Hotels & Hospitality Group December Hotel Investor Sentiment Survey

Transcription

1 Hotels & Hospitality Group December 2015 Hotel Investor Sentiment Survey

2 2 Hotels & Hospitality Group December 2015 Global Major Gateways Highlights Global transaction volume is up 28% through YTD November 2015 and on track to exceed our forecast of USD68 billion in However, deal volumes and asset valuations appear to be plateauing. Investors near-term sentiment for hotel performance globally has softened since last year s survey with recent market volatility weighing on some investors. That said, underlying hotel operating fundamentals remain robust across most markets. Hotel investors outlook for the next two years has shifted from 61% positive one year ago to 39% positive. Those surveyed have the most optimistic outlook for Asia Pacific during the next two years, followed by EMEA and North America. Surveyed initial yields (cap rates) have generally stopped the trend of narrowing seen in recent surveys, with the current level within 20 basis points of the level from one year prior. During the next six months, yields are expected to mark an uptick across many gateway markets while investors see cap rates continuing to trend downward in secondary cities. The availability of debt and equity remains at a multiyear high and the proportion of cross-border activity is at a record high. Investors say that Barcelona and Milan have the most runway to grow ahead while Hong Kong, New York and Paris are at a peak. Hotel Performance Sentiment: Global Gateway Markets Beijing Shanghai Hong Kong Dubai New York Singapore Milan Toronto Barcelona Paris Washington D.C. London Berlin Chicago Munich Miami Los Angeles San Francisco Boston Sydney Tokyo -60% -40% -20% 0% 20% 40% Short Term (next six months) Medium Term (next two years) 60% 80% 100%

3 December 2015 Hotels & Hospitality Group 3 Stage in the Investment Cycle Hong Kong, New York, Paris PEAK Boston, Chicago, Los Angeles, Miami, San Francisco, Toronto, Washington D.C. Berlin, London, Munich, Sydney LATE UPTURN EARLY DOWNTURN Beijing, Dubai, Singapore Barcelona, Shanghai, Tokyo EARLY UPTURN LATE DOWNTURN Milan TROUGH Hotel Performance Sentiment by Region Global Hotel Performance Sentiment 80% 60% 40% 20% 0% -20% -40% 34% 39% 41% 32% 31% 58% 22% 39% GLOBAL NORTH AMERICA ASIA PACIFIC EMEA -60% -80% Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Apr-04 Apr-05 Jun-06 Nov-06 Jun-07 Jun-08 Apr-09 Apr-10 Apr-11 Apr-12 May-13 Nov-13 Apr-14 Nov-14 Short Term Medium Term Short Term (next six months) Medium Term (next two years) Short Term Cap Rate Trend by Region Global Initial Yields (Cap Rates) Expectations Higher 11% Slightly Higher 10% Slightly Higher GLOBAL NORTH AMERICA ASIA PACIFIC EMEA 9% 8% 7% 6% Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Apr-04 Apr-05 Jun-06 Nov-06 Jun-07 Jun-08 Apr-09 Apr-10 Apr-11 Apr-12 May-13 Nov-13 Apr-14 Nov-14 (Positive/Higher and Negative/Lower) Neutral Cap Rate (Initial Yield) % Survey Historic Average Three-Year Average Note: JLL calculates the net balance of investor sentiment as the percentage of respondents who indicate a positive performance outlook, minus the proportion of respondents who expect negative performance for the given time frames. Therefore, the net balance is equivalent to the percentage points by which the proportion of investors with a positive outlook exceeds those with a negative outlook, and any result above 0% means that there are more optimistic respondents than pessimistic ones.

