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2013
www.jll.com/hospitality
Hotel Investment Outlook
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Globally, hotel operating fundamentals arepoised to remain strong in 2013, but regional
variances will persist. We forecast global deal
volume of $33 billion, in line with the most
recent three-year average. Hampering
transactional growth, however, are economic
pressures in a number of the worlds matureeconomies. Still, we expect that the global hotel
investment market will be ush with equity
capital that will support transactional activity.
This publication provides a comprehensive
analysis of the global hotel investment market,revealing key drivers of investment, emerging
trends, markets to watch and investment
opportunities in major markets across the globe.
We hope you will nd the report informative.
Mark Wynne-Smith
Global CEO
Jones Lang LaSalles Hotels & Hospitality Group serves as the hospitality industrys global leader in real estate services for luxury, upscale,
select service and budget hotels; timeshare and fractional ownership properties; convention centers; mixed-use developments and other
hospitality properties. The rms more than 265 dedicated hotel and hospitality experts partner with investors and owner/operators around the
globe to support and shape investment strategies that deliver maximum value throughout the entire lifecycle of an asset. In the last ve years,
the team completed more transactions than any other hotels and hospitality real estate advisor in the world totaling nearly US$25 billion, while
also completing approximately 4,000 advisory and valuation assignments. The groups hotels and hospitality specialists provide independent and
expert advice to clients, backed by industry-leading research.
For more news, videos and research from Jones Lang LaSalles Hotels & Hospitality Group, please visit: www.jll.com/hospitality
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Contributors
Table of contents
Arthur de Haast
Chairman
Mark Wynne-Smith
Global CEO
Arthur Adler
CEO, Americas
Jon Hubbard
CEO, Northern Europe
Christoph Hrle
CEO, Continental Europe
Craig Collins
CEO, Australasia
Scott Hetherington
CEO, Asia
David Green-Morgan
Global Capital Markets Research Director
Karen Wales
Executive Vice President, Research, Asia Pacic
Lauro Ferroni
Vice President, Research, Americas
Josef Filser
Associate, Research, EMEA
Global overview ...............................................................2
Americas..........................................................................8
EMEA ............................................................................16
Asia Pacic ....................................................................24
Sources and methodology .............................................32
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Global overview
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January 2013 | Hotel Investment Outlook 3
Highlights
Global hotel transactions reached $31.8 billion in 2012,
a 5% decrease on 2011. For 2013 we are expecting
a slight improvement to $33 billion, despite continued
economic uncertainties, with activity supported by theprimary investment markets of the U.S., U.K., France,
Germany, Japan and Australia.
Private equity players, sovereign wealth funds and family
conglomerates together with REITs are set to dominate
buying activity in 2013. Debt nancing, while improving
considerably in the U.S., will remain constrained across
Europe where renancing challenges will trigger a
number of sales.
Cross-border capital accounted for 30% of global hotelinvestment in 2012, trending above the recent average
and driven by strong outbound capital ows from Asia
and the Middle East. Improving transparency will
continue to aid cross-border decision making.
Prime assets in the worlds largest cities will garner
the most investor interest, improving pricing. Hotels in
secondary markets will see more sluggish interest until
seller expectations reset.
Globally, hotel operating fundamentals are poised to
remain strong in 2013, but regional variances will persist.
Hotel transaction volume forecast snapshot
Source: Jones Lang LaSalle
US$ billions 2012E 2013F Trend
Americas $17.5 $18.5
EMEA $11.0 $11.0
Asia Pacic $3.3 $3.5
Global total $31.8 $33.0
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4 Hotel Investment Outlook | January 2013
Steady deal pace in 2012
Primary markets led a steady pace of deal activity in the hotel
investment arena during 2012. While the year was tougher than
initially hoped, the pace of transactions endured and some signs of
revival continue to feature in the debt markets.
That said, economic headwinds kept a lid on overall global volume
improvement. Specically, growth was tempered by the slowdown in
emerging markets, as well as concerns about the U.S. debt ceiling
and Eurozone woes. Total transactions reached $31.8 billion, a 5%
softening on 2011 levels. While the Americas region held steady
at $17.5 billion, Europe, Middle East and Africa (EMEA) and Asia
Pacic slowed down by 10% and 30%, posting deal volumes of $11
billion and $3.3 billion, respectively.
Continued momentum in 2013
In 2013, we forecast global deal volume of $33 billion, in line with the
most recent three-year average. Hampering transactional growth,
however, are economic pressures in a number of the worlds mature
economies, along with long-term ownership structures in emergingmarkets, particularly in Asia. Still, we expect that the global hotel
investment market will be ush with equity capital that will support
transactional activity.
In the Americas, investment volume is expected to see some upside,
reaching $18.5 billion. In EMEA, new sources of debt and stable
trading fundamentals will maintain deal pace at a projected $11
billion, with investment activity driven by debt restructuring deals.
Hotel real estate in vast parts of Asia remains closely held, which
constrains overall liquidity. The regions volumes are expected to
mark a slight uptick to $3.5 billion in 2013, with activity concentratedin Australia and Japan.
Our forecasts are based on how key drivers of transactions volume
such as cost of capital, industry fundamentals, share prices of listed
investment vehicles and the overall ownership compositionare
expected to perform in 2013.
