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Investor interest remains firm but transaction volume falls y-o-y
Tourism sector shrugs off impact of political unrest
High occupancy fails to spur increase in room rates
Investment activity led by Japan and Australia
South Korea, newly discovered by investors, to see further activity
Upward pricing pressure set to continue
Increased investor focus on limited service and business hotels in 2015
Featured Market: Fiji continues to see buoyant investment activity
HOTEL
TRENDS
ASIA PACIFIC Q4 2014
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3
5
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7
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9
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Overview
Hong Kong
Japan
South Korea
Singapore
Thailand
Australia
Fiji
HOTEL TRENDS
Q4 2014
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OVERVIEW
Investor interest remains firm but transaction volume declines
• Investors retain a strong appetite for hotels but there is more money than deals.
US$11.6 billion worth of hotel investment transactions were registered in 2014, a 8.1%
y-o-y decline on 2013. Values are ahead of earnings in Tokyo, Hong Kong and
Singapore and therefore investors are looking to new markets and product types.
• 2014 saw steady growth in tourist arrivals as the industry remained resilient despite
political unrest and other events negatively impacting some markets. ADR declined 3.3%
in the year to October 2014 but RevPAR growth in many major cities has been positive.
• Despite high occupancy in most markets, operators are generally reluctant to
significantly increase room rates as their strategy is to fill rooms and not implement
dynamic price hikes as is commonplace in Western markets.
Upward pricing pressure set to continue
• The fact that there is more money than deals at present can only mean upward pricing
pressure in the coming quarters. Lenders are more aggressive and are playing an
increasing role in pushing up prices.
• Other noteworthy trends include the increased flow of outbound capital across the
region. Money from China, Taiwan and Japan is particularly active. The lack of quality
assets for sale is compelling investors to consider conversions, secondary cities and
markets beyond their initial mandate.
• Japan is the major hotspot at present. The weaker yen is attracting more overseas
groups but domestic investors have really stepped up their activity in recent months.
Australia has been the other main active market amid the surge in Asian capital.
Serviced and business hotels to emerge as ‘category killer’ in 2015
• Investors are advised to be more creative in terms of structuring deals and buying into
entities. CBRE expects that adoption of these strategies will result in more development
in 2015. A particularly large volume of capital will be put into business hotels and
limited feature hotels in the coming year.
Art Buser
Executive Managing Director
Hotels
Asia Pacific
t: +65 6229 1120
Asia Pacific Hotel Investment Turnover
HOTEL
FUNDAMENTALS
INVESTOR
DEMAND
TRANSACTION
VOLUME
TOURISM
ARRIVALS
0
2
4
6
8
10
12
14
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
US$ (
Billions)
Hotel Sales Price (US$) Asia
Source: CBRE, Q4 2014.
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HONG KONG
Strong investor demand but lack of stock for sale
• Domestic and foreign buyers continue to display strong demand for hotel. Prices
continue to rise and this is inhibiting deals to a certain extent, as is the lack of assets for
sale along with the ongoing impact of government cooling measures.
Political protests have slight impact on Chinese arrivals
• The “Occupy Central” political protests which ran from the end of September to mid-
December had a slightly negative impact on arrivals from Mainland China but numbers
continue to rise and the overall tourism market is still very strong.
• Room rates are flat and the market is resisting increases as rates have risen significantly
in previous years. There will be an inevitable upward movement in rates in the medium
term. Occupancy is very high at around 90%, with very little room for further growth.
Buyers retain positive long-term view
• Despite the recent political unrest, investment demand is solid and buyers continue to
look at Hong Kong from a long term perspective. Overseas interest is mainly coming
from institutions looking at 200-room plus hotels in the four-star plus segment.
• Foreign syndicates and funds have been active in making enquiries. REITs have also
been on the hunt but yields do not meet their requirements at present. Local families and
small companies retain a strong appetite for mid to lower tier assets. Buyers’ overall
focus is on core areas such as Central, Causeway Bay and Tsim Sha Tsui.
New supply in core areas remains limited
• Aside from New World Group’s new hotel in Tsim Sha Tsui, new high quality stock in
core locations is scarce and is confined to office and industrial conversions.
• The outlook remains positive. One major asset and a sizable hotel and serviced
apartment portfolio are currently being marketed and are expected to close in 2015.
Robert McIntosh
Executive Director
Hotels
Asia Pacific
t: +65 6326 1200
HOTEL
FUNDAMENTALS
INVESTOR
DEMAND
TRANSACTION
VOLUME
TOURISM
ARRIVALS
0
200
400
600
800
1,000
1,200
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Millions (
US$)
Source: CBRE, RCA, December 2014.
Hong Kong Hotel Investment Turnover
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JAPAN
Investor activity and sentiment remains very positive
• Japan continues to see very strong investment activity for hotels from a variety of local
and international buyers. Demand is being driven by increasing visitor arrivals, the solid
tourism outlook and the lack of future supply.
