Savills : releases Asia Pacific Hotel Sales & Investment report

The acquisition of assets in secondary locations was evident in Q1/2016, and is likely to continue throughout the year as investors feel comfortable operating in secondary markets in pursuit of higher yields.
• The quarterly total of investment sales fell by 15.9% year on year (YoY) to US$1.49 billion in Q1/2016, from US$1.77 billion in Q1/2015.
• Japan was the location with the highest number of transactions, with 42.5% of Q1 sales, worth JPY73.5 billion (US$654.7 million).
• Australia was the location with the second largest volume of transactions, with 25.1% of Q1 sales, worth A$486.4 million (US$373.3 million).
• Of the countries where transactions occurred, Indonesia, Vietnam, the Maldives, Thailand, New Zealand and Australia had positive quarter-on quarter (QoQ) increases in transaction volumes, in descending order of volume growth.
• By purchaser origin, Japanese buyers were the most active by far, with 41.6% of all purchases; transactions were predominantly located in Japan, and were not cross border capital movements. This is true for buyers of all nationalities, with the notable exception of Singaporean buyers.
• Australian buyers came second, with 17.3% of all purchases, followed by Singaporean buyers with 15.2% and Chinese buyers with 9.8%.
'Despite slower growth in China, hotel investors continue to invest in Asia Pacific, taking a longer term view on markets such as Thailand and Indonesia, or investing in the traditional markets of Japan and Australia for capital protection.' Savills Research

Northern Asia

Japan saw the most transactions in Asia Pacific, with JPY73.5 billion (US$631.6 million) worth of sales. This is a YoY decrease of 9.4% from Q1/2015. The hotel market benefitted from the 47% increase in visitor arrivals from 2014 to 2015, led by the increase in short-haul Asian visitors travelling to Japan more often but for shorter periods.
Japan is a favourite destination for hotel investment and Chinese investors are likely to play an increasingly larger role. Some investors believe that this may be the peak for hotel performance and asset prices in the run up to the Olympics, while others believe that this is just the beginning of increases in visitor arrivals from Asia. On 30 March 2016, the government increased their 2020 visitor arrivals goal for the second time, to 40 million arrivals, double the original forecast. The number of Chinese Tourist to Japan has not decreased, despite the slowdown in China. Chinese tourists were the top visitor arrival growth nation to the Japan, nearly five million Chinese tourists visited Japan in 2015, representing 107% increase from 2014..

Eastern Asia

There were four hotel transactions in China this quarter, totalling CNY1.45 billion (US$223.8 million), representing a 17.7% decline on Q1/2015. The 120-room Grand Pujian Residence was acquired by Top Spring Int'l Holdings, a Hong Kong-listed company, from Real Estate Capital Asia Partners in Singapore, for CNY576.3 million (US$88.1 million (CNY4,802,605, US$734,167per key).
The soft market conditions in China are due to the deterioration in hotel operational performance, the bid-ask gap, and the fact that investment underwriting criteria in China are different to international buyers' criteria (yield versus price per square metre). However, due to the economic conditions, hotel owners in China have started to explore more realistic exit strategies.

Southeast Asia

Indonesia, Vietnam and Thailand all experienced increases in transaction volumes compared to Q1/2015. Although transaction volumes are still low compared to East Asia or Australasia, they are extremely high growth hotel development countries with high international investor interest. In Indonesia, Thailand's Minor Hotel Group has formed a 50/50 joint venture with Indonesia-based PT Wijaya Karya Realty to develop the 100-key Anantara Ubud for IDR562 billion (US$41.7 million (IDR5.45 billion, US$414,000 per key)) with Savills as the exclusive agent.
Indonesia is aiming for 20 million international visitors by 2020. Asian source markets make up 39% of international arrivals and there was an increase of 25% in Chinese visitation from 2014 to 2015. In 2015, Bali welcomed more than 4 million international tourists, an increase of 10.6% per annum (Compound Annual Growth Rate) between 2008 and 2015.

Australia and New Zealand

Australia had the second highest transaction volume this quarter, accounting for 25.1% of transactions across Asia Pacific. There were 16 transactions with a total value of over A $486.4 million (US$344.6 million). This is a 7.7% YoY increase compared to Q1/2015, although a significant decrease in relative growth compared to the 136.2% YoY increase recorded from Q1/2014 to Q1/2015.
In New Zealand there were three transactions, totalling NZ$71.9 million (US$47.4 million). This is a 23.4% YoY increase compared to Q1/2015. The Novotel Wellington (NZ$33.9 million, US$22.3 million) was the most notable deal. The Travelodge Wellington and Heartland Hotel Auckland Airport were also exchanged for undisclosed sums.
Australia and New Zealand are both well regarded among Asian, and especially Chinese, travellers. New Zealand hotel key performance indicators are robust, with a 4% increase in occupancy, 10.5% increase in Average Daily Rate (ADR) and 15% increase in Revenue per Available Room (RevPAR) from 2014 to 2015, according to Smith Travel Research. This outshines Australia's robust growth for 2015, with a 0.1% increase in occupancy, 10.4% increase in ADR and 10.6% increase in RevPAR.

The prospects for the market

The investment sales market is expected to remain dominated by Japan and Australia and quiet in the near term in Southeast Asia and China. In addition, although there is ample liquidity and demand in the market, there remains a mismatch between the expectations of buyers and sellers. The next quarter is likely to be dominated by sales in secondary cities in Japan and Australia. Should concerns over the macro-economy begin to fade and the 'bid-ask' gap narrows, the second half of 2016 could see a resurgence of transactions.