INTERNATIONAL REPORT—With 2017 coming to an end, the industry has already switched gears to 2018. While owners, developers and investors have been examining the global markets for the new year, the closer 2018 gets, the easier projecting the outlook becomes. It may be nearly impossible to forecast markets, especially when there’s uncertainty or unrest, but regions with both political and economic stability give clues.
Beginning with the Asia-Pacific region, the hotel investment turnover in Q2 2017 was stable at $2.8 billion, according to CBRE Research. During this time frame, both domestic and foreign investors continued their searches for hospitality assets, a report from the firm noted.
Hong Kong remains an active market. The biggest reported deal in Q2 2017 was the sale of the Rosedale Hotel to an undisclosed local investor group for about $231 million. Domestic investors continue to dominate this market, but many foreign buyers view Hong Kong as an important gateway market.
There’s a gradual recovery in tourist arrivals in Hong Kong. Visitor numbers in Q2 2017 increased 1% year-over-year. With this, there’s been a stronger demand for hotels, according to CBRE’s research. The firm also expects the active investment market will continue to spill over into the hospitality sector.
By 2021, Greater China will still generate the largest number of international arrivals into Asia-Pacific destinations. Hong Kong is expected to generate 131.6 million arrivals in 2021, according to a report this year released by the Pacific Asia Travel Association (PATA), a nonprofit travel trade association.
Another country gaining traction is Vietnam. The increased visitor arrival continues to drive demand for hotels in major cities and in coastal areas of the country, CBRE’s report noted. Visitor arrivals in July saw an increase of 21.1% year-over-year. This growth can be attributed to Vietnam’s location.
“Vietnam is very well located in terms of accessibility to the rest of Asia,” said Robert McIntosh, the executive director responsible for CBRE Hotels in the Asia-Pacific region. “Not only is Vietnam attractive for visitors, with safety, a good climate and a range of locations [that are]key drivers, but it’s coming off a fairly low base. With a population of more than 90 million, it had only four million visitors 10 years ago. This had grown to 10 million last year.”
Vietnamese conglomerates are the other key driver of demand in the country. “A lot of resorts/second-home projects along the coastal cities are being developed by large local corporations, who are now more aware of the power of marketing and brand names,” he explained. “They target the strongly growing domestic demand as well as that from international visitors.” To name just a few of the conglomerates contributing to driving demand: Vingroup, a property developer; Sun Group, a hospitality developer; and VietJet Air, currently the only private airline in Vietnam.
While demand from domestic investors continues to remain solid, foreign investors, especially those groups from Asia, have been scouting around for investment opportunities in the country. These investors have been seeking properties in large cities and resort destinations, CBRE’s report outlined.
Singapore is worth looking into, according to the research. The market has been subdued for the past several years. The government appears to be gradually easing restrictions (previously it had banned the construction of new hotels and stopped releasing land for new projects), according to CBRE’s report on the market.
Of course, the demand in Australia is expected to remain firm. International visitors totaled 8.5 million for the year ending in June 2017, an increase of 8.9% year-over-year, according to CBRE, but transactions remain limited.
In Latin America, Brazil and Mexico are seeing positive construction pipeline numbers, according to a fall 2017 Lodging Econometrics report on international construction pipelines. There’s a total of 38 projects with 7,026 rooms in the pipeline in Sao Paulo and a total of 25 projects with 4,594 rooms in Campinas, Brazil. There are 15 projects in the pipeline with 7,410 rooms in Cancun, Mexico. In Monterrey, Mexico, there are 17 projects with 2,720 rooms in the pipeline. According to a Q2 2017 report from STR, Mexico’s absolute occupancy level was the highest for any quarter in the country since Q1 2006. Occupancy this quarter hit 65.7%, up 3.1% from Q2 2016.
Moving to Europe, in the first half of the year, Spain witnessed a 228% increase year-over-year in investment volumes. “The Spanish economic recovery together with attractive asset pricing and availability were major factors contributing to this result,” explained Catherine Latzenhofer, an analyst at CBRE. “Particularly, resorts in Southern European markets (including Spain itself) have been increasingly on the radar of international investors. Resorts are now returning to the market after being largely in the hands of private equity funds, who are now looking to crystallize their investment.” Included in the Southern European markets to watch in 2018: Italy and Portugal.
Germany is another European market to pay close attention to in the new year. “Germany remains a safe haven for the international investment community,” she said, noting that there’s political stability and economic growth there. There are 26 projects with 5,286 rooms in the construction pipeline in Munich.
“Still, general political stability and economic growth coupled with good-quality investable stock and availability of leases proves attractive to domestic and international investors,” she said.
There’s limited investable stock in the Netherlands, but the appetite is strong. “We don’t see any indication that neither the performance growth nor investment appetite will slow down in the short term,” said Jan Steinebach, director of CBRE Hotels in the Netherlands. The country is stable economically, and the political situation is stable, too, he pointed out.
Going into 2018, the United Kingdom will be a popular target for investors. There’ll be a “strong investment appetite” for the U.K. “Particularly in London, strong international interest continues and yields appear to have held despite the political turbulence encountered in recent months,” Latzenhofer said. According to Lodging Econometrics, there’s currently a total of 83 projects with 15,029 rooms in the construction pipeline in the market.
“Right now in London, more than half of the projects in the pipeline are in the ground,” said Bruce Ford, SVP & director of global business development at Lodging Econometrics. “The intention is to open them up while the lodging real estate cycle is still on the upslope. Since typical operating performance in Europe has been depressed in the past few years, they are predicted to see a continued upslope as the U.S. market softens.”
“This relatively low amount of stock expected to come to the market remains the only hurdle to considerable growth in investment volumes,” Latzenhofer explained. “Across the regions, recently, major portfolios have been coming back to the market and are expected to attract international capital as well.” HB
