According to Savills latest global hotel investment overview, 2013 could be a significantly stronger year for international hotel investment with the UK and US markets leading the way. The firm predicts investment volumes for UK hotels could far exceed the £1.64 billion (approx. €1.91 billion) transacted in 2012, with Q1 totals this year set to be 60% of the total 2012 volume.
In London, Savills forecasts that there are a large number of high profile assets expected to come to the market in 2013, which will help boost volumes. Additionally the market will be buoyed by several large transactions that were due to complete in Q4 2012 that were pushed back due to their complexity. With these deals set to complete in the beginning of the year, Q1 volumes are likely to total approximately £1 billion (approx. €1.16 billion).
Robert Seabrook, head of Savills UK hotel investment, comments: “2013 is set to be a very strong year for the UK hotel investment market and could exceed £2bn. The market will continue to be driven by overseas investors, especially from Asia Pacific countries and the US who accounted for 79% and 16% respectively in 2012.”
In the US, Savills predicts that transaction volumes will be higher in 2013, than the US$11.7 billion (approx. €8.98 billion) recorded in 2012. Manhattan led the national investment market last year with volumes totaling US$2.8 billion (approx. €2.15 billion) and notable transactions included the Plaza and Shops at the Plaza and Essex House.
The firm reports that while US performance was driven by occupancy over the past few years, 2013 will be a year of average room rate growth in the US. An increase in corporate group travel and international visitors to major tourist locations will contribute to the ability of hoteliers to achieve higher room rates. Additionally, Savills believes more owners will try to add value to their assets by implementing significant renovations and management and brand upgrades. Opportunistic investors will therefore continue to seek underperforming institutional assets in non-core markets, while large cap companies, including foreign capital and publicly traded REITs, will pursue trophy purchases in major cities.
Savills outlook for the Asia Pacific region is mixed. Investors have become interested in opportunities in less developed Asia Pacific markets such as Cambodia, Mongolia and Myanmar, lured by the higher yields on offer in the face of ongoing yield compression in developed markets such as Hong Kong, Tokyo and Singapore. The prospect of strong economic growth in these countries means that long investment perspectives make sense. However, market penetration is still difficult and the higher risk attached makes opportunities relatively limited, and driven by opportunistic returns.
The firm expects REITs to be the more active buyers in the Asia Pacific region, as they are now more easily able to make overseas purchases, particularly Singapore REITS. It also expects investors to monitor Japan and China for the possibility of distressed developments, from CMBS servicers in the case of Japan and from developers with cash flow problems in China.
Marie Hickey, associate director in Savills UK research team, says: “Overall for the hotel investment markets of the UK, US and Asia Pacific we expect the pursuit of trophy assets to be a key driver of investment activity in 2013.”