Economic forecast shows long road ahead
In many regards, global commercial property markets have bucked
wider economic trends. Their capital values, hotel trading fundamentals
and rents are all generally improving against a backdrop of downward
revisions to economic growth. Given the amount of stimulus injected
into the world economy, growth rates for 2013 to 2015 should be well
above the current levels. In fact, it looks as though it will take until
2015 for growth to match 2010 levels. This implies that the changes
occurring are more structural than cyclical, which has a profound
impact on investment strategies moving forward.
Austerity will continue to be a drag on growth with little prospect
of relief in most of the major developed economies. Government
debt as a proportion of GDP is highest in Japan, Italy, France, the
U.S. and the U.K., with a big impact on these countries economicprospects. The bright spot for Europe is that the governments have
started to take action, whereas in the U.S. and Japan, policymakers
continue to stall on decisive action.
Real GDP growth forecast by major region
Source: IHS Global Insight
-1.0% 0.0% 1.0% 3.0% 5.0% 7.0%2.0% 4.0% 6.0%
Australasia
Asia
Sub-Saharan Africa
Middle East and North Africa
Emerging Europe
Eurozone
Latin America
U.S. and Canada
World average
2014F2013F2012
Global hotel transaction volume 1998 - 2013F
Source: Jones Lang LaSalle
0
20
40
60
80
100
120
140
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012E
2013F
Asia Pacific EMEA Americas Global
Volume($Billions)
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January 2013 | Hotel Investment Outlook 5
Herd mentality and the gap
The hotel market is mirroring wider commercial property markets in
that secure investments are chosen over higher yielding opportunities.
Investors have seen prime assets in top locations trade the best during
various economic cycles and these will therefore continue to be the
most sought-after properties. We expect this to continue as long as
uncertainty is evident, especially in Western Europe, and to a degree
in the U.S., resulting in some herd mentality amongst investors.Secondary markets are a different story, featuring a wide pricing gap
between sellers and buyers. Investors remain cautious about timing
and are reluctant to become overexposed. This will constrain deal
volume in Europe, in particular. The short term appears cautiously
optimistic for U.S. markets, and upside exists if owners/inadvertent
owners such as lenders accept lower pricing. Asias investment
landscape remains tightly held; investors need to be prepared to
consider all markets and hotel asset types if they wish to build scale.
Private equity fronts a strong bench of buyersHotel buyers will remain engaged in 2013, with a strong bench
of buyer groups. Counter-cyclical buyers such as private equity
investors in the U.S. and Europe, along with conglomerates in
Southeast Asia, will lead the pack, seizing opportunities to acquire
rare assets in displaced capital markets. Given their signicant
buying power and risk tolerance in a volatile environment, they are in
position to achieve opportunistic returns.
REITs, who have a lower risk prole, will continue to make headline
acquisitions in 2013, seeking to diversify their portfolios, particularly
in North America and some markets across Europe. In Asia Pacic,the successful listing of two new hotel REITs in Singapore and more
planned for 2013 is likely to result in higher volumes by these groups.
Sovereign wealth funds from Qatar and Abu Dhabi, as well as
emerging capital from China and Indonesia will also scour the globe
for trophy opportunities. To a lesser extent, U.S.-based private equity
funds will make selective bids in targeted regions.
On the sell-side, inadvertent owners such as banks and receiverswill drive a signicant share of product to market. Private equity
rms and institutional investors are also expected to liquidate some
previous acquisitions, either to divest select non-core assets or to
fund life maturities.
Cross-border investments rise
The rise in movement of global capital is driven by opportunistic
purchases of assets which rarely come to market, as well as
investors yearning for diversication of currency, geography, political
policy and economics.
Cross-border capital accounted for 30% of global hotel investment
in 2012, trending above the recent average and driven by strong
outbound capital ow from the Middle East and Asia. Sovereign
wealth funds and family conglomerates are the key investment
vehicles which will export capital in 2013. It is expected that cross-
border capital will continue to ow and possibly accelerate in 2013.
Re-emergence of debt and new players
Debt liquidity is still constrained, but should be at its highest level in2013 since 2007, notwithstanding regional variances. Large banks,
traditionally key providers of real estate debt nancing, still dont have
sufcient capacity to lend signicant sources of new money, but are
reducing their exposure to bad loans.
The U.S. debt markets are strongly re-emerging, driven by
commercial mortgage-backed securities (CMBS) lenders, who will
continue to drive pricing, terms and accessibility. Balance sheet
lenders are more selective with regard to asset quality, market and
sponsorship, but are frequently able to provide the oating rate loan
structures typically favoured by hotel owners. In EMEA, debt remains
difcult to secure but there are signs of improvement, and we expect
to see more liquidity in 2013. Across Asia Pacic, debt is not a factor
except in Japan where a high proportion of CMBS loans still need to
be worked out.
Other forms of debt nancing are required to ll the gap, and various
alternative groups, including sovereign wealth funds, insurance
companies and mutual funds, have entered the real estate lending
space by providing senior debt. Longer term, the debt environment in
Europe is likely to more closely resemble that which exists in the U.S.
as regulations make lending more attractive, particularly for insurers.
