latin america select service hotel investor survey - jll … that prevailed in 2016 against the...

JLL Research

Latin America | Hotel Investor Sentiment Survey | 2017

Hotel

Contents

State of the market 3

Hotel market performance expectations 5

Investment yields 7

Investor strategies 8

Constraints to hotel investment by country 9

Contributors 11

Hotel Investor Sentiment Survey | Latin America | 2017


Highlights from the survey

• Despite economic headwinds, investors are cautiously optimistic, expecting an improvement in performance over the short and medium term in most markets.

• Investors’ average targeted yield of 9.8 percent in 2016 was essentially flat to 2015 results, while unlevered IRRs widened by an average of 110 basis points. The disparity in direction reflects a combination of generally higher inflation that prevailed in 2016 against the expectation of NOI growth in excess of the inflation-adjusted initial yield.

• “Hold” has become the favored investment strategy, suggesting that investors can work through perceived oversupply in certain markets to unlock additional value in the future.

• Concerns over political and economic stability and security/violence have reemerged as the top constraints to greater hotel investment in the region.

Has South America’s Hotel Industry Weathered the Storm?

While a number of unfavorable economic and political events tested Latin America’s ability to weather the storm, relatively decisive implementation of largely orthodox macroeconomic policies appears to have bolstered confidence in the region’s resilience, resulting in a generally more optimistic outlook among the region’s hotel investors. In fact, most countries in the region have revised upward projected aggregate growth in gross domestic product (GDP) to between 2 and 4 percent for 2017 and beyond. Mexico, a major contributor to regional GDP, is a notable exception, having revised projected growth downward as a result of the potentially negative consequences of the Trump administration’s trade policies with the country. However, potentially negative effects on Mexico’s economy may be at least partially mitigated by likely increases in leisure demand, which are expected as the peso devaluation and security concerns in Europe and the Middle East make the country an increasingly attractive vacation destination for both international and domestic travelers.

Lodging Performance

Performance in the region was mixed for 2016, with Panama City, Santiago and Quito observing year-end RevPAR declines relative to 2015. Brazil also suffered, with the exception of Rio de Janeiro, where the 2016 Olympic Games supported double-digit RevPAR growth. Most of the countries in the region observed increases in RevPAR, a trend likely to continue in 2017 as visitation in the region continues to tick up and additions to supply remain generally subdued.

Transactions Activity

Latin America observed nearly $3.5 billion in transactions between 2014 and 2016. The liquidity in the market was driven by Mexico and Brazil, who collectively accounted for over 45 percentof the sales activity. Further, transactions in key gateway cities in the region illustrate the growing maturity of the lodging industry in South America, as domestic REITs and private investment funds acquire institutional-quality hotel assets.

Hotel market performance expectations


Net balance methodology defined: JLL surveyed respondents on whether they have a positive, negative or neutral outlook for RevPAR across 18 Latin American hotel markets. Responses that indicated a “positive” outlook were given a score of 100; responses indicating a “negative” outlook were assigned a score of -100; and responses expecting “no change” in hotel RevPAR were provided a score of 0. The scores were then added together to compute a net balance. A higher net balance figure implies a more optimistic investor outlook, while a negative net balance indicates that more investors expect performance to decline than to increase during the given time period. .

• For the first time in the six-year history of the survey, Argentina took the top spot in terms of both short- and medium-term outlook.

• While Panama City and Brazil face short-term supply concerns, investors are generally optimistic about Latin America over the next six-month and two-year periods.

• Notwithstanding headwinds, Mexico’s outlook remains overwhelmingly positive, especially over the medium term.

• Led by Peru, Spanish-speaking markets in South America continued to be viewed favorably, again, especially over the medium term.

• Over the medium term, investors hold a positive outlook for every market surveyed in the region, suggesting that near-term obstacles are being surmounted, operating performance has bottomed out and RevPAR is poised for growth.

-60 -40 -20 0 20 40 60 80 100

MexicoMexico City

Guadalajara, MonterreyLos Cabos, Cancún/Riviera Maya

All Other MexicoCentral America

Panama CityResorts - Costa Rica/Panama

ColombiaBogotá

CartagenaAll Other Colombia

PeruLima

All Other PeruBrazil

Rio de Janeiro, São PauloBrazil Metros 3-6 Million Residents

All Other BrazilChile

SantiagoAll Other Chile

ArgentinaBuenos Aires

All Other Argentina

Next six months Next two years

Central America

Peru

Argentina

Chile

Brazil

Colombia

Mexico

Net balance of investors' hotel performance expectations

Source: JLL


As with past surveys, consistently strong demand, difficulty in adding supply and greater liquidity continue to drive the most positive outlooks for capital/gateway markets over the next two years. Specific tourism markets are driving a bullish short-term outlook for markets outside of major metropolitan areas.

-40 -20 0 20 40 60 80

Argentina

Chile

Brazil

Peru

Colombia

Central America

Mexico

LatAm Average



Short-term challenges persist in Brazil and Central America, as Brazil continues to be challenged by economic and political uncertainty and Panama continues to work through a substantial oversupply. Over the medium term, investor sentiment is more positive for the region.

