Robust economy fuels investors’ appetite for hotel real estate

Optimism around global economic growth, together with continued healthy hotel operating performance and positive tourism trends are providing a solid foundation for hotel investments. The hunt for higher returns, amid a low interest rate environment, and the need to diversify investments, is fuelling appetite for hotel real estate.

Hotel transaction volumes on par with 2017 in first quarter

Global hotel transaction volumes totalled US$13.9 billion in Q1 2018, the same level as last year’s first quarter. While there is strong investor interest in quality hotel assets, asset pricing coupled with the redeployment of capital and exit pricing assumptions remain areas of concern. Moreover, the availability of debt has incentivised many would-be sellers to refinance as an alternative to selling if they cannot achieve pricing premiums.

Middle Eastern investors target European assets

The flow of international capital for the hotel investment market has changed compared to a year ago. We are seeing a raised level of purchasing activity from Middle Eastern capital targeting Europe. Globally, three portfolio transactions worth US$921 million were purchased by Middle Eastern investors in the first three months of 2018. On the other hand, mainland Chinese buyers have scaled back on overseas investments due to the Chinese government’s outbound capital controls.

What does the future hold?

The future of the hotel investment market is largely positive. Global investors are increasing their allocations to real estate, which will benefit the hotel sector as it offers a better return than traditional products. Nevertheless, investors will increasingly need to look into secondary cities and alternative products in order to obtain a higher yield. This trend is likely to continue as buyers pursue higher-yielding investments and gain a deeper understanding of non-gateway markets and unconventional product.

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