Over the longer term, the growing inuence of emerging markets is
likely to be felt through increasing savings rates which will nd their
way into the property market, and eventually the hotel market, by
pension fund investors.
Government debt as % of GDP through 2014F
Source: IHS Global Insight
0%
50%
100%
150%
200%
250%
Australia
Brazil
China
France
Germany
India
Italy
Japan
United
Kingdom
U.S.
2012 2013F 2014F
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6 Hotel Investment Outlook | January 2013
Hotel operating fundamentals galvanize outlook
Hotel operating fundamentals are generally holding strong, and
in some cases are outperforming expectations, given economic
pressures, which underscores the attractiveness of high quality,
income producing hotel real estate as an asset class.
At the forefront of growth in revenue per available room (RevPAR)
in 2013 are the worlds gateway cities and resource-rich countries.
Markets that will see the most growth in demand and average room
rates are those that are pursued by global travellers, along with thosethat are beneting from demand due to the countries rising middle
class. That said, the pace of growth will be below the bounce-back
years of 2010 and 2011 in many markets.
Real estate market cultivates transparency
Market transparency, measured by availability of data, overall legal
framework and governance of listed vehicles, for instance, has
posted increases globally over the past two years, as surveyed in the
Jones Lang LaSalle Real Estate Transparency Index.
Overall, these worldwide improvements are expected to have apositive effect on transaction volumes and cross-border capital
ows. The destinations of foreign capital are generally highly liquid,
transparent and secure markets. Increased transparency will be a
key driver for the future of the industry as a whole.
Success playbook
As previous cycles provide few clues to what lies ahead in the next
few years, investors look to new indicators to calculate investment
roadmaps. While markets around the world continue to cultivate
transparency and interdependence becomes more prevalent, the
deal arena is increasingly globalised and therefore, a bigger playing
eld. Economic challenges are having a worldwide impact on how
and with whom investors conduct deals. At the same time, the
availability of data and information is expanding, increasing decision-
making capacity.
Unexpected events, such as political unrest and natural disasters,
seem to have become the norm. During this period of uncertainty
and rapidly changing dynamics, greater exibility will continue to be
demanded from investors and all market participants. The ability
to react to change will feature as a success indicator. In the future,
victories will be predicated by players who adopt a culture and
business model that incorporates effective risk assessment, strategic
agility and exible action.
4%
41%
3%
67%11%
25%
26%
22%
5%
77%
2% 16%
9%
100%
34%
61%
100%
North America
Latin America
Europe
Middle East
Africa
Asia
Australasia
Global
1%
Flow of capital around the globe in 2012
Proportion of investment within each region by source of capital
% global investment refers to transactions funded by private equity funds and investmentbanks that raise capital across a number of countries globally.
Absence of arrow co nnecting tw o regions indic ates that no cross-b order investment wastracked in 2012.Percentages of each of the regions add up to 100%. Source: Jones Lang LaSalle
Region Domestic Intra-Regional Off-Shore Global
North America 65% 2% 8% 26%
Latin America 20% 14% 41% 25%
Europe 47% 14% 27% 11%
Middle East 75% 25% 0% 0%
Asia 51% 49% 0% 0%
Australasia 21% 1% 78% 0%
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January 2013 | Hotel Investment Outlook 7
Global Real Estate Transparency - Composite Index, 2012
*Denotes new market added in 2012.Markets that appear tied have slightly different scores at higher levels of precision.Source: Jones Lang LaSalle, LaSalle Investment Management
TransparencyLevel
2012 CompositeRank
Market 2012 CompositeScore
High
1 United States 1.26
2 United Kingdom 1.333 Australia 1.36
4 Netherlands 1.38
5 New Zealand 1.48
6 Canada 1.56
7 France 1.57
8 Finland 1.57
9 Sweden 1.66
10 Switzerland 1.67
Transparent
11 Hong Kong 1.76
12 Germany 1.80
13 Singapore 1.85
14 Denmark 1.86
15 Ireland 1.9616 Spain 2.06
17 Belgium 2.07
18 Norway 2.08
19 Poland 2.11
20 Italy 2.16
21 South Africa 2.18
22 Austria 2.22
23 Malaysia 2.32
24 Czech Republic 2.34
25 Japan 2.39
26 Hungary 2.53
27 Brazil - Tier 1 2.54
28 Portugal 2.54
Semi
29 Taiwan 2.60
30 Brazil - Tier 2* 2.75
31 Turkey 2.76
32 China - Tier 1 2.83
33 Greece 2.84
34 Israel 2.85
35 Philippines 2.86
36 Slovakia 2.90
37 Russia - Tier 1 2.90
38 Indonesia 2.92
39 Thailand 2.94
40 Romania 2.96
41 South Korea 2.96
42 Puerto Rico* 2.96
43 Mexico 2.97
44 Russia - Tier 2 2.98
45 Chile 3.01
46 China - Tier 2 3.04
47 UAE - Dubai 3.05
48 India - Tier 1 3.07
49 India - Tier 2 3.08
50 India - Tier 3 3.15
TransparencyLevel
2012 CompositeRank
Market 2012 CompositeScore
Semi
51 Croatia 3.16
52 UAE - Abu Dhabi 3.2353 Macau 3.27
54 Russia - Tier 3 3.28
55 China - Tier 3 3.31
56 Botswana* 3.36
57 Bulgaria 3.41
58 Argentina 3.42
59 Mauritius* 3.43
60 Cayman Islands* 3.45
61 Ukraine 3.46
