Asia-Pacific Hotel Investments Rebound To Pre-Pandemic Levels; China Slide Holds Back Bigger Gains

Hotel investments in the Asia-Pacific rebounded from pandemic lows in the first half of 2022, helped in part by purchases of inns from cashed-up investors from distressed sellers, global real estate consultancy JLL said in a report today. A decline in China hotel investment held back even bigger gains.

Overall, first-half investment in the region rose by 33% from a year earlier to $6.8 billion and gained 11.9% from 2019, “demonstrating a return to pre-pandemic levels of capital deployment into the Asia Pacific hotels sector,” JLL said.

There were 75 transactions in the first half of 2022, down by 20% year-on-year and 33% from first half of 2019 numbers, reflecting a trend toward larger purchases. The total number of rooms transacted during the first six months of 2022 was 19,822, an increase of 29.9% versus the first half of 2021 and 9.4% from the pre-pandemic period in 2019, JLL said.

“The increase in deal activity was influenced by a spike in portfolio transactions as institutional investors sitting on dry powder seek to deploy their capital more efficiently,” JLL said. Japan ($1.8 billion), Korea ($1.7 billion), and Greater China ($1.6 billion), received the most capital in the first half of 2022.

In mainland China, however, year-on-year hotel transactions decreased by 43.8% to about 7 billion yuan, due to strict Covid control measures in many cities, JLL said. (See related post here.) As a result, many hotel transactions will likely be delayed to the fourth quarter of this year or the first quarter of 2023, it noted.

The firm estimates that China’s hotel transaction volume will increase to approximately 13.5 billion yuan for the full year of 2022. “The shortened quarantine period for inbound visitors and the ease of domestic travel restrictions signal a steady recovery of the overall hotel market,” said JLL.

Distressed sellers will also attract buyers looking for low prices. “Many developers (opted) to divest their non-core hotel assets in an attempt to ease their financial distress, hence attracting a large number of high net-worth investors actively seeking opportunities in quality hotel assets at discounted pricing,” said Zhou Tao, Managing Director of Hotels & Hospitality Group, JLL Greater China.

Some Tier I and Tier 1.5 cities in China have seen a boom in rental housing investment activities, and hotel assets are highly sought-after by investors looking for rental housing conversion opportunities, JLL said.

A growing number of loss-making hotel projects in Tier-2 and Tier-3 cities are being sold through court sale, which has attracted interest from asset management companies seeking distressed hotel investment opportunities, JLL said.

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