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ASIA PACIFIC WATCH

Liquidity for Asia Pacific hotel investments in 2018 was bolstered by a healthy global economy fueling growing traveler volumes. The most significant driver of tourism in the APAC region remains China; its sheer size and the spending power of its emerging middle class mean Chinese tourists are creating demand in many nations. In 2018, hotel transaction volumes in APAC totaled around USD 14 billion, breaking the previous peak level in 2007. Recent years have seen new investors and investment strategies emerge, enabling investors to enter the hotel sector in ways beyond direct acquisition of assets. These can take the form of debt investments, strategic joint ventures, recapitalizations, and real estate and brand M&A activity, which are expected to continue to be prevalent in coming years. Japan is expected to be the most active major market in APAC, with investor sentiment buoyed by the Rugby World Cup in September 2019 and the Tokyo Summer Olympic Games in 2020. Investment momentum is expected to build as investors explore selling their hotel assets to ride the anticipated tourism boom. Singapore is also on investors’ radars, while hotel transaction activity in China continues at a steady pace. The positive trend in hotel transaction performance, coupled with a favourable tourism outlook, will continue to push pricing higher in the year ahead.

LARGE BUNDLED DEALS LEAD REGIONAL TRANSACTIONS

The APAC regional hotel transaction volume reached USD 14 billion in 2018 (Real Capital Analytics, July 2019), a rise of 23.9% YoY, which is a new record high surpassing the peak level in 2007. China, Japan, Australia, Hong Kong and Singapore all reported steady investment turnover on the back of strong demand from domestic and overseas investors. High transaction volume in China was mainly due to the sale of Dalian Wanda Group’s hotel portfolio of 73 domestic hotels to Guangzhou R&F Properties for circa USD 2.7 billion in H1 2018. Singapore also recorded its highest volume since 2015, led by small, mid and economy tier assets along with boutique shophouse hotels. Turning to 2019, transaction activity has been weak largely due to limited quality assets for sale.

AUGUST 2019

21,521.53

1.2%

Nikkei 225

27,777.75

2.7%

Hang Seng

2,932.51

1.6%

Shanghai Composite

108.77

0.3%

Yen/Dollar

Data points through end of July 2019. Change represents month-over-month change.

ASIA PACIFIC HOTEL TRANSACTION VOLUME
PRINCIPAL CONTRIBUTORS:
 
Shane Taylor
Juliet Cha
SUSTAINED GROWTH OF TOURIST ARRIVALS

Foreign tourist demand in APAC expanded well in 2018, recording 6.1% YoY growth and reaching 343 million international tourist arrivals. Arrivals in the region accounted for almost one-fourth of the worldwide total (UNTWO, January 2019). Results were driven by South-East Asia where most countries posted strong growth, particularly Vietnam which has seen a surge in international tourists in recent years. North-East Asia increased 6.1%, led by South Korea which continued to rebound from a weaker 2017 and Japan which has become the third most visited destination in Asia. Oceania recorded an increase of 2.7% in 2018, with growth being driven by Australia, helped by a weaker and thus more favourable, Australian dollar.

GROWTH RATE OF TOURIST ARRIVALS IN APAC
Source: World Tourism Organization.
HOTEL OCCUPANCY EDGES LOWER

According to STR Global, as of June 2019, APAC overall reported a slight decrease in occupancy to 68.4% from the same month of last year. The hotel occupancy rate for Northeastern Asia which includes Japan, Korea and China was the highest recorded in the sub-regions of APAC with a 69.7% occupancy as of June 2019 closely followed by the Australia & Oceania market. The occupancy rates had been broadly stable, but a surge in new supply led the recent decline in occupancy in most of the sub-regions. Healthy tourism sector fundamentals will ensure the regional hotel investment market performs well for the mid to long term, but near-term demand will likely be slower in 2019 due to decelerated global growth momentum.

PRIME OFFICE RENTS AND VACANCY RATES
Source: STR Global
MODERATING HOTEL PERFORMANCE AFTER STRONG YEAR

Hotel markets in the APAC region reported positive results across the three key performance metrics in USD denominated terms during 2018. However, key performance metrics moderated during H1 2019. According to STR Global (June 2019), the average daily rate (ADR) fell 1.5% YoY to reach USD 100.41, and revenue per available room (RevPAR) also declined 1.8% YoY to USD 68.43. In terms of ADR, Australia and Oceania was the most expensive market in APAC for rooms, at USD 137.75 (down 0.5% YoY), although the growth of ADR in Central & South Asia of 2.7% YoY was the highest of the sub-regions. In terms of RevPAR, both Central & South Asia and Southeastern Asia outperformed with growth of 3.4% YoY, while Northeastern Asia recorded the biggest drop of -3.5% YoY.

ADR AND REVPAR PERFORMANCE ACROSS APAC
Note: ADR stands for Average Daily Rate and RevPAR for Revenue Per Available Room
Source: STR Global
REITS BECOME KEY BUYERS OF APAC HOTELS

REITs and listed vehicles made a great advance in the APAC hotel investment market in 2018, accounting for a 37% share of all hotels traded across APAC, followed by cross-border investors with 23%. Over the past decade, cross border investment accounted for approximately one third to one half of all transaction volume in the APAC hotel sector, while REITs and listed vehicles bought over one fifth of hotels for sale in the region for the same period. Healthy tourism sector fundamentals should ensure the APAC hotel market performs well in 2019, but the lack of quality hotel assets for sale will likely curb transaction activity.

SOURCE OF CAPITAL IN APAC HOTEL TRANSACTIONS
Note: Transactions include properties and portfolios USD 10 million and greater.
Source: Real Capital Analytics
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Please note that the content of this report is for informational purposes only and should not be viewed as investment advice or an offer or solicitation. Any opinions are solely those of the Strategy and Research Team of CBRE Global Investors and are subject to change without notice, and may not be consistent with market trends or future events. This research is based on current public information that we consider reliable, but we do not represent it as accurate, updated or complete, and it should not be relied on as such.

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