Hotel Markets

Portfolio sales drive robust activity during Q1

Following on from the strong 2012 year-end rush, global hotel investment volumes in Q1 2013 remained robust at US$10.8 billion, representing a 53% increase year-on-year. Activity was largely driven by a number of portfolio sales in the Americas and EMEA – portfolio sales’ volumes in the first three months of 2013 were nearly three-times those of Q1 2012 and accounted for more than half of total volumes (compared to less than one-third last year).

Upbeat sentiment in the Americas

First quarter volumes in the Americas were up 55% on the same period last year, propelled by several big-ticket sales on the East coast (New York, Atlanta and Washington DC) as well as several portfolio transactions, including Hilton Worldwide’s sale of three Waldorf Astoria resorts to the real estate arm of the Government of Singapore. New York continued to be at the forefront of activity, recording six transactions and accounting for 19% of the Americas’ investment volumes.

Private equity funds were the biggest sellers comprising 34% of activity in the Americas, followed closely by hotel owner/operators at 32%. Sovereign wealth funds emerged as the dominant buyer, accounting for one-third of activity, followed by private equity funds and REITs.

Upbeat sentiment in North America as well as the Caribbean has been fuelled by notable improvements in trading fundamentals – in the year-to-date to February 2013, RevPAR was up 7% in North America and by 13.4% in the Caribbean, compared to the same period last year. Growth has been mainly driven by a rebound in average daily rates which is enabling hotel owners to capitalise on additional revenues while containing costs, thus allowing them to flow more revenue to the ‘bottom line’.

Portfolio deals dominate in Europe

Even though the macroeconomic environment in Europe is challenging, hotel investment activity continues apace with volumes in EMEA growing by 43% in Q1 2013 year-on-year. Hotel trading fundamentals have remained flat, with the exception of a few markets including Germany and Denmark.

The buyer profile has shifted slightly across the region. HNWIs have struggled to find suitable product and have been notably absent from the buyers’ stage. In Q1 2012, HNWIs invested US$1.1 billion in EMEA, but only US$145 million in Q1 2013. By contrast, the dominant buyers have been sovereign wealth funds, private equity funds and hotel operators, who have been particularly encouraged by the opportunity for attractive portfolio plays – enabling these groups to obtain scale in key markets (including Germany and the United Kingdom).

Hotel operators have been notable players - the largest single asset that changed hands in EMEA during Q1 was the Mandarin Oriental Paris, acquired by the operator - Mandarin Oriental Holdings – for US$391 million; this marks one of the largest single asset trades in Europe since 2010.

Uptick in activity in key Asian gateways

During Q1 2013, hotel investment volumes in Asia Pacific experienced a substantial surge (up 161% year-on-year), a result of increased activity in Japan, Singapore, Thailand and the Maldives. Japan witnessed four deals totalling US$118 million with REITs emerging as dominant purchasers on the back of positive economic fundamentals and a buoyant stock market. Although activity continues to be predominantly domestic, Japan continues to entice international investors due to its promising return prospects, underpinned by a relatively wide spread between investment yields and interest rates – which is currently one of the largest globally. Australia experienced a quiet Q1, although investment activity remains strong with a number of large deals currently in play. The absence of available product in Australia continues to impede investment activity.