0 10 20 30 40 50 60 70

Rest of country

Large secondary cities

Capitals/key gateways



Source: JLL

Source: JLL

Investment yields


• Survey respondents’ average unleveraged rate of return requirements are lowest in relatively stable cities such as Mexico City, Bogotá and Santiago.

• Buenos Aires and Cartagena were the only two markets that observed a decline in return expectations. The gap between initial yield and overall return expectation reflects greater perceived risk and diminishing, but high, inflation.

• Resort markets have one of the highest internal rate of return requirement expectations over the next six months. Demand this year may become more homogenous and dependent on American tourists with Europeans turning more cautious about travel given a weakened pound/euro and general market uncertainty.

• Survey respondents’ targeted capitalization rate (initial yield) for the acquisition of an international-grade hotel over the next six months averaged 9.8 percent, on par with last year’s results.

• The initial yield rate requirement for Buenos Aires observed a noteworthy decline from 10.3 percent to 8.3 percent. This change reflects the intrinsic attractiveness of Latin America’s premier gateway city and the pent-up demand being unleashed by changes in the political economy of the country. Wyndham’s recent acquisition of Fen Hotels underscores international confidence in the city.

• Cap rate expectations above 10 percent generally reflect supply concerns, especially in Santiago, Panama, Lima and Brazil Metros.

8.3%

8.4% 8.6% 8.9%

9.0% 9.5% 9.8% 9.9%

10.0

%

10.1

%

11.1

%

12.4

%

0%2%4%6%8%

10%12%14%16%

Investors' target capitalization rate (initial yield)by market

Lowest capitalization rate (initial yield)Latin America average

Note: pertains to institutional-grade full-service hotel assetsSource: JLL

Note: pertains to institutional-grade full-service hotel assetsSource: JLL

13.7

%

13.9

%

14.5

%

15.3

%

15.8

%

16.0

%

16.0

%

16.9

%

17.2

%

17.4

%

18.5

%

19.0

%0%2%4%6%8%

10%12%14%16%18%20%

Investors' target unleveraged rate of return by market

Unleveraged internal rate of return (IRR)Latin America average

The 9.8 percent average initial yield for Latin America remained stable relative to the prior year’s survey results, while the average unleveraged IRR increased 110 basis points. The disparity in direction reflects a combination of generally higher inflation that prevailed in 2016 against the expectation of NOI growth in excess of the inflation-adjusted initial yield.

Investor strategies


• Investor strategies varies by market, with “Hold” being the favored strategy in capital/key gateway marketsand outside major metropolitan areas.

• “Buy” was the primary investment strategy in large secondary cities, likely attributable to investors’ perception of oversupply and subsequent expectation of acquisition opportunities outside of major gateway markets.

• Oversupplied resort markets in Panama and non-metro Colombia were the only substantial “Sell” markets.

Relative to the results from 2015, investors have shifted from a predominately “Build” strategy to a “Hold” strategy. The percentage of investors interested in “Buying” increased 9 percentage points relative to the prior year.

0% 50% 100%

Rest of country

Large secondary cities

Capitals/key gateways

Respondents' primary investment strategy by market type

Buy Build Hold Sell

0% 20% 40% 60% 80% 100%

Mexico City

Guadalajara, Monterrey

Los Cabos, Cancún/Riviera Maya

All Other Mexico

Panama City

Resorts - Costa Rica/Panama

Bogotá

Cartagena

All Other Colombia

Lima

All Other Peru

Rio de Janeiro, São Paulo

Brazil Metros 3-6 Million Residents

All Other Brazil

Santiago

All Other Chile

Buenos Aires

All Other Argentina

Respondents' primary investment strategy by market

Buy Build Hold Sell

Source: JLL

Source: JLL

Constraints to hotel investment by country


Security concerns/violence and political/economic stability have reemerged as key constraints to investment in certain countries, while lack of debt continues to hinder others.

Note: size of the bar represents significance of constraint as rated by survey respondents.Source: JLL

Mexico Central America Colombia Peru Brazil Chile Argentina

Constraints to hotel investment rankings

Availability of debt financing Availability of credible partners (developers/operators)

Political/economic stability Security concerns

Concern over new supply absorption

Active pipeline as a percentage of existing supply = 15.4%

About the survey


Contributors

Clay B. DickinsonManaging DirectorLatin America Region+1 305 529 [email protected]

Ricardo MaderManaging DirectorSouth America+55 11 3071 [email protected]

Geraldine GuichardoVice PresidentAmericas Research+1 312 228 [email protected]

Fernando Garcia-ChaconExecutive Vice PresidentMexico/Caribbean/Central America+1 305 529 [email protected]

JLL’s survey is targeted toward 500 top investors active in Latin America. The survey is directed toward investors and does not include the opinions of advisors or analysts. Results are averaged across all respondents and not weighted by any factors.

mailto:[email protected]




About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. AFortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At year-end 2016, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 77,000. As of December 31, 2016, LaSalle Investment Management has $60.1 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.

About JLL Research

JLL’s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today’s commercial real estate dynamics and identify tomorrow’s challenges and opportunities. Our more than 400 global research professionals track and analyze economic and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions.

© 2017 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

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latin america select service hotel investor survey - jll … that prevailed in 2016 against the...

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