Hotels as an Asset Class

Transcription

1 Hotels as an Asset Class Arlett Oehmichen MRICS Director HVS London Henry Stewart London, 26 November

2 Agenda Introduction Drivers of Demand Where are we in the cycle? Risk / Return Profiles Diversification Potential

3 Hotel investments are more prominent than 10 years ago -3-

4 Introduction Setting the Scene Hotels are a more mature and accepted asset class for investment vehicles compared to ten years ago Hotels still niche investment product; possible reasons: Less stock available more illiquid Hotels more versatile and complex in nature Hotel data less transparent/available (yields) Hotel Performance directly impacted by day-to-day fluctuations in demand Owners potentially more exposed to underlying trading needs expertise -4-

5 Hotel Operating Models show a diverse range of Options High Low Operational Risk Exposure Fixed Lease Turnover Lease Franchise/ Management Agreement Owner/Operated Low Investor/Asset Management Involvement High Hotels therefore are a more versatile asset class and can fulfil different investment portfolio criteria (risk appetite / return requirements) -5-

6 Agenda Introduction Drivers of Demand Where are we in the cycle? Risk / Return Profiles Diversification Potential

7 Main Performance Drivers -Demand Office Retail Hotels GDPgrowth Business Sentiment Employment PersonalDisposable Income Consumer Spending Businessand MICE Traveller GDP Growth & Business Activity Leisure Traveller Employment, Consumer Spending Power Hotel occupancies are generally more affected by demand shocks in the short term (hotel demand reacts to market conditions on a daily basis versus office space is locked in for a specific term) Hotel average rates are also mostly computed on a daily basis whereas office rents are adjusted annual or less often (UK upwards only) -7-

8 Agenda Introduction Drivers of Demand Where are we in the cycle? Risk / Return Profiles Diversification Potential

9 RevPAR up in most continents Growth Cycle North America +7.7% Europe +5.9% Caribbean +7.8% South America +4.1% Northern Africa 5.3% Southern Africa -2.4% Middle East +5.3% Asia Pacific -1.6% Year-to October 2014; Europe in, Rest in US$ Source: STR Global -9-

10 Hotel values heading upwards except in Eastern Europe 15.0% 10.0% 5.0% 0.0% -5.0% Northern Europe Europe Western Europe Southern Europe Eastern Europe -10.0% -15.0% -20.0% -25.0% Source: HVS London Office Note: Based on euro calculations -10-

11 ...whilst price per key is also growing 300,000 Average Sales Price per Room 60% Average Sales Price Per Room ( ) 250, , , ,000 50,000 % Change 45% 30% 15% 0% -15% % Change % Source: HVS London Office -11-

12 Does the hotel sector think we have got there? Survey conducted among readers of HVS London s weekly e- newsletter: Better in 2014 than , vs. Worse than in , vs. Unchanged Most respondents feel occupancy, ARR, RevPAR and GOPPAR are about the same or worse than in still room to grow in many parts of the continent Most hotel values are approaching levels because prospects are encouraging some cities have already got past this level Most feel now is a good time to develop, acquire or invest in hotels -12-

13 Where are we in the cycle? -13-

14 Agenda Introduction Drivers of Demand Where are we in the cycle? Risk / Return Profiles Diversification Potential

15 Risk/Return Profile Hotels offer two important upside plays compared to other commercial real estate: Improvement of operational efficiency (direct impact of investors expertise possible) More pronounced cycles allow opportunities for distressed assets Source: IPD -15-

16 Agenda Introduction Drivers of Demand Where are we in the cycle? Risk / Return Profiles Diversification Potential

17 Diversification Geographic or By Asset Class? How much diversification is achieved between corporate hotel in city centre location and offices in that same city? How much diversification is possible between offices in New York, London and Singapore (credit crunch was example of global phenomena) Economic diversification Diversification by type: Resorts versus urban city centre hotels? Interlink between corporate and leisure market even though delayed effects Down to company/fund strategy (core, value-added, opportunistic) -17-

18 Most Real Estate Investment largely remains Home-Play Unlike liquid asset classes like equity and bonds real estate retains a strong home bias Over 80% of real estate asset owners focus on domestic market according to IPD study -18-

19 Same for Hotels, with Europe showing lowest Regional Investment Source: JLL -19-

20 Main Take -Aways Hotels have become increasingly important as an asset class in overall property investment Underpinned by strong growth in fundamentals (RevPAR) in many European markets Real estate plays an important role in a diversification strategies, but: Illiquid asset class; higher volatility (but also higher returns!) for hotels Data limitations/transparency - particularly for hotels Range of actively involved asset manager to passive asset holders (again, significantly more pronounced in case of hotels) Many European markets have not yet returned to previous peaks and therefore still good opportunities to buy -20-

21 Thank you! Arlett Oehmichen, MRICS Director HVS London Office (o) (m)