4 4 Hotels & Hospitality Group December 2015 North America The results of the survey reflect a generally positive outlook for hotel operating fundamentals and a competitive transactions market. However, ongoing concerns regarding the global economy and the sustainability of asset pricing at historically low yields have begun to weigh on forward-looking cap rate expectations and investor sentiment as a whole. Strong hotel operating fundamentals underpin generally positive hotel investor sentiment. U.S. hotels are on pace to record another year of solid growth in 2015 with RevPAR rising 6.7% through the third quarter. However, despite strong operating fundamentals, a series of concerns are weighing on investor sentiment and forward-looking cap rate expectations, with some markets being impacted more significantly than others. Global economic volatility and the relative strength of the U.S. Dollar present an impediment to demand growth from international travelers. Lodging markets with a disproportionate share of international demand, such as New York and Miami, are perceived as being most at risk. Meanwhile, recent volatility in financial markets has contributed to heightened uncertainty, and the growing likelihood of a near-term interest rate hike from the Federal Reserve presents a risk of rising cap rates going forward. While global economic softness and resulting declines in commodity prices worldwide have not sidelined growth in the U.S., these factors have pushed Canada s more energy-sensitive economy into recession territory. North America Hotel Performance Sentiment Although supply growth is expected to remain restrained at the national level, the outlook varies widely across markets. The number of hotel rooms under construction ranges from a practically negligible amount in Hawaii and San Francisco to nearly 12% of the existing lodging stock in New York. Lodging performance continues to improve in most markets surveyed across North America, but investor sentiment with regard to their future RevPAR growth prospects has softened since we conducted our last survey. North America Hotel Performance Sentiment by Market Houston New York Vancouver Caribbean Toronto Hawaii Washington D.C. Dallas Atlanta Chicago 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% -60% Oct-00 Oct-01 Oct-02 Oct-06 Oct-13 Oct-14 Phoenix Miami San Diego Seattle Los Angeles San Francisco Boston -40% -20% 0% 20% 40% 60% 80% Short Term (Next 6 months) Medium Term (Next 2 years) Short Term (next six months) Medium Term (next two years)

5 December 2015 Hotels & Hospitality Group 5 Per the results of the survey, the net balance of investor sentiment with regard to the short-term hotel performance outlook declined to 41% from 66% one year ago, while the net balance of investor sentiment with regard to the medium-term outlook declined to 32% from 62%. Overall, the decline in expectations for the medium term was more significant than the decline in short-term sentiment, suggesting that an increasing albeit still minority share of investors expect RevPAR to peak within the next two years. Markets for which investors performance expectations were most frequently optimistic include Boston and San Francisco, which boast high barriers to entry, strong operating performance metrics and manageable supply pipelines. At the other end of the spectrum, markets for which investors performance expectations were most frequently pessimistic include New York and Houston, given their exposure to international demand and energy prices, respectively, as well as concerns related to new supply. North America Initial Yields (Cap Rates) 11.5% 11.0% 10.5% 10.0% 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% Oct-00 Oct-01 Oct-02 Cap Rate (Initial Yield) % Oct-06 Three-Year Average North America Initial Yields (Cap Rates) by Market Oct-13 Oct-14 Survey Historic Average In addition to New York and Houston, only three other markets recorded a more positive outlook for RevPAR growth for the medium term than the short term, namely Washington D.C., Vancouver and the Caribbean. These markets have generally underperformed in the recent past, and therefore, have a lower threshold from which to grow. Investors targeted capitalization rates for North America declined to a new survey low of 6.9%, down 30 basis points compared to the last survey. Near-term cap rate expectations declined in every market surveyed except Houston, with Vancouver, Toronto and the Caribbean realizing the most significant declines in cap rate expectations. Meanwhile, targeted cap rates for New York declined 10 basis points, reflecting its continued desirability as the most liquid market globally. While strong hotel operating fundamentals, the current low interest rate environment, and foreign investors disposition to acquire trophy hotel properties at exceptionally low yields have driven current cap rate expectations below the late 2014 levels, our survey indicates that, on balance, investors expect cap rates to trend higher over the next six months. In fact, among the 17 markets surveyed, Boston and San Francisco are the only markets for which cap rates are not anticipated to increase according to the majority of investors surveyed. North America Short Term Initial Yield (Cap Rate) Trend by Market Boston San Francisco Miami Washington D.C. Atlanta Hawaii Seattle Phoenix Los Angeles No change 9.0% 8.0% San Diego North America Average 7.0% Toronto 6.0% 5.0% 4.0% 3.0% Vancouver Caribbean New York 2.0% Chicago 1.0% 0.0% San Francisco New York Hawaii Initial Yield Miami Boston Los Angeles Seattle Vancouver Washington D.C. North America Average San Diego Toronto Chicago Dallas Atlanta Phoenix Houston Dallas Houston -10% 0% 10% 20% 30% 40% 50% (Positive/Higher and Negative/Lower)

