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BriefingHotel sales & investment October 2012

Savills Research Asia Pacific

SUMMARYHotel investment slowed in Q3/2012 despite a strong operational performance in Asia.

The total value of investment sales decreased by 25.7%, from US$905 million in Q3/2011 to US$672 million in Q3/2012.

The Japanese market contributed US$270 million or 40.2% of all investment sales in the reviewed quarter.

Hong Kong investors supplied nearly US$177 million or 26.3% of all investment sales in Q3/2012.

Investment sales in Japan and Hong Kong rebounded, with

transaction volumes surging 69.1% and 31.3% respectively, year-on-year (YoY).

The Japan market continued to dominate, contributing 25.3% of 2012’s total year-to-date transaction value.

In the near term, the investment market may slow further given global economic and political issues such as the sovereign debt crisis in Europe and currency fluctuation.

“We anticipate that future acquisitions will continue to be yield-driven, with emphasis placed on a longer term view to the property; market fundamentals; and opportunities to add value through trading improvements via upgrading, re-branding or renegotiation of management structures.” Savills Research

Image: Singapore CBD

Briefing | Asia Pacific hotel sales & investment October 2012


Market overviewThe third quarter recorded approximately US$672 million worth of investment transactions, representing a 25.7% decrease over Q3/2011’s US$905 million, and bringing the total volume in the first three quarters of 2012 to US$3.6 billion.

The slowdown in investment activity this quarter suggests that the region is not completely immune to the current global economic conditions. However, Asia’s hotel real estate investment sector is expected to witness increasing domestic and overseas demand due to investors’ interest in greater portfolio diversification and the strong yields compared with other regions in the world.

North Asia1

Japan witnessed US$270 million worth of investment transactions in Q3/2012, representing a 69.1% increase over the US$160 million seen in Q3/2012, and bringing the total volume in the first three quarters of 2012 to US$905 million.

Currently, hotels in Japan are offering higher potential yields than commercial real estate investments, as the Japanese tourism market has recovered from the impact of the earthquake and tsunami. According to the latest statistics, most markets are improving and investors are in a buying mode in Japan.

The increasing numbers of inbound tourists from China, Japan, India and 1 South Korea and Japan

Singapore are boosting the Korean tourism industry. Hotels now represent an increasingly recognised asset class within the remit of commercial real estate investors, and overseas real estate investment firms foresee high returns for three- and four-star business hotels in Korea.

East Asia2

In an increasingly difficult economic context, which has started affecting the activity of operators, particularly in Shanghai and Beijing, the downturn over Q3 appeared to be relatively limited compared with other commercial real estate sectors. However, overseas investment trusts and funds were more cautious about investing in China's hotel market this quarter, as the depreciation of the reminbi in the short term may have curbed overseas investors' enthusiasm to expand their businesses in China.

Hong Kong continued to attract strong interest, especially for serviced apartments and business hotels, with the sector comprising US$177 million or 26.3% of all investment sales in the reviewed quarter. The recent instability in world economies appears to be having little impact on investor sentiment for Hong Kong’s hotel stock and in many respects may further enhance interest, as Hong Kong is viewed as a strong and stable economy.

Southeast Asia3

The Southeast Asia region recorded a 138% YoY increase in transaction volume in Q3 to US$214 million, largely from Thailand, Indonesia and Malaysia. The Bangkok and Phuket markets continued to rise, driven by the improving post-flood economic environment and strong hotel room supply pipeline. With stronger investment volumes, capital values also grew in most major markets. Jakarta, Kuala Lumpur and Singapore are expected to see more investment activity in the remaining months of 2012 due to favourable domestic conditions and strong tourism growth.

More than US$583 million was invested during the first nine months of 2012, a level very far from that of the same period of 2011 (US$1,161 million). However, the market is currently suffering on the demand side rather than the supply side. Demand is particularly oriented towards high-2 China, Macau, Hong Kong and Taiwan3 Thailand, Viet Nam, Malaysia, Singapore, Indonesia and The Philippines

GRAPH 2

Investment sales transaction volumes by location, Q3/2012

Source: RCA, Savills Research & Consultancy

Japan40.2%

Hong Kong SAR26.3%

Thailand22.7%

Indonesia4.7%

Malaysia4.4%

South Korea1.8%

GRAPH 1

Investment sales transaction values, Q1/2009–Q3/2012


0

1,000

2,000

3,000

4,000

5,000

6,000

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2009 2010 2011 2012

US

$ millio

nUS

$ m

illio

n

Quarterly total (LHS) Rolling four-quarter total (RHS)

October 2012


Briefing | Asia Pacific hotel sales & investment

Raymond ClementManaging DirectorHotel, Asia Pacific+65 6415 [email protected]

Julien NaouriSenior ManagerHotel, Asia Pacific+65 6415 [email protected]

Savills Hotels

Please contact us for further information

Savills plcSavills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 500 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East.

This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research.

Savills Research

Simon SmithSenior DirectorAsia Pacific+852 2842 [email protected]

TABLE 1

Selected investment transactions, Q3/2012


Hotel LocationApproximate

sale price (US$ million)

Buyer

The Bay Bridge Hong Kong 122.5 N/K

Abeno Nini Japan 89.5 SEB Asset Management

Hotel Keihan University City Japan 76.7 Japan Hotel REIT

Centre Point Hotel & Residence Sukhumvit

Thailand 46.8 QHHR

HD Hotel Hong Kong 32.2 Global High International Ltd

OUTLOOKThe prospects for the marketIn view of the sustained Asia-wide high demand for hotels, particularly in the core segments, we expect prime yields for individual types of properties to remain stable. This demand is confronted with a limited supply of hotels for sale. In our opinion, some owners who held onto their hotel properties during the crisis could be encouraged to release them onto the market in the next 12 months.

As hotel sector transparency improves, hotel yields have sharpened on what appears to be a yield convergence between hotels and mainstream commercial properties. Despite this, there continues to be a gap between hotels and other real estate sectors.

quality institutions in good locations, but the offering of these types of assets occurs very rarely. This highly selective demand from investors, compounded by global market uncertainties, is not conducive to an active market. The combination of these two factors explains why the volume of commitments for the year is quite low.

Investor sentimentAsian hotel property markets have been relatively resilient to the global economic uncertainties, given the strong domestic demand and wider policy options. Timing is key for investors at the moment, and they will continue to cautiously search for opportunities, particularly in prime locations.

Major locations such as Tokyo, Hong Kong and Singapore remain the focus of hotel investors in the region; however, Bangkok, Jakarta and especially Seoul will all be on investors’ radars for the next 12 months.

The constantly changing trends, the new sources of growth and the continually evolving opportunities in Asian tourism require knowledge and experience to successfully ride the wave to significant returns on investment. By remaining in this volatile market, cyclical investors will hope to benefit from the strong up-swing in hotel assets in the medium term.

GRAPH 3

Sales transaction volumes by source of investment, Q3/2012


Hong Kong26.8%

Japan25.8%

Thailand16.1%

Germany13.6%

US7.0%

Indonesia4.8%

Malaysia4.5%

China 4.9%

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