Global hotels market overview by Philip Ward, JLL
While uncertainty continues in 2017, with elections in UK and Germany, ongoing Brexit negotiations and U.S. interest rate increases, the outlook for the travel and tourism industry is positive, with forecasts for higher growth at almost four percent (in terms of direct GDP). The industry also appears to have a greater ability to absorb uncertainty than in the recent past. This optimism is supported by encouraging hotel operating performance at the start of 2017. All three regions achieved annual revenue per available room (REVPAR) growth over the February 2017 year-to-date period, with Asia Pacific posting the highest uplift of almost three percent (2.9 percent), while the Americas saw a two percent increase and Europe remained relatively static, with a minimal one percent rise.
Transaction volumes to pick up
The international hotel investment market ended Q1 on a cautious note, with transaction volumes closing the quarter at USD 11 billion, down five percent year-onyear (y-o-y). Asia Pacific posted the largest growth, at seven percent, thanks to strong deal flow in Hong Kong, which got off to a quick start in 2017, with five single-asset transactions worth a combined USD 940 million. The Americas grew by four percent to almost USD 6 billion, with a 392 percent increase in transaction volumes in Canada over the same period in 2016, offsetting an 18 percent decrease in the US. Q1 volumes in EMEA fell 20 percent y-o-y to USD 3.6 billion, as investors adopted a conservative approach due to the heavy election year. The drop came despite Germany registering a 26 percent annual uplift in volumes to USD 1 billion. Investor interest remains high, however and activity is expected to pick up in the latter part of the year.
Top global markets
The United States continues to be the top market for transaction activity, although volumes, which totaled USD 4.5 billion in Q1 2017, were 18 percent lower than the same quarter last year. Positive factors, which will have more bearing as the year advances include the return to market of the domestic real estate investment trusts (REITS), an abundance of equity and healthy debt capital markets. Public REITS accounted for 25 percent of acquisitions by volume in the quarter, compared to 10 percent in Q1 2016. Germany sat firmly in second place in Q1, reporting a 26 percent y-o-y uplift in deal volumes to USD 1 billion, of which 75 percent were single-asset sales. Hamburg, Berlin and Munich were the top three investment hotspots, each registering deal volumes of over USD 100 million. Domestic investors dominated the market, accounting for around 90 percent of total volumes. A number of properties traded in Q1 are still under construction, demonstrating investor confidence in the future of Germany’s economy. Hong Kong and Canada joined the top league in Q1 2017. Hong Kong has not had any major investment activity after the USD 1 billion sale of Intercontinental Hong Kong in 2015, but got off to a quick start in 2017, with five single-asset transactions worth a combined USD 940 million. Buyers were mostly domestic, with one mainland Chinese investor. Asian investors dominated the Canadian hotel investment market in Q1 2017, which reported a total deal volume of USD 870 million. The Canadian travel and tourism industry has been booming recently and the number of overnight travelers is forecast to grow three percent in 2017, supported by the favorable Canadian currency compared to the US dollar. The UK reported a total of USD 818 million in hotel investment in Q1 2017, down 26 percent on the same period last year. London is still the center of attention, accounting for over 80 percent of transactions, despite stock being tightly held. The UK continues to appeal to investors from both home and abroad, with North American investors the most prominent source of overseas capital. The UK has benefited from a weaker currency and received 16 percent more international visitors y-o-y in the three months to January 2017.
The global hospitality scene has witnessed ups and downs throughout the past year.
Philip Ward, CEO Hotels & Hospitality, EMEA at JLL, considers the impact from a regional perspective