The global trends are changing trajectories as investments and transaction values show a change in forecasts. The growth of the hospitality industry is shaping a new era as the trajectory is shifting towards Asia and India which is fast becoming the centre of attraction for travellers and investors alike. This and more was discussed in the BW Hotelier’s latest episode of BWH Dialogues on September 5, 2024 with host Bhuvanesh Khanna, Chief Executive Officer, BW Communities in conversation with Nihat Ercan, Chief Executive Officer for Asia Pacific, Hotels & Hospitality Group, JLL and Jaideep Dang, Managing Director, Hotels & Hospitality Group, JLL India.
The episode began with the host’s question about navigating shifts in the global APAC hotel investments and key trends in the global and APAC investments in hotels to which Nihat Ercan, Chief Executive Officer for Asia Pacific, Hotels & Hospitality Group, JLL, answered, stating, “We’ve seen about $27.5 billion of transactional activity in the first half of this year. Overall, the trend is upwards and we’re returning back towards the long-term average in transaction volumes. There are some marked differences though, Asia-Pacific and Europe are showing year on year increases in investment activity. But in the US, it’s the opposite. We have seen a significant decline in transactional activity driven by the interest rate environment and the cyclical downturn that we’re witnessing in the market. That’s resulted in a little bit of a stalemate in volumes. When you look at the peak of sales, 2015 is the watermark for the most activity we’ve seen globally. There were transactions worth $50 billion across the world when compared against 2015, we’re still way off. However, the positive is that we’re trending upwards.” Ercan further elaborated on how transaction volumes differ in different regions of the globe, adding, “Within Europe, we’ve seen about $11 billion in the first half of the year. That’s a fairly sizeable increase driven by portfolio activity. So single assets in Asia Pacific tend to dominate transaction volumes whereas in Europe, it’s a balanced mix between single assets and portfolios. In the Asia-Pacific region, we will have seen about $6 billion. The average sale price per key was around $240,000, $250,000.”
The conversation transitioned as the host questioned on whether buyers are looking at India yet and if the country is becoming an attractive market for inbound capital in the hospitality space. Sharing his perspective about the Indian market, Ercan said, “Yes, India is becoming increasingly attractive. There are a number of global private equity players who have had a first mover advantage of coming into India, setting shop early on. Some of those private equity players have teamed up with longer term sovereign wealth investors, sovereign wealth funds who have a lower capital, cost of capital and longer term hold aspirations. When you look at it in a regional as well as a global context, India has got all the right fundamentals in place, the right macro fundamentals to make this a very exciting and attractive investment decision.”
The CEO for Asia Pacific, Hotels & Hospitality Group, JLL, further emphasised on how Indian investors are making entries into these markets. “They are making acquisitions at this stage and reviewing opportunities. We’re having more quality conversations with the Indian capital now than two, three years ago. Based on the inquiries we’re getting, based on the conversations we’re having, I think we will start to see more specific examples of Indian corporates and high networks investing. A number of Indian investors are just indirectly sitting behind vehicles. So they may not necessarily be a direct investor, but they just like to sit as an LP or a JV partner and let someone who’s got the experience drive the performance of the asset,” he observed. To this, Jaideep Dang, added, “In 2023, we had about $400 million money invested in hotel assets in the trade, Qualified hotel deals, etc. This year, we are expecting this number to be around $437 million. We're almost at 12 per cent to 15 per cent growth on a high number last year.”
Ercan delved into the conversation further and said, “From an investment perspective, compared to the metros, the return opportunities in the Tier II and Tier III markets are higher by virtue of the risk rewards and relationship. Historically, the UK market has attracted a lot of offshore investments because buyers are chasing higher yields and higher returns whereas one knows that London as the capital has got fewer opportunities as there is a lot of demand there so yields are compressed. Yields in Tier I cities are going to be more compressed relative to Tier II and III cities. We’ve seen it in China with Shanghai, Beijing against Shenzhen or Guangzhou or Xi’an.”
He, in fact, compared it as a similar story as an investor if one is looking to allocate funds into the Indian markets. “I’ll definitely be looking for opportunities in gateway destinations. But if I’m looking at returns, there’s growth, infrastructure investment and direct connectivity. The overall story is good and if I’m looking at a better pop on my exit, arguably cap rates will compress in those markets. That gives me a better exit value which is going to drive investment. When we're looking at our anticipation of transaction volumes this year, India is going to be relatively on par with Thailand. Thailand historically has been a pretty liquid and active investment market,” he Ercan.
Dang on his endnote, said, “I’d like to make a call out for India. We were about number 10 or 11 three years ago and we’ve moved a few notches above, six. It is not bad. Maybe five years from now, in 2029, when our Prime Minister will again go to seek a vote, his fourth term, where do you think India would be? I’d love to see it in the top five and ideally in the top three.”
The host concluded the episode, stating, “As the hospitality landscape continues to evolve, the expertise of JLL will undoubtedly remain a guiding force for investors and operators alike. We look forward to seeing how these trends unfold and shape the future of hospitality in India, Asia, and Asia-Pacific.”
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