JLL is forecasting approximately US$7 billion in transactions in 2021, an increase of 20% year-on-year, up from $5.8 billion in 2020. While sizable pools capital are ready to be deployed, pricing and financing will become a larger consideration for investors. According to JLL, the gap between buyer and seller price expectations will narrow as distress becomes less likely, while sellers come to terms with the impact of operating cash flow on pricing. Over 80% of investors surveyed are eyeing discounts of 20-30%, while sellers are expected to move roughly 10% in asking prices.
As optimism around recovery builds, Japan (52%) and Southeast Asia (46%) are emerging as the most desirable hotel investment markets in Asia-Pacific, owing to strong demand dynamics and positive long-term fundamentals. Investors also view Australia (31%) and China (22%) favourably.
“The cycle has been reset and we are now on the cusp of a period of recovery. Optimism around the deployment of vaccines and an eventual recovery in tourism has started to drive activity and investors don’t want to miss the opportunity. At the same time record amounts of capital have been raised to be deployed into the real estate sector in general, including into hospitality,” said Nihat Ercan, Senior Managing Director, Head of Investment Sales, Asia Pacific, JLL Hotels & Hospitality Group.
Approximately 25% of surveyed investors are taking a more cautious approach to deploying capital, seeking greater clarity on the industry’s COVID-19 recovery before committing further funds to the sector. Around 5% of investors polled by JLL are looking to exit the sector and refocus on other asset classes. “Demand for assets has initially concentrated on core markets like primary cities in Japan and Australia, yet we see this diversifying in the coming months,” said Mr Ercan.
Conversely, investors also see the current environment as an opportunity to invest in existing properties and focus on asset management initiatives including renovations, repurposing, and repositioning properties in response to changing consumer preferences.
“The past year has been all about protecting cash flow and this will continue for the coming 12 to 18 months. Seasoned owners realise that now is the time to invest in existing hotels, with little displaced business. However, it is a balancing act in keeping operating costs flexible, while investing ahead of the recovery to edge in front of competitors and meet guest needs,” noted Xander Nijnens, Managing Director, Head of Advisory and Asset Management, Asia Pacific, JLL Hotels & Hospitality Group.
According to the survey, 36% identify investing in their assets as their primary priority in 2021, coupled with a focus on cost containment and maintaining cash flow discipline.
“There are deals to be done in the current environment, yet value-add players will have the upper hand as they are willing to roll up their sleeves to invest and reposition hotels with a view of selling them in three to five years” adds Nijnens.
JLL polled approximately 100 clients in late January 2021. Learn more in JLL’s global Hotel Investment Outlook.