6 6 Hotels & Hospitality Group December 2015 Asia Pacific Investor sentiment for trading in Asia Pacific s hotel markets has fallen compared to the last survey with short term expectations (next six months) declining to 31% from 58% and medium term (next two years) at 58%, largely unchanged from last year. Performance has been diverse across the region during the past 12 months. Several countries experienced positive exchange rate fluctuations against the U.S. Dollar and as a result demonstrate stronger positive ADR and RevPAR growth rates, while northeastern Asia recorded greater stability in respect of exchange rates, thereby witnessing a less significant shift in key hotel performance measures. While macroeconomic headwinds and new supply will challenge the region, the Chinese government is expected to continue the roll-out of various promotional acts to boost tourism. This includes a 72-hour visa-free policy across numerous cities and perhaps extending it longer. Domestic visitation is expected to maintain its strong growth trend amidst enhancements to tourism infrastructure that should support demand growth moving, such as Shanghai Disney Resort which is due to open in the spring of The U.S. is unwinding its stimulus program, but many of the world s largest economies are introducing them, causing the U.S. Dollar to strengthen against most global currencies. Investment activity has continued to expand in 2015, but the strength of the U.S. Dollar has masked the true depth of activity across Asia Pacific hotel markets. The downside of reporting in U.S. denominated currency is well noted as it leaves comparisons open to currency swings, however, it is necessary due to the comparison of various countries. Asia Pacific Hotel Performance Sentiment China s growth is slowing. More importantly, the overall industry structure is being adjusted to focus more on the tertiary industry. Compared with the last few years, the market performance data demonstrated improvement in both occupancy and ADR in luxury and mid-scale categories. Additionally, the loss of government business was being gradually reduced by the demand stemmed from robust and sustainable domestic tourists and private-sector business travelers, whose spending power has grown strongly in recent years. At the same time, the decline of international arrivals to China continues, led by a reduction in visitors from Japan, Russia, Sweden, Norway and Australia. Asia Pacific Hotel Performance Sentiment by Market Beijing Shanghai Kuala Lumpur Bangkok Hong Kong Jakarta Singapore Bali Manila 70% 60% 50% 40% 30% 20% 10% 0% -10% Seoul Auckland Taipei Melbourne -20% -30% Sydney -40% Oct-00 Oct-01 Oct-02 Short Term (next six months) Oct-06 Medium Term (next two years) Oct-13 Oct-14 Osaka Tokyo -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% Short Term (next six months) Medium Term (next two years)

7 December 2015 Hotels & Hospitality Group 7 Japan is enjoying an unprecedented boom in foreign tourism with substantial growth. For instance, Japan hosted 1.8 million foreign tourists in April 2015 an all-time monthly high. Of total inbound, 405,800 arrived from Mainland China, up 113% from a year before making it the single largest and fastest growing source market of foreign tourists in Japan. Investor expectations for cap rates across Asia Pacific have tightened from the levels in late 2014 on the back of strong hotel trading performance across many markets but are expected to show some uptick going forward. As a result, overall investor cap rate expectations firmed to 6.2% from 7.1% compared to the last survey. This is nearly 100 basis points under the observed rate from two years ago. Asia Pacific Initial Yields (Cap Rates) 11.5% 11.0% 10.5% 10.0% 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% Oct-00 Oct-01 Oct-02 Oct-06 Oct-13 Oct-14 Whilst the downward trend in yield is evident across the region, the shift in expectations was most pronounced for Australia this survey, firming by 180 basis points to 6.6%. Cap rates for Australia and New Zealand ranged between 6.1% in Sydney and 7.1% in Auckland. Melbourne witnessed a strong firming bias, now at 6.5% signaling that investors observe the market to be closer to Sydney compared to previous surveys. Cap rates have continued to tighten across the region, ranging between 4.9% in Hong Kong and Tokyo rising to 7.8% in Manila. Four markets were ranked at sub-6%, namely Osaka and Singapore (both 5.3%) as well as Hong Kong and Tokyo. Although luxury assets are trading well below 6% in Sydney, the survey reported cap rates just outside this threshold at 6.1%. Australasia continues to attract the highest proportion of capital inflows with cross border investors the dominant purchasers of hotel real estate over recent years. The source of offshore capital is also shifting with greater inflows from China; a trend expected to gain pace over time, particularly into new markets such as Melbourne and Wellington not historically on the radar of most investors. Asia Pacific Short Term Initial Yield (Cap Rate) Trend by Market Melbourne Tokyo Osaka Cap Rate (Initial Yield) % Three-Year Average Survey Historic Average Sydney Auckland Taipei Asia Pacific Initial Yields (Cap Rates) by Market 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% Hong Kong Asia Pacific Average Seoul Manila Bangkok Bali 2.0% 1.0% 0.0% Tokyo Hong Kong Singapore Initial Yield Osaka Taipei Sydney Beijing Seoul Asia Pacific Average Shanghai Melbourne Auckland Bali Jakarta Kuala Lumpur Bangkok Manila Kuala Lumpur Jakarta Singapore Shanghai Beijing -60% -40% -20% 0% 20% 40% 60% 80% 100% (Positive/Higher and Negative/Lower)

