Transforming Hospitality: JLL’s impact in APAC

JLL, since its launch in India, has been setting amazing standards by raising the bar year on year. The global real estate services firm, specialising in commercial property and investment management, has clocked in some excellent business and high quality and high-class business over all these years. JLL’s hospitality division has been instrumental in driving major hotel transactions and providing strategic guidance to owners, operators, investors and has made a significant impact all over the world.

Leading the organisation’s strategic initiatives and transactions across the APAC region is Nihat Ercan who comes with over two decades of experience in the real estate and hospitality space. The CEO - Asia Pacific, Hotels and Hospitality Division at JLL is a man of various accomplishments, and is known for his deep market knowledge. He has also played a pivotal role in shaping the investment landscape in one of the world’s most dynamic regions. In India, JLL’s Hotels and Hospitality Group is led by Jaideep Dang who, as the Managing Director, has driven significant growth and major transactions in hospitality success and positioned the organisation as a key player in the market.

In the first half of the year, the global hotel investment landscape has revealed a complex yet optimistic scenario, with diverse regional trends shaping the market – global transaction volumes having touched around $27.5 billion, nearing long-term averages despite regional differences and the Asia-Pacific (APAC) region stood out with a notable 10-15 per cent year-on-year growth in transactions. As 2024 progresses, heightened investment activity is anticipated in APAC markets like Japan, Korea, Thailand and India, highlighting the shifting dynamics and emerging opportunities in the global hotel sector.

Trends Shaping Global and APAC Investments 
While Asia-Pacific and Europe are witnessing growth, the US is experiencing a decline due to high interest rates and market downturns. For perspective, global transactions peaked at $50 billion in 2015, with nearly $30 billion in the Americas. “Despite challenges in the US, we are witnessing encouraging growth in Asia-Pacific and Europe. Europe’s $11 billion in transactions and Asia-Pacific’s $5.7 billion reflect a strong recovery and investor confidence,” Ercan says.

While Europe’s transactions were driven by portfolio activity and private equity exits post-Covid-19, Asia-Pacific showed a 10-15 per cent year-on-year growth. With a trend towards smaller deals, the average sale price per key was between $240,000 and $250,000. Looking ahead, he shares, “The second half of the year should see increased activity, with notable sales expected in Japan, Korea, Thailand, and India. We anticipate total transaction volumes of around $11.6 billion for 2024, a modest increase from 2023.”

Japan, known for its liquidity and robust activity, remains the most active market, he opines. This year the country has witnessed a significant rise in transaction volumes, primarily due to its favourable interest rate environment. China is ranked two and is followed by Korea at three. “Other Asia-Pacific markets present significant opportunities, like India is experiencing considerable growth and energy. Additionally, Thailand and the Maldives remain prominent with unique characteristics and potential,” he says.

India, An Emerging Market For Inbound Capital
International private equity firms have gained a significant edge in India by entering early and collaborating with long-term sovereign wealth funds. This strategy has not only reduced capital costs but extended investment horizons, fortifying their position in the Indian market and setting the stage for future exit opportunities. “While China once dominated offshore investment, many firms are now shifting their focus to India. India’s burgeoning population, expanding middle class and solid economic fundamentals present a compelling investment landscape,” says Ercan.

Despite challenges like market transparency and regulatory complexities – common in developing economies – the potential for high returns makes India a promising market for those balancing risk with substantial growth opportunities.

Indian Hotel Companies and Capital Sources Investing Abroad
Investors are increasingly focussing on markets with strong outbound demand and Indian investors are following suit by targetting destinations favoured by Indian travellers, such as the Maldives and the UK. The Maldives stands out due to its significant appeal among Indian tourists. “Over the past two decades, we’ve facilitated nearly $1.5 billion in transactions in the Maldives. Its ‘one island, one resort’ model proved resilient during Covid19, helping resorts remain operational while adhering to social distancing measures,” shares the CEO - Asia Pacific, Hotels and Hospitality Division, JLL.

