According to JLL, Mainland Chinese investors exported over $5 billion into the hotel real estate sector across the globe in 2015, and the country accounted for nearly half of all cross-border investment out of the Asia region. As Chinese investors brought a new perspective to deal selection, what are the trends that will shape the sector in Asia Pacific going forward?
Experts including Tony Ryan, Managing Director, Global Mergers & Acquisitions for JLL Hotels & Hospitality and Yuval Tal, a partner in law firm Proskauer, identify four major trends that are likely to influence the industry in the coming years.
Asia Pacific has bucked the downward trend in global hotel investment. In the first six months of this year, transaction volumes in the region rose 13.2 percent to US$3.8 billion, according to JLL’s “Hotels Investment Highlights” report. By comparison, volumes in the Americas and the Europe, Middle East and Africa region dropped 51 percent and 60 percent respectively.
Mainland China transacted US$ 252 million worth of deals in the first six months of the year, the third-largest volume in the region after Japan and Australia. As uncertainties continue post-Brexit, investors are beginning to see China as a safe haven. This is supported by the fact that the mainland has maintained its upward growth momentum while growth in major developed economies has slowed.
Chinese investment in commercial property and land deals totaled US$3.5 billion in the first quarter of this year, down 20.5 per cent year on year, according to JLL data. Still, China moved up one spot to become the second-most active cross-border investor after Germany. Chinese capital has been a major force shaping the global real estate market and likewise, its impact in the hospitality sector has been significant.
An Anbang Insurance-led group’s bid for Starwood Hotels, worth almost US$14 billion, earlier this year is an indication of Chinese insurers’ appetite for global hotels assets. Chinese investors have also been active in Australia. Chinese money accounted for a third (by volume) of Australian hotel transactions last year, according to JLL data, with investors picking up some big names such as Hilton Sydney (AU$442 million), and Sydney’s Sheraton on the Park (AU$463 million).
Chinese investors“Chinese companies recognise the significance of the hotel and tourism industries as the global middle class swells, particularly in emerging markets. Some Chinese players are aggressively acquiring hotel management companies to establish vertically integrated travel & tourism businesses (including travel agencies, transportation and accommodation),” says Ryan at a JLL and Prokauer co-hosted seminar - “China Hotels Mergers and Acquisitions (M&A)”- in Hong Kong last month.
“Other Chinese companies are looking to enhance and extend their domestic hotel businesses by acquiring hotel management platforms with recognised brands and world class expertise. Also in the mix are Chinese insurers, who are not yet investing in real estate to the same extent as their Western peers – this will probably change and they are likely to emerge as a large buyer domestically and globally.”
In Australia, China was the country’s second largest inbound market by visitor arrivals last year and the largest market by total expenditure and visitor nights. Visitors from China generated AU$8.3 billion (US$6.2 billion) in total expenditure, a number that is estimated to increase to AU$13 billion by 2020.
These numbers have prompted a strategic shift in mind-set, with hoteliers such as AccorHotels establishing China-focused initiatives to woo more spenders from the country and customising their service standards to meet Chinese cultural expectations. Hotel groups began to see potential in securing long-term demand, in view of the Chinese preference for quality accommodation.