CHICAGO–-Investor sentiment for hotel product remains cautiously optimistic, as investors navigate international, political and economic dynamics in addition to the recent coronavirus outbreak in China. According to JLL Hotels & Hospitality’s annual Hotel Investment Outlook (“HIO”), a forward-looking, global analysis of trends affecting the hotel investment market, global hotel transaction activity will be shaped by record levels of real estate fund-raising and interest from new buyers.
The Global Outlook
Global hotel transaction volumes in 2019 reached US$66 billion, bolstered by a resilient global economy and continued demand from domestic and international travelers. However, the length of the current market cycle, trade conflict and ongoing uncertainty surrounding Brexit gave investors cause to feel more cautious, which led to a 6 percent decrease in total hotel market liquidity compared with 2018. In 2020, global hotel liquidity is expected to decrease approximately 10-15 percent as investors adopt a slightly more selective approach. Yet, the pipeline in deal flow activity will continue across all regions through 2020.
Generalists and International Investors Driving Volume
This year, two buyer groups are expected to account for the lion’s share of hotel investment activity.
Generalist investors who invest in multiple asset classes will continue to be the largest hotel investor group due to their mandate to deploy capital. Generalist investors now take part in 70 percent of investment volume in 2019 versus nearly 60 percent a decade ago. Additionally, international capital will be a key provider of global liquidity, with capital outflow volume expected to rise across North America, Europe and Asia.
This year’s report outlines three key trends to watch for in 2020:
•The rise of affordable lifestyle hotels. Changing guest demands and increased competition from the alternative accommodation space have fueled hotel parent companies’ interest in smaller, more technology-focused hotels located in urban areas. Over the past five years, the affordable lifestyle brand sector has seen the total global number of rooms more than double.
•The emergence of first-time hotel buyers. Investors new to commercial real estate, as well as those with experience in other commercial real estate property sectors, are increasingly turning toward hotels in search of higher yield and diversification.
•The increase of the hospitality operating model. As real estate owners and landlords acknowledge that their end-users – whether hotel guests, retailers or corporate occupiers – expect a certain level of service and a memorable experience, more real estate products with hospitality elements will proliferate, such as hotels offering co-working spaces.
“While we expect global hotel transaction volumes in 2020 to trend slightly downward from last year, investors will continue to pursue areas of opportunity as the market remains relatively strong,” said Mark Wynne-Smith, Global CEO, JLL Hotels & Hospitality. “Furthermore, the evolving nature of the sector with the rise of the hospitality operating model, affordable lifestyle hotels, and new investors to the space are key industry trends that will provide exciting opportunities for the sector as we begin a new decade.”
The Americas: 2020 projection
In 2020, hotel transaction volume is expected to post flat to slightly negative growth of 6 percent relative to 2019 transaction volume of $28.6 billion. Single asset sales will support volumes throughout the year as investors pursue high-profile properties in the region’s most liquid markets – New York, Florida and California. Additionally, North America may end up as 2020’s largest recipient of cross-border investment, buoyed by large portfolio trades such as South Korea’s Mirae Asset Management’s acquisition of Anbang’s luxury portfolio.
“In the Americas, we expect investors to remain selective and focused on prime properties in the most liquid investment markets as well as assets in robust secondary markets that offer attractive yields,” explains Gilda Perez-Alvarado, Americas CEO, JLL Hotels & Hospitality. “However, the record level of capital waiting to be deployed and the growing share of large institutional investors into the space will continue to drive robust investment activity across all lodging segments over the long term.”
JLL’s Hotels & Hospitality Group has completed more transactions than any other hotels and hospitality real estate advisor over the last five years, totaling more than $63.2 billion worldwide. The group’s 350-strong global team in over 20 countries also closed more than 5,420 advisory, valuation and asset management assignments. Our hotel valuation, brokerage, asset management and consultancy services have helped more hotel investors, owners and operators achieve high returns on their assets than any other real estate advisor in the world.