He adds the Maldives now represents a valuable counter-cyclical investment opportunity. Traditionally, urban centres received about 53 per cent of investment flows, with resorts capturing 10-15 per cent. This proportion has increased to around 20 per cent, as investors increasingly view resort assets as strategic diversification tools. Indian investors, observes Ercan, are showing increased interest in acquisition opportunities, with higher quality discussions becoming more frequent.

While these conversations have yet to consistently yield concrete deals, the uptick in both volume and quality suggests that more tangible investments from Indian corporates and high net worth individuals (HNIs) are on the horizon. “Indian investors are not only exploring direct acquisitions but participating indirectly as limited partners (LPs) or joint venture (JV) partners. They often support experienced operators who manage assets and drive performance, reflecting a strategic approach to investment,” he explains.

Comparing Hotel Stock and Flow Between Segments 
Ercan shares that the hospitality sector is witnessing a clear bifurcation: while ultra-luxury and upscale segments are thriving, mid-tier and budget segments are facing significant challenges. This trend reflects a broader pattern across the Asia Pacific region, including India, where performance levels are flattening. “Despite these dynamics, inflationary pressures remain a concern, with rising labour costs, high energy prices and expensive materials continuing to burden the industry.

Additionally, elevated interest rates, although moderating, are increasing debt service costs, further straining net cash flow,” he says. These factors are likely to affect valuations in the short term, as current market conditions squeeze net cash flow and influence assessments based on previous deals. Although valuations have not necessarily declined, the pressure on margins and rising costs is apparent. As he notes, “The key challenge will be whether the updated rate environment can combat a market characterised with escalating expenses in wages, energy, and materials. Navigating these pressures is crucial for sustaining profitability in this evolving landscape.”

Future Outlook Of Hotel Investments
Ercan shares optimism about the liquidity prospects for the APAC hospitality sector over the next few years. The September interest rate cuts by the US Federal Reserve of 50 basis points should improve global financing conditions, reducing borrowing costs and helping to reconcile high seller expectations with buyer affordability. This shift could stimulate investment in the sector.

“Investor interest is also evolving. REITs from regions like Singapore are broadening their portfolios beyond traditional hotel assets to include student accommodations, senior living, built-to-rent properties, and co-living spaces, both in Asia and globally. This expanded focus on operational real estate could attract additional investment. Geopolitical factors are influencing investment flows as well,” he says.

With many countries facing elections this year, the political climate will be significant. Additionally, a record amount of capital in funds nearing the end of their investment cycles – many having extended timelines due to Covid19 – is actively seeking exits. This “perfect storm” of abundant capital and urgent exit needs could lead to increased transaction activity in 2025 and beyond.

So, despite ongoing challenges such as geopolitical uncertainties and inflation, favourable interest rates, diversification into new asset classes and the necessity for fund exits should drive a rebound in liquidity and activity within the hospitality sector. The Indian hospitality sector witnessed approximately $400 million invested in existing hotel assets, excluding new constructions in 2023. The projections for 2024 indicate a promising increase to around $437 million, reflecting a growth of 12-15 per cent from the previous year. “The last significant investment peak occurred in 2019, marked by Brookfield’s acquisition of the Leela Group. Since then, while investment activity has remained relatively subdued, transaction volumes are now stabilising and showing annual growth. This resurgence is driven by a diverse array of assets across various cities and markets, rather than relying on a single large portfolio sale,” says Jaideep Dang.

In 2023, 22 hotel assets changed hands, including several distressed properties from the NCLT process. Looking ahead, JLL India’s Hotels and Hospitality Group Managing Director anticipates around 20 assets to be sold this year. The first half of 2024 has already recorded $93 million in transactions, with expectations for further deals as the year unfolds. “India,” says he, “is following similar trends, as the second half of the year typically sees an uptick in deal activity. Family offices and high-net-worth individuals often prefer to finalise transactions during auspicious periods. With this cultural preference, we foresee sustained momentum in real estate transactions as we move forward.”