62 Slovenia 3.50
63 Bahrain 3.62
64 Saudi Arabia 3.63
65 Kenya* 3.7066 Lebanon 3.75
67 Kuwait 3.76
Low
68 Vietnam 3.76
69 Serbia* 3.78
70 Costa Rica 3.79
71 Bahamas* 3.81
72 Qatar 3.82
73 Jamaica* 3.85
74 Oman 3.85
75 Panama 3.87
76 Morocco 3.88
77 Egypt 3.88
78 Zambia* 3.9379 Peru 3.95
80 Jordan 3.97
81 Uruguay 4.04
82 Colombia 4.05
83 Kazakhstan 4.09
84 Dominican Republic 4.15
85 Honduras* 4.20
86 Guatemala* 4.20
Opaque
87 Venezuela 4.23
88 Mongolia* 4.31
89 Tunisia 4.38
90 Ghana* 4.41
91 Iraq* 4.44
92 Pakistan 4.48
93 Algeria 4.49
94 Belarus 4.52
95 Angola* 4.57
96 Nigeria* 4.58
97 Sudan 4.59
Global Real Estate Transparency Index
Jones Lang LaSalles Global Real Estate Transparency Index is updated every two years and quanties real estate market transparency
across over 97 markets worldwide. The Index aims to help real estate investors, corporate occupiers and retailers understand important
differences when transacting, owning and operating in foreign markets.
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January 2013 | Hotel Investment Outlook 9
Highlights
Healthy and growing operating fundamentals, anabundance of equity capital and an ever improving
debt market will support a buoyant market for hotel
trades in 2013.
Transactions volume for the year is expected to reach
$18.5 billion, continuing a moderate increase on 2012
levels.
Our transaction volume forecast is based on the expectedperformance of key deal drivers in 2013. Among the
factors which have shown high correlations to deal ow
are availability and cost of capital, industry supply and
demand fundamentals, REITs stock prices, the size
and number of assets being brought to market andthe overall hotel ownership composition, all of which
notwithstanding some riskare moving in favor of an
attractive environment for buying and selling.
Private equity funds unleashed some $7 billion of capitalin 2012 for hotel investments making them the largest net
buyers. We expect this trend to continue in 2013. Together
with REITs, we expect private equity buyers to comprise
as much as 70% of total acquisition volume across the
Americas.
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10 Hotel Investment Outlook | January 2013
Positive momentum bucks volatility hangover
Hotel real estate investors unlocked capital and aggressively bid on
hotel assets throughout 2012, with hotel investment volume holding
steady at $17.5 billion in the Americas. Transactions pace cruised
at a stable momentum throughout the year, driven by private equityfunds and real estate investment trusts (REITs). Debt returned to the
market in a meaningful way, and is showing indications that it will
continue its strong recovery.
In addition to the sale of hotel assets, performing and non-
performing hotel debt also traded at substantial levels which, if fully
quantiable, would show even greater total lodging transaction
volume for the year.
Macro-economic pressures persist, and the Eurozone crisis and debt
ceiling debate in the U.S. have kept a lid on higher economic growth,
but as the future comes more into focus, economic growth will be
poised to accelerate. This will further underpin fundamentals in the
hotel real estate market.
Healthy and growing operating fundamentals, an abundance of
equity capital and an ever improving debt market will support a
buoyant market for hotel trades in 2013. Transactions volume for
the year is expected to reach $18.5 billion, continuing a moderate
increase on 2012 levels. This gure refers to asset sales and does
not include note and loan sales, deed-in- lieu transfers, and the like.
Our transaction volume forecast is based on the expected
performance of key deal drivers in 2013. Among the factors which
have shown high correlations to deal ow are availability and
cost of capital, industry supply and demand fundamentals, REITs
stock prices, the size and number of assets being brought to
market and the overall hotel ownership composition, all of which
notwithstanding some riskare moving in favor of an attractive
environment for buying and selling. The U.S. will retain its posit ion as
the most liquid hotel investment market in the world.
Fundamentals continue with vigour in 2013
We expect hotel operating fundamentals to maintain healthy growth
in the U.S. in 2013, with revenue per available room (RevPAR) gains
ranging from 6% to 7%. In the absence of any major demand shocks,
corporate and group business is expected to continue to improve,and leisure travel will continue to rise in 2013.
Among the markets which will lead the growth are San Francisco,
Los Angeles, Houston, Chicago, New York and Hawaii. Washington,
D.C., where growth stagnated in 2012, should see a lift in 2013 due
to the presidential inauguration and more travel to the city as public
and private sector groups strengthen ties with the administration.
Also underpinning the markets performance is the fact that supply
increases will (again) be below the long-term average in 2013. Over
the past 20 years, periods of below-average supply growth have
coincided with above-average RevPAR growth and we expect this
to feature as a trend in 2013 as well. Demand growth is expected to
outstrip supply increases which will give a lift to occupancy rates and
spur pricing power.