• The volume of inbound visitors continues to rise, with 11 million arrivals in the year to
October, compared to 10 million for the whole of 2013. Occupancy is high in major
cities, standing at 80% in Tokyo, Osaka and Kyoto.
Domestic buyers step up purchasing activity
• Investors are very active, with domestic groups in particular stepping up their purchasing
activity. Most buyers prefer to buy existing revenue generating assets.
• In December CBRE brokered the sale of Hotel MyStays Asakusabashi and Hotel MyStays
Kamata from RECAP to Singapore-based REIT CDL Hospitality Trusts. The cap rate for
the deal was 5.7%.
• Assets priced over JPY 3.0 billion attract institutional investors and developers whilst the
lower end of the market is dominated by high-net-worth investors and small companies.
Institutional buyers considering smaller deals and secondary locations
• Tokyo, Yokohama, Osaka, Kyoto, Fukuoka, Sapporo and Okinawa remain the main
focus for investors. Recent quarters have seen several institutional buyers begin to look
at secondary cities, smaller deals and secondary locations in Tokyo.
• The outlook remains very upbeat with several assets currently being marketed and a
number of transactions nearing completion. Occupancy levels are high, demand is
exceeding supply and domestic and international operators are keen to expand.
• CBRE predicts Tokyo will have 10,000 and Osaka 5,000 unaccommodated guests if
visitor count grows to 20 million and the development of smaller hotels continues.
Grade A office rents will increase by 30% in the next three years, indicating a strong
increase in Hotel RevPar.
Kiyoshi Tsuchiya
Japan Hotel Investment Turnover
Director
Investment Property Hotels
Japan
t: +81 3528 89534
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Millions (
US$)
Source: CBRE, RCA, December 2014.
HOTEL
FUNDAMENTALS
INVESTOR
DEMAND
TRANSACTION
VOLUME
TOURISM
ARRIVALS
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SOUTH KOREA
Overall activity subdued but demand for business hotels remains firm
• Investor activity in South Korea remains limited but there continues to be steady demand
for business hotels. Several assets in this segment are currently being marketed for sale.
• South Korea’s numerous cultural attractions continue to boost tourism. The weaker Yen
is negatively impacting arrivals from Japan – traditionally the country’s main tourism
market – but the massive growth in Chinese visitors is filling the gap to a certain extent.
Domestic buyers dominate
• The market is dominated by domestic buyers but local groups such as funds and K-REITs
are reluctant to invest as they feel they lack operational expertise. Foreign investors are
inactive but a few overseas buyers are looking at value added and opportunistic deals.
• Very few four or five star hotels have been traded. However, the business hotel segment
has been booming with numerous transactions recorded.
Some concern about potential oversupply
• The government continues to offer incentives for new hotel development as it anticipates
there will be a shortage of rooms in the medium term. However, the private sector is
sceptical and believes the market is adequately supplied. Some investors are concerned
about oversupply, especially in three to five years’ time when they intend to exit.
• The emergence of Jeju as a popular destination for Chinese tourists is spurring the
development of new hotels on the island, including several by Chinese developers.
Preliminary approval has also been given for casino development.
Growth in Chinese visitors set to continue
• The medium term outlook for tourism is good, with growth from the Chinese market set
to continue. The profile of Chinese arrivals will gradually shift away from groups and
budget hotels to more individual travelers staying in luxury hotels. In the longer term, the
stable growth of the market will attract more hotel operators and investors from abroad.
Don Lim
South Korea Hotel Investment Turnover
Senior Director
Head of Capital Markets
South Korea
t: +82 22170 5852
HOTEL
FUNDAMENTALS
INVESTOR
DEMAND
TRANSACTION
VOLUME
TOURISM
ARRIVALS
0
100
200
300
400
500
600
2004 2005 2007 2008 2009 2010 2011 2012 2013 2014
Millions (
US$)
Source: CBRE, RCA, Q4 2014.
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SINGAPORE
Demand remains firm but actual deals are limited
• Investment appetite for hotel assets in Singapore remains firm but deals are still limited.
It is challenging for investors to find quality assets at attractive prices.
• Major recent deals include the SGD 395 million sale of the Crowne Plaza Changi
Airport and its upcoming extension to OUE Hospitality Trust from its sponsor. Other key
transactions included the Hotel Grand Chancellor and The Sentosa Singapore.
Tourism numbers down due to fewer Chinese arrivals
• Tourism arrivals turned negative in 2014 due to events in Southeast Asia including
political instability in Thailand; rioting in Vietnam and the disappearance of Malaysia
Airlines flight MH 370, which had a negative impact on arrivals from Mainland China.
