Thu, 10/01/2013 - 12:04
Jones Lang LaSalle's hotels and hospitality experts expect worldwide hotel deal volume to reach USD32bn in 2013, as increased transparency around the world gives way to a more globalised arena for investors.
As the investment landscape continues to transform, a strong bench of buyer groups will remain interested in acquiring assets, according to initial results from Jones Lang LaSalle's annual Hotel Investment Outlook report, to be released in late January.
Cross-border capital, which accounted for 30 per cent of global hotel investment in 2012, could also accelerate in 2013.
Previous economic cycles have provided few clues as to what lies ahead for hotels in the coming year, as new indicators of a coupled global economy define investment roadmaps:
• Global debt availability is expected to be at its highest level since 2007
• Private equity and real estate investment trusts will dominate purchasing activity with 60 per cent of the global market
• The biggest sellers will be bank-induced refinancing challenges
"Inadvertent hotel owners, like banks and receivers, will continue to drive a significant share of hotel product to market. We also expect institutional investors to liquidate select non-core assets that will create opportunities for value-add investors," says Mark Wynne-Smith, global chief executive of Jones Lang LaSalle's hotels and hospitality group. "While buyers have indicated a greater intent to purchase in 2013, the global economic uncertainty will keep a ceiling on transaction volumes."
Of the active players, private equity investors will continue to lead the pack, being in the favourable position of achieving opportunistic returns through their significant buying power and risk tolerance. Reits, net buyers throughout 2012, will continue to make headline acquisitions of core properties in gateway markets. This is particularly true in North America and Asia Pacific where two new hotel Reits in Singapore have been listed. Funds from the Middle East will continue to scour the globe for trophy assets looking for opportunities to export capital in 2013.
The global availability of debt is expected to be at the highest level in 2013 since 2007, notwithstanding regional variances. Large banks, traditionally key providers of real estate debt financing, do not have sufficient balance sheet capacity to lend significant sources of new money. Sovereign wealth funds, mutual funds and insurance companies, however, will fill the gap as providers of senior and in some instances mezzanine debt.
Hotel operating fundamentals are generally holding strong, and in some cases are outperforming expectations, given the economic pressures. At the forefront of growth in revenue per available room (RevPAR) in 2013 are the world's gateway and resource-rich cities, which underscore the attractiveness high-quality, income-producing hotel real estate provides as an asset class. Global travellers will boost demand and average room rates in markets such as Istanbul, Munich, San Francisco, Boston, Sydney and Singapore, which have already enticed investor interest and will be the markets to watch in 2013.
Transaction levels, capital values, hotel trading fundamentals and rents are generally improving against a backdrop of downward revisions to economic growth. However, given the amount of stimulus that continues to be injected into the world economy, economic growth rates in the coming years are expected to slowly improve.
"Investment strategies moving forward will be more structural and strategic than cyclical, impacting what we've always deemed as the 'typical' ebb and flow of the transaction market," says David Green-Morgan, global capital markets research director for Jones Lang LaSalle. "Flexible investors and operators who can calculate risk and adapt the quickest will be the most successful next year."
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