According to investment data tracked and analyzed by JLL Asia, pacific hotel investment remained flat in the first half of 2021 with $3.7 billion in sales, a decline of 3.7% year-on-year. In total, 61 hotel investment deals were transacted in the first half of the year across nine countries and representing over 10,000 rooms.
Asia Pacific hotel transaction volumes in the first half of 2021 stand approximately 18% below the same period in 2019, which was the peak of the investment market in Asia Pacific. However, the completion of several major transactions continues to demonstrate the resilience of the sector and growing confidence of investors in the hospitality market despite the current challenging operating environment and travel restrictions.
"Confidence in the Asia Pacific hospitality sector's recovery remains high and investor sentiment continues to view the industry through a longer-term lens. Volumes have held up well within the backdrop of government lockdowns and travel curbs, with the hotel sector's resilience remaining an evergreen theme throughout the pandemic," says Mike Batchelor, CEO, Asia Pacific, JLL Hotels & Hospitality Group.
Investment in the Asia region totaled $3.53 billion, accounting for approximately 94% of the overall volume. China, Japan and South Korea represented the three most active markets in the Asia Pacific, collectively accounting for 86% of sales.
China led regional deal volume at $1.3 billion of transactions, up 54% year-on-year, with conversions of serviced apartments for strata sale and sale of older hotels for conversion to alternative use a key theme. Traditionally the region's most active market, Japan had a slower start to the year with volumes down 47% to $1.1 billion however major sales by Japanese corporates that are underway or planned for the second half of the year will boost transaction volumes.
Activity in Australia also rebounded strongly in the first half of 2021 driven by the closing of AccorInvest Portfolio for circa $134 million, advised by JLL. Overall volume of $215 million in deals closed represented a 312% year-on-year increase in investments with scalable and core opportunities continuing to attract strong investor interest and in turn holding up pricing.
Additionally, a two-tier market is at play across the region and, other than a handful of gateway markets where buyer demand is holding up pricing, due to the ongoing impact of the Covid-19 pandemic on global travel and hospitality, investors continue to adjust their risk expectations across most markets and are largely targeting opportunistic value-add plays, according to JLL.
"In our interactions, it is clear there remains a gap in pricing across most of the key markets. However, for the most part, the region's hotel owners are not under any stress owing to relatively low gearing, strong lender relationships and, depending on jurisdiction, broader government support," says Nihat Ercan, Senior Managing Director, Head of Investment Sales, Asia Pacific, JLL Hotels & Hospitality Group.
Longer-term confidence in the sector remains high as buyers remain on the hunt for opportunities across the region. Record amounts of capital are being raised for investment into the real estate sector. with an assortment of buyers from private equity players to high-net-worth investors and corporates are vying for positions on sales. According to JLL analysis, Australia and Japan top the list for offshore capital, while domestic investor demand is driving activity in China and South Korea. Additionally, leisure markets are seeing a resurgence of investor interest on the back of expectations for expedited recovery in view of the pent-up leisure demand.
While investors remain wary of some of the shorter-term challenges facing the Asia Pacific hotel industry, highlighted by delays in vaccine rollouts and the impact of new strains and outbreaks, JLL's full year outlook points to increased investment activity in the second half.
"We anticipate a sharper business cycle rebound, which will drive hotel investment momentum across the Asia Pacific region. The strong finish to the second half of the year will likely be driven by a pipeline of major sales that have exchanged and which are due for completion in Australia, Thailand, Japan and China. With this backdrop, our full year forecast for the region remains in line with our forecast of $7 billion at the start of 2021, representing an approximately 20% increase in year-on-year transaction volume," says Ercan.