Strong travel demand supporting optimism in the hotel industry

Strong consumer confidence and positive economic sentiment supported global travel demand in the first half of 2018, with the number of international travellers rising by 6% year-on-year in the first four months of 2018. Healthy hotel performance metrics, combined with growing demand for travel, paint a positive outlook for the industry. Coupled with solid economic fundamentals and investors’ hunt for yield they provide a solid investment case for hotel real estate.

Hotel transaction volumes up 5% on the first half of 2017

Hotel transaction volumes reached US$29.2 billion in H1 2018, a 5% increase on the first half of last year. This was driven by a 23% uplift in investment in the Americas, with 95% of activity in the U.S. In the Americas, portfolio transactions were double those seen in H1 2017, while New York, Honolulu and Phoenix were the most liquid cities for single-asset sales.

In EMEA, investment volumes were down 8% at US$9.5 billion, due to a decline in single-asset sales. There has been a strong interest in portfolio sales, however, which represented 44% of first-half volumes (compared to 32% in H1 2017). The UK and Germany were the top two markets, with each seeing a 20% uplift year-on-year, while Spain ranked third.

In Asia Pacific, volumes totalled US$4 billion in H1 2018 – a year-on-year decline of 15%. There was a strong uptick in portfolio sales, with six portfolios worth US$1.1 billion traded. China has been the most liquid market, and this is expected to continue as Chinese investors look to the domestic market in light of restrictions on outbound capital, as well as the rise of domestic tourism and middle class consumption.

The evolving landscape of the hotel industry

The hotel landscape continues to evolve as M&A activity increases. AccorHotels has been especially active, investing in a number of hotel companies, while Wyndham Worldwide Corp. purchased La Quinta for US$1.9 billion earlier in the year. Brand acquisition is increasingly viewed as being more efficient than organic growth in gaining global market share. More M&A activity is expected in the future as the industry is still relatively fragmented compared to other sectors, creating more opportunities for consolidation.

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