Jones Lang LaSalle's (JLL) Hotels & Hospitality Group announced five forces that will drive the hotel investment market over the next five years at the Americas Lodging Investment Summit (ALIS) last week in Los Angeles. JLL also forecast that global hotel deal volume will stay flat in 2013, compared to the previous three-year average, but that there will be signs of an ongoing increase in hotel transaction activity in the Americas sooner rather than later.
"There will be a huge amount of property coming to market in 2013 as $55 billion of CMBS matures in the next few years, and we'll see investors who invested earlier in the cycle want their capital gains and sell," said Arthur Adler, Americas CEO of Jones Lang LaSalle's Hotels & Hospitality Group. "You can't overlook the long-term composition of hotel ownership, as many hotels today are in the possession of traders rather than holders." buy house in qatar
The following five main factors and their effect on the hotel market should be monitored by investors:
Is it going to be a boom or a bust? According to the most recent three-year average, global deal volume could hit $33 billion this year, and could grow to $50 billion to $70 billion in the medium term. Since 2010, foreign investors, mainly from Asia and the Middle East, have invested $3.2 billion in hotels in the United States, and this trend is expected to continue in the coming years.
Drivers of hotel transaction levels include: As long as the fundamentals remain solid, the United States will account for half of global deal activity. Improving industry fundamentals, capital availability and expense, REIT stock prices, product availability, and hotel ownership composition all have a major impact on transaction volume and will continue to drive growth.
Cash reigns supreme, but debt is making a comeback: Last year's resurgence of the CMBS market strengthened borrowers' pricing and conditions while also attracting new lenders to the hospitality sector. Domestic and offshore banks, insurance companies, debt funds, and mortgage REITs would supplement the increased CMBS lending, bringing debt supply to a six-year high.
Adding to the worth of a hotel: When top-line revenue recovers, owners can put more focus on more complex and effective revenue management and analytical methods to prevent profit loss and preserve asset value. Growing competition for traveler loyalty and the use of third-party travel agencies would put pressure on operators and come at a price. As part of a diversified distribution channel strategy, hotels will need to spend more in digital marketing activities and leverage the use of online travel agencies.
In Latin America, let the games begin: Latin America's economies are projected to develop at a 4% annual rate through 2020, and the region's share of global GDP is expected to rise by 25% from 2000 to 2020. Economic reforms, increased economic decentralization in several main markets, and events such as the 2014 FIFA Soccer World Cup and Summer Olympic Games in Brazil would make the area attractive for lodging growth. The increase will be led by Brazil, Mexico, Colombia, Peru, and Chile.
Hotels should continue to be a popular asset class among lenders, institutional investors, and offshore investors as long as operating fundamentals remain solid. Asset prices and transaction volume should continue to grow as debt becomes more accessible and competitively priced.