• Despite the weaker tourism numbers, the length of stay increased in 2014 and the total
number of room nights sold also improved. Occupancy stood at around 86.7% for
November 2014 – a slight decline month over month. Room rates have not moved
significantly for the past couple of years but the luxury segment has seen some growth.
Plenty of capital but very little product
• Investors continue to focus on the CBD and Orchard Road. Among overseas buyers,
foreign funds including wholesale funds and listed funds have been most active.
However, there is a lot of capital chasing very little product, and actual deals are scarce.
Market to remain challenging for buyers and operators
• The labour crunch is a huge challenge for hotel operators and is pushing up costs as it
is difficult to attract and retain staff. New supply in the next three to four years will have
an impact on room rates and will likely cause a slight drop in occupancy.
• Singapore will remain a tough market for buyers in the short term as high prices and the
lack of assets available continue to impede deals. Opportunities in the CBD and
Orchard Road are rare and while prices are on the high side, it is a reflection of the
strength and stability of the market.
Junrong Teo
Singapore Hotel Investment Turnover
Assistant Vice President
CBRE Hotels
Asia Pacific
t: +65 6229 1152
HOTEL
FUNDAMENTALS
INVESTOR
DEMAND
TRANSACTION
VOLUME
TOURISM
ARRIVALS
0
500
1,000
1,500
2,000
2,500
2004 2006 2007 2008 2009 2010 2011 2012 2013 2014
Millions (
US$)
Source: CBRE, RCA, December 2014.
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THAILAND
Steady investor demand but few assets for sale
• Thailand continues to see steady investor demand for hotel properties as the tourism
market recovers from political unrest. Domestic buyers dominate but there is a fair
amount of interest from foreign groups. Very few major assets are available for sale.
• Supported by massive growth in arrivals from China, the tourism market expanded
significantly in 2013 with arrivals up 20% y-o-y to 26.6 million. However, the market
suffered earlier this year from street protests and subsequent military coup and curfew.
Strong recovery in Chinese arrivals
• Arrivals from China were up by 86.5% y-o-y in December but arrivals from Russia –
another key market – were down 27.4% y-o-y. Hotel occupancy in Bangkok stood at
63% in Q3 2014, down on 2013’s average of 75%.
Thai families complete several deals
• A total of 16 hotels were transacted in the year to October but 13 of these were to a
vendor sponsored property fund. Of the remaining three assets transacted, two were
acquired by Thai families. Market pricing is difficult to assess due to the lack of
transactional evidence. A few overseas buyers retain an interest in the market.
• Investors remain focused on the key tourism destinations of Bangkok, Phuket, Pattaya,
Hua Hin/Cha Am, Koh Samui and Chang Mai. Within Bangkok, Ratchada is emerging
as a new tourism base.
New supply is significant but construction starts are tapering off
• The rate of new builds has slowed in recent months as banks are tightening lending.
However, future supply is significant, with 5,500 rooms in Bangkok scheduled for
completion before 2017, representing a 14% increase in current supply.
• It remains challenging for hotel operators to raise room rates due to the large volume of
new supply. However, the current slowdown in new construction starts may result in the
growth of room rates over time.
James Pitchon
Thailand Hotel Investment Turnover
Executive Director
Thailand
t: +66 2654 1111
HOTEL
FUNDAMENTALS
INVESTOR
DEMAND
TRANSACTION
VOLUME
TOURISM
ARRIVALS
0
50
100
150
200
250
300
350
400
450
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Millions (
US$)
Source: CBRE, RCA, December 2014.
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AUSTRALIA
Strong sales set record yields and price points
• Investors continued to display a robust appetite for hotel properties in Australia this
quarter with strong sales setting record yields and price points. The shortage of saleable
good quality and well located assets continues to boost pricing.
• Tourism numbers have been improving over the course of 2014, aided by the weaker
AUD. Arrivals from China are increasing but the traditional markets remain New
Zealand, the United Kingdom and the United States.
Sydney and Melbourne outperform
• In terms of hotel performance, Sydney and Melbourne continue to do very well with
occupancy approaching record levels and reasonably strong room rate growth. Brisbane
and Perth had been reaping the benefits of mining investment but the slowdown in the
resources sector over the past year and weaker government spending has seen
occupancy fall back, which is negatively impacting on room rates.
• There is a strong depth of investor interest across the market. Five-star hotels in CBDs
and major tourist locations are highly sought after – particularly by Asian buyers - whilst
there is also strong demand for three and four-star CBD hotels.
Asian investors dominate activity
• Buyers from Asia were very active over the course of 2014 and accounted for virtually all
deals for assets priced over AUD 50 million. Domestic buyers – primarily high net worth
individuals - are focusing on assets below AUD 40 million as they feel competition at the
upper end of the market is too strong at present.