8 8 Hotels & Hospitality Group December 2015 EMEA Investor sentiment for trading in EMEA s hotel markets has softened compared to the previous survey, with short term expectations (next six months) declining to a net balance of 22% from 66% and the medium term (next two years) now at 39%, compared to 73% last year. Short term expectations are strongest for Munich, Berlin, London and Paris. Looking further ahead, medium term sentiment remains strong in several of these cities, but also in Manchester, Milan and Dublin. In the UK, trading expectations remain strong in both the short and medium term for the cities tracked London, Edinburgh and Manchester. The improving economic environment, together with major events including the 2015 Rugby World Cup puts the UK on target to deliver record numbers of visitors for the year. Some 16.8 million inbound visitors arrived in the UK during the first six months of 2015, a 3% uplift compared to 2014 and the highest result achieved for the first six months of any year. The government recently announced it would introduce new visitor visas for tourists from China from 2016, which are expected to bring significant economic benefits to the UK. Chinese tourists currently contribute an estimated GBP500 million annually to the UK economy with record numbers visiting the UK to make the most of all the retail opportunities and visitor attractions on offer up 35% between April and June this year compared to the same period in 2014, according to latest figures from VisitBritain. The short term trading outlook in a number of German cities also remains strong, with a positive net balance of around 50%. Fuelled by the positive economic environment, Germany continues to be an attractive market for hotel investors, seeking high-quality hotels in one of Europe s safe havens. EMEA Hotel Performance Sentiment Investor interest is expected to rise over the medium term underpinned by strong trading fundamentals and many hotels being operated subject to long term leases. Sentiment in Munich remains the strongest, with a positive net balance of over 60% in the medium term. Although this is 30 percentage points lower than our survey one year ago, it is the highest across all cities tracked. Munich remains on the wish list of both domestic and international investors as it boasts some of the highest occupancy and room rates in Germany. EMEA Hotel Performance Sentiment by Market Moscow Istanbul Budapest French Riviera Dubai Cape Town Warsaw Spanish Resorts Rome Milan Copenhagen Brussels Hamburg Frankfurt Prague Amsterdam Lisbon Vienna Barcelona 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% -50% -60% Oct-00 Oct-01 Oct-02 Short Term (next six months) Oct-06 Medium Term (next two years) Oct-13 Oct-14 Stockholm Edinburgh Dublin Madrid Manchester Paris London Berlin Munich -60% -40% -20% 0% 20% 40% 60% 80% Short Term (next six months) Medium Term (next two years)

9 December 2015 Hotels & Hospitality Group 9 Investor sentiment remains strong in Dublin with short term expectations reporting a positive net balance of 38%, rising to more than 50% in the medium term. These results are not surprising as the Irish capital has been posting double-digit RevPAR growth in There are just three European markets where investors anticipate trading performance to decline over the next six months Moscow, Istanbul and Budapest. Moscow continues to suffer from its fragile economy, political troubles and sanctions which have driven away many corporate guests, as well as from the continuing devaluation of the Rouble. Turkey is not without challenges either. The tourism and hotel market experienced a slowdown in 2013 and 2014 due to the global and domestic geo-political events and the uncertainty is set to continue. Cap rate expectations have marked a minor uptick since our last survey to 7.1%, which is in line with the recent average. Investment into the EMEA hotel market has remained strong with transaction volumes showing a 32% uplift during the first three quarters of the year. EMEA Initial Yields (Cap Rates) Respondents have the lowest cap rate expectations for London and Paris at 5.3%, but while there is still strong interest for hotel assets in London, the strong trading environment outside the capital has attracted investors to seek opportunities in key cities such as Edinburgh and Manchester. Cap rate expectations in these cities are higher than those in London, falling in line with the regional average or 7.1% and 7.2% respectively. The situation is similar in Paris, with prime assets being viewed as secure long-term investments which attract a wide and diverse pool of both established and emerging sources of capital. The strength of the hotel market in Paris is reflected in its low cap rates, which is expected to continue despite recent terrorist events. Of the 28 cities surveyed, cap rate expectations for almost three quarters fell below the regional average of 7.2%. Markets which are associated with more risk include Moscow, Istanbul and Cape Town. Given the relatively high proportion of non-gateway markets in the EMEA part of our survey, cap rates on balance across the region are expected to be neutral over the next six months, though investors expect an uptick for London and Paris, for instance. EMEA Short Term Initial Yield (Cap Rate) Trend by Market 12.0% 11.5% 11.0% 10.5% 10.0% 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% Oct-00 Oct-01 Oct-02 Cap Rate (Initial Yield) % Oct-06 Three-Year Average Oct-13 Oct-14 Survey Historic Average Spanish Resorts Copenhagen Rome Dublin Lisbon Manchester Warsaw Cape Town Barcelona Milan Prague Budapest Vienna EMEA Initial Yields (Cap Rates) by Market 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Paris London Berlin Amsterdam Munich Vienna Milan Rome Barcelona Frankfurt Madrid Brussels Stockholm Hamburg French Riviera Copenhagen Edinburgh Dublin Manchester Lisbon Prague Spanish Resorts Dubai Warsaw Budapest Istanbul Cape Town Moscow Initial Yield EMEA Average Brussels Edinburgh Munich EMEA Average Hamburg French Riviera Frankfurt Madrid Berlin Amsterdam London Stockholm Paris Istanbul Dubai Moscow No change No change No change No change -30% -20% -10% 0% 10% 20% 30% 40% (Positive/Higher and Negative/Lower)