Americas hotel development pipeline through 2014F
Source: Smith Travel Research, Jones Lang LaSalle
2011 base stock 2012 additions 2013 additions 2014 additions
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Chicago
LosAngeles
Miami
NewYork
SanFrancisco
WashingtonD.C.
Toronto
Vancouver
MexicoCity
RiodeJaneiro
SaoPaulo
Numberofrooms(urba
narea)
Americas hotel transaction volume 1998 - 2013F
Source: Jones Lang LaSalle
Single asset transactions Portfol io transactions
0
10
20
30
40
50
60
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012E
2013F
Volume($Billions)
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January 2013 | Hotel Investment Outlook 11
Private equity buyers lead the pack
Private equity funds unleashed some $7 billion of capital in 2012 for
hotel investments making them the largest net buyers. We expect
this trend to continue in 2013. Together with REITs, we expect private
equity buyers to comprise as much as 70% of total acquisitionvolume across the Americas.
Private equity players will become increasingly active in both primary
and secondary U.S. markets, beneting from increasing debt levels.
We estimate that private equity funds have a buying capacitywith
leverageof up to $45 billion for hotels over the next several years.
Private equity investors will both target single assets and several
needle-moving large select service portfolios (up to 100+ hotels), as
well as merger and acquisitions plays.
REITs, on the other hand, have a penchant for branded institutional
quality assets with in-place cash ow in the countrys 15 largest
urban centres. REITs will largely target single-asset acquisitions or
small portfolios with up to four to ve hotels.
The exact force of REITs will depend on their share prices and ability
to raise capital. While REITs have been on an acquisitions run again
since mid-2012 as their stock valuations increased, they do face risk
in 2013, and had generally lowered guidance during late 2012.
Debt swells to a six-year high
Another driving force which will shape the hotel investment market in
2013 is the strong re-emergence of hotel nancing. Driven primarily
by commercial mortgage-backed securities (CMBS) but including a
diverse group of lenders such as domestic and off-shore commercialbanks, insurance companies, debt funds and mortgage REITs, we
expect debt liquidity to be at the highest level since 2007.
Balance sheet lenders are more selective with regard to asset
quality, market and sponsorship, but are frequently able to provide
the oating rate loan structures typically favoured by hotel owners.
The formidable return of the CMBS market in 2012 had the twofold
effect of dramatically improving pricing and terms for borrowers,
while also drawing other lenders into the hospitality space.
While debt liquidity is nowhere near the previous peak and lenders
continue to be selective, early indications are that hotels will remain
a targeted asset class for lenders as they offer high yield relative to
other real estate and xed income classes in terms of risk prole.
Two types of sellers
In 2013, sellers will be motivated by different factors. At the one end
of the spectrum, owners of high-quality, performing assets in gateway
markets will face signicant buyer interest from private equity funds,
REITs, and in the case of gateway markets, off-shore investors.
This competitive bidding, driven in part by the scarcity of this typeof product on the market, will push up capital values and drive down
yields, resulting in favourable opportunities for sellers. Quality assets
with in-place cash ow will be best posit ioned to transact in 2013 and
we expect the average asset price of single assets to tick up during
the course of the year.
Americas 2012 buyer seller net shift analysis
^Net shift = the difference between the respective groups market share as a buyer and its market shareas a seller. A positive net shift indicates group was net buyer; a negative net shift indicates net sellerduring 2012Source: Jones Lang LaSalle
-30% -20% -10% 0% 10% 20% 30%
Receiver
REITs (public and private)
Investment fund/Private equity
Institutional investor
Hotel operator
HNWI
Developer/Property company
Corporates
Net shift^
Americas average single-asset deal size 1998 - 2013F
Source: Jones Lang LaSalle
0
10
20
30
40
50
60
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012E
2013F
US$(Millions)
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12 Hotel Investment Outlook | January 2013
On the other end of the spectrum are the sellers who continue to be
pressured to sell due to debt service repayment issues or looming
loan maturities. Owners may also be moved to sell in cases where
they are unwilling or unable to invest capital for needed property
improvements. In addition, lenders are taking a more aggressivestance with troubled loans, showing a greater willingness to foreclose
as well as sell notes and real estate owned proper ties.
Pricing of assets in secondary and tertiary markets that are subject
to brand and management encumbrances will be under pressure in
2013 and these assets will face a smaller audience of buyers. Resor t
assets could become an interesting play in 2013 as group meeting
business continues to improve and leisure travel remains strong.
Further, resort development will continue to be sparse, providing
signicant runway for demand increases to result in improved
operating performance.
Pricing for these types of assets will be well below the levels which
the higher quality prime assets will garner. Nonetheless, they often
present solid opportunities and strong current returns that will appeal
to a segment of the market that is chasing current yield.
2013: The great deleveraging?
The U.S. market continues to face a signicant amount of CMBS
loan maturities over the next several years. The unpaid balance of
hotel CMBS loans with initial maturity dates through 2013 totals $19
billion, according to Morningstar, LLC. While asset values and thedebt markets have rebounded sufciently to bail out some troubled
borrowers, many owners are still seeking ways to delay near-term
maturities in hopes of further recovery.
However, lenders, and in particular subordinate lenders, have shown
increased willingness to foreclose on loans in default, or to sell their
positions to others poised to exercise rights and remedies. This has
resulted in fewer extensions and more situations where borrowers
are trying to delay foreclosure actions by negotiating in the courts or
promising to repay the loans if given a bit of breathing room.
