A Lion’s share: Singapore is most active hotel investment market in Asia Pac

The Lion City accounted for a whopping $1.02b out of the $2.6b transaction volume in the region.

According to Jones Lang LaSalle's Hotel Investment Highlights 2011, the trading environment across Asia Pacific has gone through a significant turnaround over the past 18 months, which has resulted in strong demand for hotel assets during the first half of 2011.

Transaction volume totalled $2.6 billion across Asia Pacific, up 58.5% on the same period in 2010. Asia saw the most significant uplift in activity, accounting for 81.9% of the total volume. This compares to 67% in 2010.

With few clouds on the immediate horizon, particularly for gatewaycities, this has resulted in a roundswell of activity as investors look to capitalise on the trading upswing and projected long term growth of the hotel and tourism sector across Asia Pacific. Natural disasters occurring early in the year in Australia, New Zealand and Japan have done little to quell investor enthusiasm across the region, with the recovery efforts well underway and more stable market conditions are now evident in many of the affected markets.

Investment activity across the region was concentrated in Singapore ($1.02 billion), Australia ($478 million), China ($339 million), Japan ($269 million), Hong Kong ($233 million), Thailand ($114 million) and Taiwan ($112 million).

Whilst the majority of sellers have been investment funds or private equity groups, the positive external environment has also resulted in more long term traditional owners bringing assets to market in the belief that their price expectation will be met. Buyers are focussed on the market fundamentals and these all point to continued growth.

A flying start to the year across South East Asia

While the strong economic and trading backdrop has underpinned investor demand, it has been willingness of buyers to meet the market which has seen transaction activity increase across South East Asia during the first half of the year. This has resulted in new pricing benchmarks being set above the 2007 peak.

The sale of the Crowne Plaza Changi Airport hotel for $628K per key, in a deal brokered by Jones Lang LaSalle Hotels, is one example of the new pricing norm. The only hotel in Singapore to be directly connected to Changi Airport, the 320 room hotel has generated strong cash fl ows since opening in 2008. The hotel asset and accompanying land parcel was bought for $201 million by Overseas Union Enterprise Limited.

Future growth is anticipated in line with the higher levels of passenger throughput projected through one of Asia’s premier aviation hubs. Signifi cant investment in tourism infrastructure is also seeing the country transition from a business and short stay transit market into a major tourism destination in its own right.

Reflecting this, Singapore emerged as the most active investment market across the region with more than $1.02 billion of sales and already representing the highest annual level since 2006. Investors are focussed on hotel fundamentals; visitor arrivals are projected to increase by 46.6% over the next fi ve years, outstripping room supply which has averaged 7.6% per annum between 2010 and 2012.

And unlike some countries, the Government has a proven track record on delivering on its visitor projections. Many investors also believe that there is considerable upside evident in Singapore’s hotel room rates, particularly when compared to other global cities across the region, notably Tokyo and Hong Kong.

While the bid-ask spread narrowed during the first half of the year, sellers are once again revising upwards their expectations and deals have become harder to complete. The enthusiasm that was evident during the fi rst half of the year has been replaced by a greater degree of caution as cracks in the global economy have re-emerged.

With Asia being one of the primary sources of global capital in 2011, investors are also showing greater reluctance to pay a substantial premium for hotel assets and sellers may need to temper expectations if assets are to compete with the smorgasbord of opportunities being offered in the US and Europe.