Segments With Significant Investment Activity
The most dynamic asset category in the market is upscale, particularly entry-level and full-service four-star hotels, which dominate transaction volumes. As Dang notes, “This segment accounts for the majority of transactions, reflecting strong demand.” In contrast, luxury assets are traded less frequently, primarily due to tight control by Indian owner-operators, leading to limited availability. Resort markets like Goa, Jaipur and Udaipur are still in the development phase, indicating future potential. Overall, around 80 per cent of market activity is concentrated in the upscale and upper-upscale segments, underscoring a significant trend toward these categories.

Predominant Buyers In Indian Market
In India, the hotel sector’s investment activity is primarily driven by high-net-worth individuals, family offices, and prominent business houses. These investors, who have gained wealth from sectors like stock markets, pharmaceuticals and logistics during and after Covid19, are channelling their capital into hotel acquisitions for asset growth. Real estate developers, benefitting from strong residential sales, are also diversifying into hotels, representing about 25 per cent of sector activity.

Family offices, HNIs and Indian corporates account for over 50 per cent of investments, highlighting their long-term asset ownership strategies. In contrast, private equity firms have a more limited role due to their focus on larger-scale opportunities and the complex development cycles in India. As Dang observes, “While the investment landscape is evolving, we still face significant hurdles that can impede progress.” He adds that ongoing regulatory challenges continue to affect the timely execution of large-scale hotel projects, stating, “Addressing these issues is crucial for unlocking India’s hospitality market potential. Investor confidence is key; a more streamlined process will attract further capital.”

Emerging Trends and Buyer Groups
Historically, Delhi’s hotel development gained momentum in the mid1980s with projects like Aerocity, but new developments were scarce for the next 25 years. Recent initiatives, particularly in the Yashobhoomi area near the airport, indicate a resurgence in the sector. However, substantial development remains largely confined to the suburbs, such as Gurugram and Noida, due to the city’s stringent regulations.

In the past decade, these suburbs have experienced significant growth driven by new office spaces and residential projects, leading to increased demand for F&B and hotel services. As he notes, “This trend is now beginning to take shape in other cities, including Bengaluru, Mumbai, Chennai, Hyderabad and Goa. The suburban boom reflects a broader shift in how and where people engage with hospitality. While Delhi’s core is evolving, it’s essential to embrace the opportunities in its surrounding areas to meet growing demand.”

Greenfield Hospitality and Hotel Signings In India
Greenfield development, shares JLL India’s Hotels and Hospitality Group Managing Director, is currently at an all-time high, fuelled by airport expansions and government infrastructure initiatives. “Improved airline networks and modern highways are enhancing connectivity and promoting travel to Tier II and Tier III cities for leisure, pilgrimage and business, driving significant growth in these emerging markets. This shift marks a notable departure from previous trends, with JLL actively seeking opportunities in these areas,” he says.

Last year, JLL signed contracts for approximately 12,000 hotel rooms, and this year we’ve already secured 16,000 rooms, with an optimistic projection of reaching around 20,000 by year-end. As Dang states, “The signings include a range of properties, from large convention hotels to bespoke luxury assets. The midscale and upscale segments are particularly active, with many new projects in Tier II towns where real estate offers flexibility. For example, a four-star hotel in a Tier I city may be positioned as a five-star in a Tier II or III city, making these investments attractive. Additionally, there is notable demand for mid-scale and budget hotels, often integrated into mixed-use developments.”

He adds the focus on smaller markets reflects a new era of hospitality development. “By tapping into these growth areas, we can better cater to the evolving needs of travellers.” Another notable trend that Dang draws attention towards in current market developments is enhanced international connectivity. Travellers, who previously needed to transit through hubs like Delhi or Mumbai, can now fly directly between cities such as Kolkata and Chennai, or Delhi and Mumbai. “This expansion in air travel capacity will strengthen connections between Tier I and II cities, opening up fresh growth and development opportunities in these regions,” he concludes.