• Recent major transactions include the AUD 463 million acquisition of the five-star
Sheraton on the Park Sydney. The deal set a new record for the largest single hotel asset
sale in Australia. The buyer was China-based Sunshine Insurance Group.
• The deal pipeline is strong but the traditional summer shut down period has arrived. The
outlook for 2015 is positive with very strong trading conditions in the short to medium
term and a large volume of capital chasing deals.
Wesley Milsom
Director
Hotel Valuations
Australia
t: +61 29333 3423
Australia Hotel Investment Turnover
HOTEL
FUNDAMENTALS
INVESTOR
DEMAND
TRANSACTION
VOLUME
TOURISM
ARRIVALS
0
500
1,000
1,500
2,000
2,500
3,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Millions (
US$)
Source: CBRE, RCA, December 2014.
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FIJI
Fiji tourism enjoys record year
• Tourism is the main economic activity in Fiji. Whilst not large on a global scale, the
country provides a diverse array of accommodation and facilities, ranging from top class
five star hotels and boutique island hideaways to backpacker hostels and island resorts.
• The tourism sector enjoyed a very strong 2014 with initial figures showing annual
arrivals of 700,000, a new record. The country benefits greatly from its close proximity
to its main source markets of Australia - which accounts for over 50% of all visitors - and
New Zealand.
ADR records steady growth
• The market provides 10,300 rooms. Whilst reported average national occupancy stood
at 49% as of Q4 2014, the top performing hotels enjoy occupancy in the 70% range.
Around 520 new rooms will be added to the market in 2015 with a further 5,500
proposed. Supply has increased 4.2% per annum over the last 15 years.
• ADR currently stands at F$260 (US$130) having increased 7.2% per annum on average
over the last six years. Demand and rate growth was aided by the devaluation of the
Fijian dollar by 20% in 2009 and the strength of the Australian dollar. Maintaining
growth in the face of the falling Austrian dollar will be a key challenge for the market this
year.
Investment activity remains upbeat
• Investment in the Fiji hotel sector remains buoyant and 2014 witnessed a steady flow of
acquisition and development activity from both local and international sources.
• In February, Outrigger Hotels and Resorts, which has had an interest in Fiji for some
time, acquired Castaway Island – an iconic ‘private’ island escape - and the balance
70% interest in the Outrigger Resort for a combined total of FJD 130 million (US$65
million).
• Denarau Island remains the main tourism hub and is home to eight hotels/resorts
providing a total of 1,750 rooms. The area also hosts port facilities servicing the
Mamanuca and Yasawa island groups, a shopping centre and international golf course.
Road access to Denarau from the international airport is being upgraded which will
facilitate further development of this destination.
International operators stay active
• Other recent noteworthy deals have included Vision Group’s purchase of the
Sonasali/Tadri Resorts and the P Meghji Group’s acquisition of the Amanuca Resort.
• Hilton will brand Sonasali as the DoubleTree Resort while Amanuca is now managed by
Starwood as the Sheraton Tokoriki following a significant upgrade. The most significant
investor in Fiji’s tourism market remains the Fiji National Provident Fund (FNPF).
• International operators have established a strong foothold in the country. Besides Hilton
and Starwood which also manage other resorts in Fiji, the likes of Accor, IHG, Warwick,
Shangri-La, Radisson and Wyndham all have hotels and resorts in major tourist areas.
Marriott is set to enter the market later in 2015 with its new Momi Bay development.
Ken Smith
Regional Director
Valuation and Advisory
Services
CBRE Hotels
Pacific
t: +61 29333 3422
HOTEL
FUNDAMENTALS
INVESTOR
DEMAND
TRANSACTION
VOLUME
TOURISM
ARRIVALS
11 © 2015 CBRE Group, Inc.
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Asia Pacific Research
Henry Chin, Ph.D.
Head of Research, Asia Pacific
CBRE
12/F Three Exchange Square
8 Connaught Place
Central, Hong Kong
t: +852 2820 8160
For more information about this report, please contact:
Ada Choi, CFA
Senior Director, Asia Pacific
CBRE
12/F Three Exchange Square
8 Connaught Place
Central, Hong Kong
t: +852 2820 2817
Jonathan Hills
Associate Director, Asia Pacific
CBRE
12/F Three Exchange Square
8 Connaught Place
Central, Hong Kong
t: +852 2820 2881
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CONTACTS
Spencer Levy
Head of Research, Americas
t: +1 410 951 8443
Asia Pacific Hotels
Art Buser
Executive Managing Director
CBRE Hotels Asia Pacific
6 Battery Road
#32-01 Singapore
t: +65 6229 1120
Robert McIntosh
Executive Director
CBRE Hotels Asia Pacific
6 Battery Road
#32-01 Singapore
t: +65 6326 1200
© 2015, CBRE, Group Inc. CBRE Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do
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