JLL: Operating hotel assets still attract attention from foreign investors
Asia-Pacific’s hotel transaction volumes are expected to increase by 25 to 30 per cent year-on-year to more than $11 billion in 2019, according to research from global real estate consultants JLL.
In Vietnam, the hotel transaction market has shown vibrant signs in 2019. Outstanding transactions in the market this year include Ho Tram Grand Strip resort, which was sold to the Warburg Pincus investment fund, and the Berjaya Group successfully selling 75 per cent of shares in the TPC Nghi Tam Village Co., Ltd., which owns the Intercontinental Hotel, with a value of more than $53.4 million for domestic hotel investors, to local partner the Hanoi Hotel Tourism Development Co., Ltd. In addition, JLL has also successfully consulted on a five-star hotel transaction in Nha Trang, Khanh Hoa province, recently.
According to JLL’s observations, foreign and domestics investors are showing a difference in investment tastes. While foreign investors are actively seeking investment opportunities with higher returns in Vietnam via operating hotel assets with in-place cash flows, the majority of domestic investors are interested in developing hotels and resorts from vacant land banks.
“In Vietnam, realistically, the selling price is more expensive than this given the amount of capital that there is to be allocated in the market, especially from those still able to achieve cheap corporate debt from 2-4 per cent in countries such as Japan, South Korea, Hong Kong (China) and Singapore,” said Ms. Trang Vo, Vice President, JLL Hotels & Hospitality Asia Pacific.
“In the current market situation, the yield recorded in successful transactions could be compressed to 7-8 per cent dependent on the asset type and investment strategy. It is noted that this rate is lower than the interest rate at Vietnamese banks and hence why most local groups focus on development where returns may be higher.”
Domestic investor demand for hotel investments has been growing in recent years. With advantages in geographic and economic understanding as well as the domestic political situation, domestic investors are willing to pursue deals of great transaction value, creating fierce competition with foreign investors.
Regarding investment destinations, Hanoi and Ho Chi Minh City are expected to remain as the top two cities on the radar, followed by Da Nang and Nha Trang - two famous coastal destinations. Hotels in the city center will bring higher and more stable cash flows than coastal resorts and hotels.
Regarding the Asia-Pacific region, Mr. Adam Bury, Executive Vice President, JLL Hotels & Hospitality Asia Pacific, said that “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.”
“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 $11 billion thresholds.”
Across the region, the hotel market outlook remains positive. In China, softening office leasing demand and sluggish retail sales have turned investors’ attention towards hotels, where trading performance has been resilient.
In Vietnam, the hotel transaction market has shown vibrant signs in 2019. Outstanding transactions in the market this year include Ho Tram Grand Strip resort, which was sold to the Warburg Pincus investment fund, and the Berjaya Group successfully selling 75 per cent of shares in the TPC Nghi Tam Village Co., Ltd., which owns the Intercontinental Hotel, with a value of more than $53.4 million for domestic hotel investors, to local partner the Hanoi Hotel Tourism Development Co., Ltd. In addition, JLL has also successfully consulted on a five-star hotel transaction in Nha Trang, Khanh Hoa province, recently.
According to JLL’s observations, foreign and domestics investors are showing a difference in investment tastes. While foreign investors are actively seeking investment opportunities with higher returns in Vietnam via operating hotel assets with in-place cash flows, the majority of domestic investors are interested in developing hotels and resorts from vacant land banks.
“In Vietnam, realistically, the selling price is more expensive than this given the amount of capital that there is to be allocated in the market, especially from those still able to achieve cheap corporate debt from 2-4 per cent in countries such as Japan, South Korea, Hong Kong (China) and Singapore,” said Ms. Trang Vo, Vice President, JLL Hotels & Hospitality Asia Pacific.
“In the current market situation, the yield recorded in successful transactions could be compressed to 7-8 per cent dependent on the asset type and investment strategy. It is noted that this rate is lower than the interest rate at Vietnamese banks and hence why most local groups focus on development where returns may be higher.”
Domestic investor demand for hotel investments has been growing in recent years. With advantages in geographic and economic understanding as well as the domestic political situation, domestic investors are willing to pursue deals of great transaction value, creating fierce competition with foreign investors.
Regarding investment destinations, Hanoi and Ho Chi Minh City are expected to remain as the top two cities on the radar, followed by Da Nang and Nha Trang - two famous coastal destinations. Hotels in the city center will bring higher and more stable cash flows than coastal resorts and hotels.
Regarding the Asia-Pacific region, Mr. Adam Bury, Executive Vice President, JLL Hotels & Hospitality Asia Pacific, said that “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.”
“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 $11 billion thresholds.”
Across the region, the hotel market outlook remains positive. In China, softening office leasing demand and sluggish retail sales have turned investors’ attention towards hotels, where trading performance has been resilient.
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