Asia Pacific hotel investment volumes reached a historic record high in 2013, with a total of 143 transactions worth US$13.4 billion of sales transacted. Strong investment demand led to a 53% rise in volumes, fuelled by the low cost of borrowing in particular from Asian investors.
The record breaking performance was supported by excess liquidity, growing competition and increasing prices in the direct real estate investment market. CBRE Hotels made this assessment in its latest Asia Pacific Hotels MarketView H2 2013.
There is, however, a strong likelihood of interest rates increases as the global economy improves and central banks are expected to exit their relatively loose monetary policies in the coming years. In the Asia Pacific region, this will firstly happen in emerging Southeast Asia economies. While China remains focused on reining in lending and dampening the impact of fast credit growth, the immediate effects of tapering may be limited.
CBRE expects the pace of tapering to be gradual and in sync with the cautious economic recovery in the United States. Monetary easing programs such as Abenomics in Japan and rate cuts by the Reserve Bank of Australia are also affecting the hotel market in the Asia Pacific region. In summary, low borrowing cost and high liquidity will continue in 2014 although banks may become more selective toward lending.
Asian investors were the dominant investors in the hotel investment market. These investors made up 86% and 92% of all hotel transactions in 2012 and 2013 respectively. North Asian capital from Greater China and Japan were the most dominant, with strong activities in their domestic markets and also across borders. Notably, European and North American investors are beginning to return after slowing substantially after 2007.
In 2013, 36% of all transaction (by volume), as well as the largest five hotel deals, took place in Hong Kong, making it the most active hotel market in the region. Similar to Hong Kong, Singapore achieved record high transaction prices, hence representing 16% of overall volume in 2013.
That said, the most active market by number of transactions was Australia (36 hotel transactions), followed by China (31 transactions) and Japan (30 transactions). The strong drive for the largest investment markets in Asia Pacific is in line with the wider investors' consensus and their particular interest in these developed investment destinations.
Hotel occupancy
Occupancy in the Asia Pacific hotel market largely remained the same in 2013 at 68.4%, an increase of 36 basis points from 2012. Singapore and Hong Kong are two mature hotel markets, which often reach full capacity and operate at above 80% occupancy with minimal fluctuations.
Hotel occupancies in the Tokyo market have recovered significantly among the five gateway cities, with a 4.4% increase over the past year. Melbourne and Sydney have also seen increases in occupancies at 3.6% and 2.7% respectively, consistent with steady growth in visitor arrivals and strong domestic business travel.
Hotel performance
In US dollar terms, it not surprising to see mature hotel markets such as Singapore and Hong Kong command the highest ADR (average daily rate) in Asia Pacific. Hotels across Asia Pacific averaged an ADR of US$124.10, which is 3.4% lower than in 2012. The analysis of hotel performance in US dollar terms has to be treated with caution as much of this general decline stems from recent currency fluctuations.
In local currency terms, the top three cities with the highest growth in RevPAR (revenue per available room) in local currency terms were Jakarta, Tokyo and Bangkok in 2013. In Jakarta, RevPAR reached IDR772,779 in 2013, representing a 13.8% year-on-year increase, bolstered by the strong growth in visitor arrivals and to a certain extent, the depreciation of the Indonesia rupiah resulting from changing market sentiments in reaction to the probable tapering of US monetary stimulus. The development potential in Jakarta and other parts of Indonesia remains high with the potential prospect of high development yields.
The Tokyo hotel market achieved a RevPAR of 13,455 yen in 2013, representing a year-on-year growth of 12.5%. We believe Tokyo is on track to see higher RevPAR growth in the coming years due to the ongoing improvements to tourism attractions, infrastructure and transportation systems in anticipation of the 2020 Summer Olympic Games.
Even though Bangkok is facing tense political turmoil, the hotel sector performed well in 2013 in terms of RevPAR performance. Bangkok hotels achieved a RevPAR of 2,377.11 baht in 2013, a 12.0% increase over 2012. Affordable room rates in Bangkok, compared to other regional destinations was considered to be the main pulling factor for visitors, especially from emerging markets such as China and Russia. However, we note that the economy has begun to slow as the political lockdown continues.
Source: CBRE
