Investors seeking more Asia Pacific hotel assets in 2021

Investors are confident in the long-term future of the Asia Pacific hotels market despite ongoing COVID-19 pressure on the tourism and hospitality sectors, says real estate services provider and consultancy firm JLL.

According to investors surveyed by JLL, approximately 70% say they are bullish on the Asia Pacific hotel market and are interested in deploying capital into the sector in 2021.

JLL is forecasting approximately $7 billion in transactions in 2021, an increase of 20% year-on-year, up from $5.8 billion in 2020. While sizable pools capital are ready to be deployed, pricing and financing will become a larger consideration for investors. According to JLL, the gap between buyer and seller price expectations will narrow as distress becomes less likely, while sellers come to terms with the impact of operating cash flow on pricing. Over 80% of investors surveyed are eyeing discounts of 20 to 30%, while sellers are expected to move roughly 10% in asking prices.

As optimism around recovery builds, Japan (52%) and Southeast Asia (46%) are emerging as the most desirable hotel investment markets in Asia Pacific, owing to strong demand dynamics and positive long-term fundamentals. Investors also view Australia (31%) and China (22%) favorably.

“The cycle has been reset and we are now on the cusp of a period of recovery. Optimism around the deployment of vaccines and an eventual recovery in tourism has started to drive activity and investors don’t want to miss the opportunity. At the same time record amounts of capital have been raised to be deployed into the real estate sector in general, including into hospitality,” says Nihat Ercan, Senior Managing Director, Head of Investment Sales, Asia Pacific, JLL Hotels & Hospitality Group.

In the Philippines, while the hospitality industry was one of the most heavily affected sectors in 2020, hotel operators are optimistic that the hospitality sector will soon transition to a period of recovery.

“Most hotels operators are trying to determine the best estimated return of airline traffic. Hotels definitely see tourism picking up as soon as flight restrictions are lifted—it is only a matter of timing, which is heavily dependent on the roll-out of the COVID-19 vaccine. Local tourism and staycations are also being encouraged to push demand,” says P. Ryan Isip, JLL Philippines’ Head of Capital Markets.

“We are already seeing opportunities in the market for opportunistic acquisitions. Several groups are already looking for this type of transactions, typically management contracts in core locations,” adds Isip.

Approximately 25% of surveyed investors are taking a more cautious approach to deploying capital, seeking greater clarity on the industry’s COVID-19 recovery before committing further funds to the sector. Around five percent of investors polled by JLL are looking to exit the sector and refocus on other asset classes. “Demand for assets has initially concentrated on core markets like primary cities in Japan and Australia, yet we see this diversifying in the coming months,” says Ercan.

Conversely, investors also see the current environment as an opportunity to invest in existing properties and focus on asset management initiatives including renovations, repurposing, and repositioning properties in response to changing consumer preferences.

In its 2021 Real Estate Market Overview webinar, JLL Philippines said hotel operators are constantly exploring ways to stay in business while mitigating high operational costs. Many hotels are operating as quarantine facilities which make them fare better than hotels that are not accepting bookings from high-risk individuals.

“The past year has been all about protecting cash flow and this will continue for the coming 12 to 18 months. Seasoned owners realise that now is the time to invest in existing hotels, with little displaced business. However, it is a balancing act in keeping operating costs flexible, while investing ahead of the recovery to edge in front of competitors and meet guest needs,” says Xander Nijnens, Managing Director, Head of Advisory and Asset Management, Asia Pacific, JLL Hotels & Hospitality Group.

According to the survey, 36% identify investing in their assets as their primary priority in 2021, coupled with a focus on cost containment and maintaining cash flow discipline.

“There are deals to be done in the current environment, yet value-add players will have the upper hand as they are willing to roll up their sleeves to invest and reposition hotels with a view of selling them in three to five years” adds Nijnens.

“All these considered, JLL Philippines remains optimistic of hotel investment in the country in the long term,” says Isip. “Acquisitions during this period should be opportunistic and investing while the hospitality sector is under pressure will yield good results in the long run.”

JLL polled approximately 100 clients in late January 2021. Learn more in JLL’s global Hotel Investment Outlook.

JLL has been operating in the Philippines since 1997 as a 100% wholly owned entity and currently manages about 5.3 million square meters of real estate with a workforce of over 1,300 employees. With more than two decades of local expertise working hand-in-hand with its global legacy, JLL provides to the Philippine real estate market an unparalleled synergy of services with a strong commitment to achieve real estate ambitions through future-ready approaches. For further information, visit www.jll.com.ph.