
Quiet period for hotel sales
• Investors continued to display strong demand for hotel properties in Thailand but no
deals were reported in Bangkok this quarter. The only transaction during the period
involved a boutique hotel in Koh Samui.
• Domestic buyers dominate but there is some amount of interest from foreign groups.
These buyers are always interested in reasonably priced quality hotels, despite the
sector’s recent subdued performance. However, such assets are rarely available for sale.
James Pitchon
Executive Director
Thailand
t: +66 2654 1111
e: james.pitchon@cbre.co.th
Tourism market sees strong recovery
• Tourism numbers continued to recover strongly following the easing of last year’s
political tensions. Visitor arrivals this quarter totalled 6.4 million, an increase of 24% yo-y. Growth in arrivals from China was particularly strong, surging 96% y-o-y.
• Visitors from China now account for around 26% of total tourism arrivals. There is a
misconception that the Chinese market is predominantly low-end but it is actually quite
segmented and filling hotels across all levels.
• The strong increase in visitor arrivals pushed up the occupancy rate for upscale
downtown hotels in Bangkok to 80%, a huge improvement on the 63% recorded in Q3
2014. ADR increased by 5.5% in Q1 2015 and RevPAR also improved.
Decline in construction starts
• There has been a decline in new construction starts and completions in recent quarters.
This is due to tighter bank lending combined with more caution on the part of
developers, which now have much greater awareness of the challenges involved in hotel
development.
• These trends could result in a slowdown in new supply in the coming years. Hotel room
supply in Bangkok across all grades is projected to increase by 15% on current levels
with the addition of around 6,000 new rooms by 2018.
Thailand Hotel Investment Turnover
600
US$ million
500
400
300
200
100
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014 Q1 2015
Source: CBRE, Q1 2015
8
© CBRE Ltd 2015
HOTEL
FUNDAMENTALS
INVESTOR
DEMAND
TRANSACTION
VOLUME
HOTEL TRENDS Q1 2015
AUSTRALIA
TOURISM
ARRIVALS
Market remains very positive
• Australia continued to see very strong investment activity for hotels in Q1 2015. As
expected, the market turned quieter in January during the holiday season but activity
picked up rapidly in February and March.
• Asian buyers were particularly active this quarter and completed a number of sizable
deals. Prices continued to hit new highs, supported by the shortage of saleable good
quality and well located assets.
Wesley Milsom
Director
Hotel Valuations
Australia
t: +61 29333 3423
e: wesley.milsom@cbre.com.au
Asian buyer acquires Sydney Hilton
• Noteworthy transactions included Singapore-based Asian investment house Bright Ruby’s
purchase of the Sydney Hilton Hotel on George Street for AUD 442 million. Hilton will
continue to operate the property subject to a 50-year management agreement.
• Another five-star hotel asset – the Westin - is up for sale in Sydney, with a number of
cashed-up Asian investors reported to be interested. The sale of the hotel will be keenly
sought after as vacant possession will be available in approximately five years.
• Other major transactions included the Rydges Darwin Airport Resort and Hotel which
was purchased by Singaporean-based private equity group SC Capital for AUD 84
million in a deal brokered by CBRE.
Local investors also active
• Local investors were also active during the period with the Sheraton Nusa Resort and
Spa in Queensland jointly acquired by two local families for AUD 108 million.
• Sydney and Melbourne continue to do very well with occupancy approaching record
levels and reasonably strong room rate growth. There is increasing concern in Brisbane
and Perth with occupancy falling back, which is negatively impacting on room rates.
• The outlook remains positive with a strong depth of investor interest across the market.
The question is whether these big trophy deals will continue, with the lack of stock for
sale becoming more apparent this quarter.
Australia Hotel Investment Turnover
3,500
US$ million
3,000
2,500
2,000
1,500
1,000
500
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014 Q1 2015
Source: CBRE, Q1 2015
© CBRE Ltd 2015
.
9
HOTEL TRENDS Q1 2015
MYANMAR
HOTEL
FUNDAMENTALS
INVESTOR
DEMAND
TRANSACTION
VOLUME
TOURISM
ARRIVALS
Market still underdeveloped but holds significant potential
• Myanmar possesses great tourism potential but the sector remains largely
underdeveloped. Since the country’s military junta transferred power to a civilian
government in 2012, tourism arrivals have increased steadily and the industry has begun
to develop.
Jia Hao Zhang
Consultant
CBRE Hotels
Asia Pacific
t: +65 6326 1674
e: jiahao.zhang@cbre.com.sg
• Tourism arrivals between January and April this year totalled around 1 million, a similar
figure as the same period in 2014, according to the Ministry of Hotels and Tourism.
Total arrivals this year are expected to be around 5 million.
• Key markets for visitor arrivals include Thailand, Japan, China, a few European countries
and the United States. Most visitors stay in the capital Yangon for two days on average.
There are very few repeat visitors due to the lack of major attractions.
Infrastructure a major challenge
• Challenges include the lack of basic infrastructure to support the tourism sector including
poor public transport networks, bumpy and narrow roads, heavy congestion and
frequent electricity cuts.
• Lengthy and costly visa applications can also deter tourists as can room rates at
internationally branded upscale and luxury hotels which are comparatively more
expensive than other regional destinations such as Bangkok and Kuala Lumpur. Flight
connectively also needs to be improved.
• A number of international hotel brands are already in plan to enter Yangon. While many
groups are keen to have presence in the country, the ownership structure lacks
transparency and security for foreign investors which are more risk-adverse. Local
operators are predominantly focused on the economy and below segments. The serviced
apartment sector is underserved, with strong demand and a lack of supply. We see great
opportunity in this sector as there is a shortage of quality product to serve the growing
expatriate population.
• The hotel market in Yangon is price sensitive and competition is intense. The ADR sweet
spot for travellers seems to be in the range of between US$70 – US$100. Figures
beyond this are considered too expensive. Many upscale and luxury hotels have recently
begun to cut rates in order to improve occupancy.
ADR beginning to normalise
• ADR has been falling in 2015 but is slowly starting to normalise. ADR at the top end of
the market is likely to stabilise in the medium term at around US$170-180 with
occupancy hovering at around 70%, which is a more sustainable state compared to the
very high ADRs when the country first opened up.
• Challenges for investors include the aforementioned lack of legal transparency and
framework; rising land and construction costs; and a shortage of well-trained hotel
personnel. Finding a reliable local partner can also be tricky.
• Myanmar is a market with great potential and one that will continue to gradually open
up. However, constructing basic infrastructure and improving the business environment
will be key to attracting investment. At present, the country is an attractive market for
investors with a stronger appetite for risk and those which are seeking high returns.
10
© CBRE Ltd 2015
Asia Pacific Hotels
Robert McIntosh
Executive Director
CBRE Hotels Asia Pacific
6 Battery Road
#32-01 Singapore
t: +65 6326 1200
e: robert.mcintosh@cbre.com.sg
HOTEL TRENDS Q1 2015
For more information about this report, please contact:
CONTACTS
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CBRE
12/F Three Exchange Square
8 Connaught Place
Central, Hong Kong
t: +852 2820 8160
e: henry.chin@cbre.com.hk
Ada Choi, CFA
Senior Director, Asia Pacific
CBRE
12/F Three Exchange Square
8 Connaught Place
Central, Hong Kong
t: +852 2820 2817
e: ada.choi@cbre.com.hk
Jonathan Hills
Director, Asia Pacific
CBRE
12/F Three Exchange Square
8 Connaught Place
Central, Hong Kong
t: +852 2820 2881
e: jonathan.hills@cbre.com.hk
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