Where investors are shopping for hotels

When it comes to hotels, China, Japan, and South Korea are dominating dealmaking in Asia Pacific (APAC), a sign of strong investor appetite amid the tourism recovery.

The three countries collectively accounted for 86% of hotel investment activity in the region in the third quarter, JLL data shows.

“China and Japan have consistently been the most liquid markets due to their sheer scale and extensive market activity,” says Nihat Ercan, CEO, APAC, JLL Hotels & Hospitality Group. “But a myriad of factors such as the return of tourism, affordable debt financing — particularly in Japan, and a rise in distressed opportunities in China are further fuelling deal volumes.”

In Japan, investor appeal has surged, driven by factors including the weak yen and favourable financing conditions compared to other regional destinations.

One notable transaction is the $460 million sale of the Hyatt Regency Tokyo to investment funds KKR and Gaw Capital Partners in March, which remains the top single asset transaction in APAC this year.

However, while Japan is a clear outlier with higher volumes, overall hotel investment activity still continues to face headwinds in a year characterised by high interest rates and inflationary pressures.

Investment volumes in APAC hit $5.9 billion in the first nine months this year, down 40% from the same period last year, according to JLL. This accounted for nearly one-fifth of global hotel investment volumes.

Luxury outperforms

South Korea has seen a significant rebound in trading performance led by the luxury segment. In July, Singapore-based real estate firm City Developments Ltd acquired Nine Tree Premier Hotel Myeongdong II from South Korea’s Shinhan Asset Management Co. in a 140 billion won ($107.2 million) deal.

Nearly all luxury hotels in APAC have surpassed pre-pandemic revenue per available room (RevPAR) levels during the first nine months of 2023, JLL data shows.

“Since the onset of the pandemic, the luxury segment in both urban and resort destinations has attracted significant interest from domestic and international investors,” says Ercan. “Luxury hotels are increasingly regarded as trophy assets due to their resilient performance and rapid recovery.”

Catalyst for investment

More broadly, across the sector, RevPAR in the region reached 95% of pre-pandemic levels, with a full recovery expected in the first half of 2024.

“The anticipated increase in international tourists across APAC towards the end of the year will likely boost occupancy rates amid high average daily rate (ADR) levels,” Ercan says.

While the clear catalyst for the recovery has been the return of tourism, other factors also contributed to higher volumes.

For instance, the majority of transactions in China came from auction sales of distressed hotel assets in lower-tier cities.

Investors — particularly institutional investors, high-net-worth individuals (HNWIs), and family offices — have set sights on China as a key market for investment. 

“More institutional investors are also exploring conversion of Tier-1 city rental apartments into hotels, while the swift recovery of hotel performance in tourist destinations like Sanya is also drawing investor attention,” says Ercan.

In the rest of the region, safe-haven markets such as Australia and Singapore remain highly sought-after for investors’ long-term strategies, while India is predicted to emerge as an attractive destination for HNWIs seeking portfolio diversification.

Tailwinds ahead

Macroeconomic headwinds continue to be a major bugbear for hotel investors surveyed by JLL, with most flagging inflation as the primary concern, followed by the high costs of capital and rising interest rates.

But 2024 is projected to bring more favourable conditions than challenges in the region.

“Travel momentum is expected to continue, and air connectivity will further recover, providing tailwinds for the industry,” Ercan says.

While APAC hotel investment volumes for this year are projected to fall 14% from 2022, the sector is on track to grow 3% to reach $10.4 billion in 2024, according to JLL.

“Cost pressures are anticipated to ease, and closed-end funds will reach the exit stage of their investment lifespan,” says Ercan.

“This will create new opportunities for growth in non-traditional hotel products such as branded residences, or niche markets like yachts and private jets,” he says.