Complex Made Simple

Middle East, China and US drive record global hotel investments

2015 will be a record year for foreign investments into hotels, with global transactions up 55 per cent y-o-y to $42 billion, and likely to surpass the $68bn volume forecast by real estate consultancy firm JLL earlier this year.

“We’ve achieved 60 per cent of this already in the first half of 2015 and, if momentum continues in the second half of the year, we could surpass our forecast,” said Mark Wynne Smith, Global CEO, JLL Hotels & Hospitality.

The Americas at $24bn, up 73 per cent y-o-y, accounted for half of the deal volumes, followed by EMEA, which saw deals worth $15bn in the first half of the year, up 55 per cent y-o-y. The Asia Pacific region was a laggard and actually saw a decline in volumes by six per cent, with deals worth just $4bn being completed, largely owing to currency fluctuations.

In terms of capital flows, while American Private Equity money remained a chief funding source for hotel transactions, Middle Eastern investors along with their Chinese counterparts were at the forefront of the investment activity, allocating $9.8bn into global hotel real estate, a significant jump from the $2.3bn being invested in such assets in the same period last year.

Marquee hotel transactions from the Middle East included Marriott International’s sale of the Edition Hotel at Madison Square Park to the AIDA, the sale of the Maybourne portfolio in London to a Middle Eastern investor for US$2bn, and Lulu Group’s acquisition of the iconic Great Scotland Yard building (which it plans to develop into a luxury hotel) for roughly $170 million.

“One of the biggest trends of 2015 is the surge in Middle Eastern and Mainland Chinese investment into hotels globally. This is despite some underlying concerns across the globe, such as the Greek debt crisis and the recent fluctuations in the Chinese stock market,” added Smith.

In fact deal activity in American hotels was solely driven by Middle Eastern and Chinese investors, as nearly all of the $4.2bn that the country attracted in investments came from these geographies “whose volumes demonstrated a staggering 308 per cent uplift from H1 2014”.

In the Asia Pacific region too, the largest deal was the 50 per cent sale of three hotels in Hong Kong (Renaissance Harbour View, Hyatt Regency Tsim Sha Tsui and Grand Hyatt) worth around US$1bn, again to ADIA.

Earlier, another consultancy, CBRE, had predicted that an average of $15bn is likely to flow into global realty projects (including hotels) this year, fuelled by an urge to diversify as a result of weak oil prices.

This article was first published on TRENDS, a sister title of Aficionado.