Consequently, particularly for hotel assets, 2013 could very well mark
the beginning of the long-awaited great deleveraginga period
with signicant call to action in terms of hotel loans. Following years
of extensions, exibility and workouts, the debt will eventually have
to get dealt with, and it will be through sales and recapitalizations,
which will represent an unprecedented reshufing of loans and
capital in the market.
Off-shore demandMiddle Eastern and Asian investors will continue to actively pursue
opportunities in the countrys gateway markets. The U.S. saw
$800 million in inbound capital from these two investment groups,
and we expect the incoming volume to increase to approximately
$1 billion in 2013.
The most active Middle Eastern investors in the U.S. are those from
Abu Dhabi, Qatar and Kuwait. From Asia, the key investors are
those from China and Southeast Asia, though conglomerates from
India have their eye on several U.S. assets as well. Collectively,
these investors motivation is political, economic and currencydiversication, and the fact that hotel assets typically act as a
hedge against ination, as rate growth outpaces ination. European
investors, on the other hand, are expected to be quiet as they sor t
out economic difculty at home.
Canadas hotel transaction activity has not recovered to the same
degree as it has in the U.S., though Toronto saw several large
transactions in 2012. While Canada benets from a relatively healthy
demand outlook, investors in the market have retained a domestic
focus. Sellers of Canadian assets have not attracted bids from U.S.
REITs and face a narrower buying audience. The relatively limited
stock of hotels available for sale will continue to hamper a large
uptick of deal volume in 2013.
Hotel market cycle 2013 North America
Source: Jones Lang LaSalle
RevPAR
growthslowing
RevPAR
falling
RevPARrising
RevPARdeclineslowing
Vancouver
Chicago
Washington, D.C.
Los Angeles
Toronto
New York
San Francisco
Miami
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January 2013 | Hotel Investment Outlook 13
Mexico moves to bright spot
With its emerging middle class driving an economic rebound, Mexicos
gross domestic product is expected to grow by 4% annually over the
next several years. Overall, the countrys lodging market and tourism
infrastructure is the most sophisticated in all of Latin America in termsof the proportion of international-grade hotel stock. The countrys key
hotel markets are performing well and visitor levels in Cancun, Los
Cabos and Mexico City are exceeding previous peak levels.
The countrys narco-violence marks a stark contrast to its otherwise
healthy fundamentals. As a result, the country will struggle to keep
optimism in check. The key international tourist destinations have
largely been spared negative headlines in the last year, which bodes
well for the future.
Mexicos hotel transactions market had been dened by illiquidity
as of late, though deal ow picked up to approximately $400 million
in 2012, driven by several single asset transactions. Signs point
to an ongoing pick-up in transactional activity in Mexico. The year
2013 should bring several more sales of prime assets, along with
forced sales. Prime assets will garner strong investor interest;
struggling assets will face a limited buyer audience, unless they are
unencumbered by brand and management.
Buyers will be comprised of opportunistic investors and hotel
brands making strategic plays in order to enter cer tain markets.
That said, the number of active investors will remain below previous
peak levels. Though the transactions environment will see someimprovement, the primary growth opportunity for investors lies in the
expansion of the countrys network of branded limited service hotels
to service the countrys middle class.
Caribbean Islands: more deal ow
The Caribbean will experience an improvement in demand
fundamentals in 2013 barring signicant economic deterioration
in the regions key source markets. Markets with above-average
fundamentals include the Dominican Republic, Jamaica, the CaymanIslands and Aruba. The regions hotel operations remain susceptible
to changes to airlift, hurricanes, and high energy costs. The all-
inclusive sector has led the recovery, and we expect the luxury
market to show more signs of regaining in 2013.
With the bulk of large resorts in the Caribbean having been nanced
by high levels of debt and many featuring a struggling residential
component, any sales activity will be driven by owners who are
forced to sell due to default, etc. Other assets which may transact
are stalled development projects.
In 2013, we expect to see several more existing large resorts,
particularly in the upscale and luxury sectors, changing ownership/
control via debt restructuring. The buyer audience for distressed
resorts will be limited to rescue capital. Performing assets, on the
other hand, are less likely to trade in 2013 because pricing remains
below potential.
Inter-regional capital dominates Central America
Like the Caribbean, Costa Rican resort markets experienced
a wave of development during the past seven years with many
properties encompassing residential units. Given its stable political
environment, healthy economic fundamentals and the newly
expanded Liberia airport, Costa Rica will again be on the radar of
investors and we expect several projects to be revitalized in the
medium term.
However, this rests on equity injections, a re-tooling of joint ventures
and conrmation that Costa Ricas source markets remain on a solid
path to economic recovery. Within Central America, Costa Rica is
the only market which is likely to attract U.S. investor interest.
Panama, on the other hand, is in the domain of intra-regionalinvestors, such as capital sources from Colombia and Venezuela.
Demand sources for Panama differ as well; hotel development has
largely been concentrated in Panama City and as such caters to
urban, and not resort demand. Investor interest will remain tempered
in 2013, though the Panama Canal, which is undergoing expansion,
represents future upside.