10 10 Hotels & Hospitality Group December 2015 Methodology Hotel performance sentiment The survey represents investors expectations for hotel performance in the short (six months) and medium (two years) term with results presented in line with the weight of opinion. Net balance is the percentage of respondents who respond positively minus the percentage of respondents who respond negatively. The maximum score of + or 100% indicates that all respondents have given a positive or negative response respectively. A score of 0% indicates the same number of positive and negative responses to a particular question. For the markets in which they invest in or track, respondents were asked to select their perceived stage of the property cycle out of six specified stages. The final positioning is calculated in accordance with the weight of opinion and regional averages calculated from that. The clock is a simple tool and should only be used in a broad impressionistic way. It is not intended to depict precise forecasts or property market cycles, and does not suggest that markets will move in a clockwise direction. The references to movement in hotel investment values are in local currency. Results are averaged across all respondents for each region and are not weighted by the size of the market (i.e. number of investment grade rooms). Weighting is only conducted for the regional and global averages, based on the number of responses for each city. Investment yield requirements The survey represents the investment yield (cap rate) level required to consummate a transaction for a stabilised upscale asset, excluding repositioning through capital expenditure or new management focus. These yields are those that investors seek, while yields required to successfully secure an investment are likely to be lower than the Hotel Investor Sentiment Survey average. These yields should not be applied in any valuation or appraisal assignment. Results for each city are calculated using the average as a measure of central tendency given the nature of the survey, with results restricted to those that fall within three standard deviations of the mean. Current analysis is not framed with regard to specifc timeframes, asset classes or investment rationale on which the purchasing decision is based. Results are averaged across all respondents for regional and global averages, based on the number of responses for each city. Hotel investment cycle The hotel investment cycle is a proprietary graphic of JLL, used to provide a snapshot of the state of the hotel investment market. Each quadrant describes the state of the market as indicated by survey respondents with respect to current hotel real estate investment values. We note that this does not necessarily represent Jones Lang LaSalle s appraised or house view.

11 December 2015 Hotels & Hospitality Group 11 Contributors Lauro Ferroni Global Head of Research Kent Michels Head of Research Americas Frank Sorgiovanni Head of Research Asia Pacific Jessica Jahns Head of Research EMEA JLL s Hotels & Hospitality Group has completed more transactions than any other hotels and hospitality real estate advisor in the world, totalling US$51 billion over the last five years. Between negotiating deals, the group s 340-strong global team also executed 4,600 advisory, valuation and asset management assignments. The firm is recognised as the global leader in real estate services across hospitality properties from luxury, upscale, select service and budget hotels to timeshare and fractional ownership properties, convention centers and mixed-use developments. Investors and owner/operators worldwide turn to JLL to shape their investment strategies and maximise the value of their assets and JLL s expert advice is backed by industry-leading research. For more news, videos and research from JLL s Hotels & Hospitality Group, please visit: download the Hotels & Hospitality Group app for ios and Android.

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