Operating hotel assets still attract attention from foreign investors

Vietnam, 4 Nov 2019 – According to research by global real estate consultancy JLL, Asia Pacific’s hotel transaction volumes are expected to increase by 25 to 30 percent year-on-year to more than US$11 billion in 2019.

“Despite a cautious economic climate and wider political headwinds, hotels in the Asia Pacific present an attractive yield profile amid booming tourism demand, in the context of falling interest rates and bond yields,” says Adam Bury, Executive Vice President, JLL Hotels & Hospitality Asia Pacific.

“Much demand this year has been buoyed by private equity firms, developers and domestic clients. This leads us to believe that 2019 will be the third most highly-transacted year in the past decade. To date, only 2017 and 2015 have surpassed the US$11 billion thresholds.”

According to JLL, the first nine months of the year have already seen US$7.8 billion worth of hotel investments in the region. Thanks to Japan and its series of mega-events such as the 2019 Rugby World Cup, 2020 Tokyo Olympic Games, and 2025 World Expo, the country has reached close to US$3 billion of transaction volumes so far.

“These tourism drivers will boost the need for accommodation assets, with investors looking to capitalise on the wave of demand. Japan is the region’s top-performing market and forecast to hit a record high of US$4 billion in transaction volumes this year,” adds Mr. Adam.

Across the region, the hotel market outlook remains positive. Over in China, softening office leasing demand and sluggish retail sales have turned investors’ attention towards hotels, where trading performance has been resilient. 

Elsewhere, Singapore has seen a few landmark deals this year. In September, JLL advised OUE Limited in an agreement to sell Oakwood Premier OUE Singapore to a Hong Kong joint venture for US$209 million. Most recently, JLL concluded the US$344 million agreement to sell Andaz Singapore in the largest single-hotel asset transaction ever in the island city’s history.

In Vietnam, the hotel transaction market has shown signs of exciting in 2019. Some outstanding successful transactions in the market this year include Ho Tram Grand Strip resort which has been sold to Warburg Pincus investment fund and Berjaya Group successfully transferred 75% of TPC. Nghi Tam Village Limited's shares. The village owns the Intercontinental Hotel with a value of more than USD 53.4 million for domestic hotel investors, Hanoi Hotel Tourism Development Co., Ltd. In addition, JLL has also successfully consulted a 5-star hotel transaction in Nha Trang city, Khanh Hoa province recently.

According to JLL’s observation, foreign and domestics investors are showing the difference in their investment tastes. While foreign investors are actively seeking investment opportunities with higher returns in Vietnam via operating hotel assets with in-place cash flow, the majority of domestic investors are interested in developing hotels and resorts from vacant land banks.

“In Vietnam, realistically, selling price is more expensive than this given the amount of capital that there is to be allocated the market, especially from those still able to achieve cheap corporate debt from 2% – 4% in countries such as Japan, Korea, HK and Singapore,” says Trang Vo, Vice President, JLL Hotels & Hospitality Asia Pacific.

“In current market situation, the yield recorded in successful transactions could be compressed to 7-8% dependent on the asset types and investment strategy. It is noted that the 8% is lower than the loan in Vietnam though and hence why most local groups focused on development where returns may be higher.”

We also witnessed domestic investors demand on hotel investments has been growing in recent years. With the advantages of geographic and economic understanding as well as the domestic political situation, domestic investors are willing to pursue deals of great transaction value, bringing fierce competition with foreign investors, Trang added.

Regarding to investment destination in Vietnam, Hanoi and Ho Chi Minh City are expected to remain as the top two cities on the radar, followed by Danang and Nha Trang, the two famous coastal destinations. It is recognised that hotel in the city center will bring higher and more stable cash flow than coastal resorts and hotels.

For more information, please download Hotel Investment Highlights H2 2019 here.