Policy interest rates for major Americas economies
Source: IHS Global Insight
0%
5%
10%
15%
2008 2009 2010 2011 2012E 2013F 2014F
Policyinterestra
te
Canada United States Mexico Brazil
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14 Hotel Investment Outlook | January 2013
South Americas dramatic transformation
With the underwhelming pace of economic recovery across many
of the worlds mature economies, conditions in South America offer
a bright spot, with its economic growth rate to represent double that
of the U.S. over the next few years. Investors focus will continue
to be on new development, which is accompanied by large-scale
opportunity in Brazil.
Notwithstanding various degrees of risk, surging home-grown
demand is dramatically boosting the performance of the lodging
industry across the region, creating an attractive environment for
growth. But despite initiatives announced by the government of Brazil
to make available some subsidised nancing in connection with the
2014 FIFA World Cup, the nancing environment in South America
remains restricted and expensive.
Just 15% of room supply in Brazil is afliated with an international
hotel brand and the country still lags with respect to the product
differentiation seen in mature lodging markets. Over the medium
term, Brazil will attract an increasing level of brand differentiation to
serve different demographic groups, particularly the emerging middleclass. While numerous hotel companies and private equity funds
explore large-scale market entry/expansion strategies, there are few
forerunners. Those who nd success will likely make headway in 2013.
South Americas hotel transaction market is still relatively
undeveloped, though it too is expected to continue to open up over
the medium term. The full service hotels that transacted in So
Paulo and Rio de Janeiro over the past several years will help set the
market in 2013 and beyond, though only a limited number of assets
will come to market, due to its domination by long-term holders both
domestic and intra-regional.
The next largest South American growth economies, Colombia, Chile
and Peru, are increasingly on the radar of intra-regional investors
who are seeking to acquire hotels on a selective basis, driven by their
strategy of earning greater returns in hotels than in other asset types.
Argentina, on the other hand, is sorting through economic and political
challenges and investment decisions have been placed on hold.
Hotel market cycle 2013 Latin America
Source: Jones Lang LaSalle
RevPARgrowthslowing
RevPARfalling
RevPARrising
RevPARdeclineslowing
Buenos Aires
Caribbean
So Paulo
Rio de Janeiro
Mexico City
Bogot
Real GDP growth (annual %)
Source: IHS Global Insight
2008 2009 2010 2011 2012E 2013F 2014F
North America
Canada 1.1 -2.8 3.2 2.6 2.1 1.9 2.5
Mexico 1.2 -6.0 5.5 3.9 4.0 3.5 4.9
United States -0.3 -3.1 2.4 1.8 2.1 1.9 2.8
South America
Argentina 6.8 0.9 9.2 8.9 1.5 2.0 2.7
Brazil 5.2 -0.3 7.5 2.7 1.5 3.8 4.7
Chile 3.4 -1.7 5.2 6.0 4.9 4.5 4.7
Colombia 3.5 1.7 4.0 5.9 4.6 4.3 4.4
Peru 9.8 0.9 8.8 6.9 6.0 6.0 4.9
Exchange rates (local / USD period average)
Source: IHS Global Insight
2008 2009 2010 2011 2012E 2013F 2014F
North America
Canada 1.2 1.1 1.0 1.0 1.0 1.0 1.1
Mexico 13.5 13.1 12.4 14.0 12.9 12.8 12.5
South America
Argentina 3.4 3.8 4.0 4.3 4.8 5.2 5.5
Brazil 2.3 1.7 1.7 1.9 2.1 2.1 2.1
Chile 629.1 506.4 468.4 521.5 480.6 510.3 459.1
Colombia 2,198.1 2,044.2 1,989.9 1,942.7 1,825.9 1,818.8 1,831.4
Peru 3.1 2.9 2.8 2.7 2.6 2.6 2.6
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January 2013 | Hotel Investment Outlook 15
Colombia is witnessing a considerable amount of development
by local investors, with little direct activity from the U.S. The
countrys stable economy, large population, greatly improved
business environment and government tax incentives have led to
a considerable amount of new supply. Investors have grown morecautious about a potential temporary oversupply, but the longer-term
outlook looks bright as demand continues to grow.
Chile has long enjoyed macroeconomic stability, an open business
environment and consequently, relatively sophisticated capital markets.
Peru has also followed pro-growth policies that have resulted in the
country posting the highest sustained economic growth rates in all
of South America. This, together with Perus rich cultural heritage
has increased its commercial and tourism appeal; thus hotel demand
should continue its upswing in 2013. Lima has seen a lesser degree
of institutional-grade hotel development. The market still lacks thedepth of international hotel brands seen in other South American
capitals and the market will be receptive to new development.
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EMEA
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January 2013 | Hotel Investment Outlook 17
Highlights
Despite the economic challenges in Europe, hotelinvestment volumes in EMEA in 2013 are anticipated to
hold up and are forecasted at roughly $11 billion.
Although the economic situation in Europe willremain complex, several indicators give cause for
optimism and could lead to an improvement in investor
condence in 2013.
Positive signs include the emergence of new sourcesof debt in the form of debt funds and alternative lenders
such as insurance companies which are entering the hotel
arena. The hotel investment market will also benet from
a narrowing pricing gap for secondary assets between
buyers and sellers.
