Against the backdrop of the continued uncertainty in the financial markets, Jones Lang LaSalle Hotels reported that $21.1 billion worth of hotels have traded globally in the first nine months of 2008.
This represents a decline of 71% from the record levels seen in the same period of 2007. All regions were impacted, with the Americas recording the highest drop (-79%), followed by Asia Pacific (-60%) and EMEA (-52%). EMEA (Europe, Middle East, and Africa) was also the most liquid of the three regions, recording just under $10 billion in transaction activity, followed by the Americas ($8.5 billion), and Asia Pacific ($3 billion).
"Beyond transaction volumes, the global hotel investment market is also witnessing significant changes in terms of capital flows. Year-to-date transaction data compiled by Jones Lang LaSalle Hotels suggest that across the globe cross-border investors are increasingly being replaced by domestic and intra-regional sources of capital. The only region showing exception to this trend is Europe, where approximately 35% of transactions were undertaken by inter-regional sources including the Middle East and the US," said Jones Lang LaSalle Hotels' Global CEO Arthur de Haast at the Russia & CIS Hotel Investment Conference yesterday in Moscow.
Year-to-date transaction data also suggest that the overall profile of hotel investors is changing. "Sovereign Wealth Funds (SWFs) and High Net Worth Individuals (HNWI) are becoming increasingly important as hotel buyers. On the other hand, the most active sellers in the market are currently property companies and investment funds," added Mr. De Haast.
Focusing on Russia, Mr. de Haast noted there is strong interest from international groups including Wenaasgruppen, ORCO Group, Sokos, EBRD, KanAm and IFC to invest in the Russian hotel market. In 2007 financial group J&T bought a 75% stake in the Baltschug Kempinski hotel for an undisclosed sum, and subsequently sponsored the modernisation of the Baltschug Kempinski hotel. Upon completion of renovations, J&T believes the hotel will be worth some 5 billion rubles (c. $210.8 million). Within the first nine months of 2008, other notable transactions have been undertaken in Russia. These include Wenaasgruppen's acquisition of the Park Inn Yekaterinburg (advised by Jones Lang LaSalle Hotels), and Listow's purchase of the 175-room Reval Hotel St. Petersburg.
Notwithstanding the strong level of interest in the Russia hotel market from both international and domestic groups, transaction activity is still limited by the lack of investment grade product available for sale. As such, the majority of investment activity to-date has been focused on development projects and/or the formation of joint ventures (JVs), strategic partnerships and alliances.
"As for Russian capital sources, we note the majority of Russian investors and developers are still highly focused on domestic opportunities. Due to the continued gap between buyer and seller pricing expectations, Russian capital for offshore hotel investments is limited and tends to primarily be focused on CEE and Western Europe," concluded Mr. De Haast.
Source: Jones Lang LaSalle