All indicators point to an increasing level of investor confidence in the hotel sector. Jones Lang LaSalle Hotels' recently released Hotel Investor Sentiment Survey ("HISS") highlights investors' ongoing enthusiasm for the hotel sector in both Australia and throughout Asia Pacific.
"Buy sentiment has increased to its highest level since we started the survey seven years ago, with the greatest proportion of investors looking to acquire assets in 24 of the 29 surveyed markets," said Mr David Gibson, CEO Asia Pacific, Jones Lang LaSalle Hotels. He added, "With only 8% of investors favouring selling, this indicates that competition for assets will remain intense with at least four buyers for every hotel that comes to market."
"Expectations for short and medium term trading have also soared to near record highs," said Mr Troy Craig, Executive Vice President, Jones Lang LaSalle Hotels. Reflecting this, investors have adjusted their acquisition expectations, with a tightening of both leveraged IRRs and initial yields (cap rates). "This represents quite a change from recent surveys where sentiment was starting to show signs of waning as markets advanced further up the hotel trading cycle," added Mr Gibson.
Notable changes in sentiment in the medium term for markets where investors are most upbeat include two of the region's perpetual investment hot spots - Tokyo and Sydney. "Performance in Sydney has lagged that of the other Australian markets, however investors are now betting on an upsurge in medium term trading as hoteliers free themselves from the shackles of long-term contracts to drive ADR growth," said Mr Craig
"Investors' expectations for leveraged IRRs are considerably lower for markets in Australia/NZ at 14.2% compared to Asia's 19.1%, whereas expectations for initial yields are more aligned at 7.4% for Australia/NZ compared to 8.5% across Asia," said Mr Craig. In Australia, this is a reflection of established cash flows and a transparent trading environment.
The most highly sought markets are dominated by Australasia, namely Auckland, Sydney, Perth, Melbourne and Brisbane, and the Asian capitals of Hong Kong, Beijing, Bangkok, Singapore and Kuala Lumpur, with almost half of investors looking to buy in these cities.
Current investor expectations for initial yields vary and can largely be grouped as follows:
Japan - Osaka and Tokyo - sub 6% range
Asian Heavyweights - Singapore and Hong Kong 6-7%
Australia and New Zealand - 7% range
Mainland China Tier I cities, Thailand and Macao - 8-9%
Mainland China Tier II cities - around 10%
India - 9% range
Indonesia and other South East Asian markets - 9-11%
"Survey results show that investors in Australasia look set to continue their love affair with serviced apartments, a segment which has grown to over a third of the size of the Australian hotel market over the last ten years," said Mr Gibson. However, investors remain more cautious about the long-term proposition of luxury hotels, with Australian markets scoring as some of the lowest across the Asia Pacific region.
"Our survey also indicates that over the next six months the hardest markets in which to secure hotel assets will be in Sydney and Auckland, with no investors indicating that they will be willing to sell in the short term," said Mr Gibson.
Jones Lang LaSalle Hotels estimates that US$110 billion worth of global hotel transactions could be completed by the end of 2007. This represents a 52% rise on last year's record-breaking figure of US$72.5bn, proving that investors' appetite for the hotel sector remains at an unprecedented high level. In Australia, the combination of the strong investor demand, lack of new supply in most markets and availability of debt capital should see 2007 exceed $1 billion in hotel sales for the fourth consecutive year.
Trading Performance Expectations - Australia
About Jones Lang LaSalle Hotels Jones Lang LaSalle Hotels, the world's leading hotel investment services firm, is uniquely positioned to provide both the depth and breadth of advice required by leading hotel companies and hotel investors globally. In 2006, Jones Lang LaSalle Hotels advised on transactions valued in excess of US$9 billion for 38,033 hotel rooms in 78 cities. In addition advisory and valuation services were provided for 132,074 rooms across approximately 280 cities. The global team comprises 185 hotel specialists, operating from 22 dedicated offices in 12 countries. Jones Lang LaSalle Hotels adds value for clients through in depth market knowledge of established and emerging markets, technical expertise and unrivalled experience. Services include investment sales, mergers and acquisitions, capital raising, valuation and appraisal, asset management, strategic planning, operator assessment and selection, hotel consulting, industry research and project development services. Jones Lang LaSalle Hotels' clients have access to the resources of its parent company, Jones Lang LaSalle. Jones Lang LaSalle (NYSE: JLL), the only real estate money management and services firm named to Forbes magazine's Platinum 400, has more than 100 offices worldwide and operates in more than 500 cities in 70 countries.. www.joneslanglasallehotels.com.