Sellers pricing expectations have already become morerealistic, especially in provincial U.K. and Ireland where
prices have been adjusted and we expect other European
markets to follow suit.
Operating results are also holding up comparatively well
and some gateway markets are likely to see a further rise
in RevPAR due to the continued growth in global travel
and tourism.
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18 Hotel Investment Outlook | January 2013
Transaction activity moderated in 2012
In 2012, the hotel investment market in Europe, Middle East and
Africa (EMEA) moderated as transaction volumes slowed by 10%
year on year to $11 billion. Investor sentiment was negatively affected
by the ongoing uncertainty surrounding the sovereign debt crisis, thecontinuing limited availability of debt and high costs of nancing new
acquisitions. Closing deals in 2012 was very difcult.
Transaction activity was concentrated on the key gateway markets in
Europe that had weathered the economic headwinds surprisingly well.
Highly diversied markets such as London, Paris, Amsterdam, and
key German cities, posted robust trading fundamentals and witnessed
aggressive pricing for quality properties in the prime locations.
Assets in secondary locations evoked limited interest due to lower
growth in trading fundamentals and investors perception of higher
risk. Investors remained uncertain of future trading in these markets,
which are more heavily reliant on fragile domestic and corporate
markets. Pricing for regional assets was therefore more opportunistic
and a number of assets sold signicantly below their guide price.
Hotels in stable secondary cities in Germany were an exception.These assets, often sold under long term leases or with vacant
possession, attracted a lot attention and were predominantly sold to
high net worth individuals (HNWIs) and institutional investors.
The majority of transaction activity occurred in Western and Northern
Europe with nearly no activity in Central and Eastern Europe (CEE).
There was virtually no debt availability for hotel acquisitions in this
emerging region and the economic and political outlook in some of
the countries remains uncertain. Nonetheless, Poland, one of the
most stable economies in Europe, received signicant buyer interest
especially for good quality product in Warsaw.
Despite the economic challenges in Europe, hotel investment
volumes in EMEA in 2013 are anticipated to hold up and are forecasted
at roughly $11 billion. Although the economic situation in Europe
will remain complex, several indicators give cause for optimism and
could lead to an improvement in investor condence in 2013.
Positive signs include the emergence of new sources of debt in
the form of debt funds and alternative lenders such as insurance
companies which are entering the hotel arena. The hotel investment
market will also benet from a narrowing pricing gap for secondaryassets between buyers and sellers. Sellers pricing expectations
have already become more realistic, especially in provincial U.K.
and Ireland where prices have been adjusted and we expect other
European markets to follow suit. Operating results are also holding
up comparatively well and some gateway markets are likely to see a
further rise in RevPAR due to the continued growth in global travel
and tourism.
New debt funds and insurance companies on the scene
In 2013, we anticipate an improvement in the debt markets as newalternative lenders such as insurance companies and pension funds
start to ll the funding gap left by the retreat of more traditional
lending banks. These investors have struggled to get decent returns
from government bonds and are increasing their allocation to higher
yielding real estate investments.
Furthermore, a number of debt funds have been raised. StarFin by
Starwood Capital, for example, aims to take advantage of nancing
opportunities by providing investors with debt capital to help
renance existing loans. GE Capital Real Estate Europe has also
targeted to build a $5 billion U.K. loan portfolio within the next four tove years.
EMEA average single-asset deal size 1998 - 2013F
Source: Jones Lang LaSalle
0
10
20
30
40
50
60
70
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012E
2013F
$US(Millions)
EMEA hotel transaction volumes 1998 - 2013F
Source: Jones Lang LaSalle
Single asset transactions Portfol io transactions
0
10
5
20
15
25
30
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012E
2013F
Volume($Billions)
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January 2013 | Hotel Investment Outlook 19
In addition, mezzanine lenders will help plug the nancing gap
and we have witnessed increasing activity from lenders such as
Blackstone, Starwood Capital and Duet, encouraged by higher
returns on their debt provisions than senior lenders. Bank lending is
also predicted to improve and a few banks have reopened their creditlines in the second half of 2012.
This improving picture is likely to be the rst stage in a return to more
normalized debt markets, which in time will help refocus transactional
activity, although these alternative sources of debt are typically more
expensive than traditional banks.
Trading fundamentals to remain stable in 2013
The consensus in the investment community is that trading
fundamentals in EMEA will remain stable with further growth in
revenue per available room (RevPAR) expected for key gateway
cities in Northern and Western Europe and the Middle East.
In Europe, operating results are anticipated to remain robust in key
cities such as Munich, Paris, Vienna, and Barcelona. These markets
will disproportionally benet from the continued expansion of inbound
tourism from BRIC countries (Brazil, Russia, India and China) and
markets in Asia and South America. An exception will be hotels in
London where an Olympic hangover and a signicant increase in
supply will likely result in a attening or contraction in RevPAR in
2013.
Hotels in Southern Europe that are more heavily reliant on domestic
or corporate demand and, therefore, more dependent on their local
economies, will continue to struggle in the short term. Economies in
Southern Europe are forecast to remain in recession and Tourism
Economics predicts a decline in international arrivals in this region in
2013. Some of these hotels could, therefore, very well experience a
stagnation or a decline in average room rates and occupancy levels
when compared to 2012.
Real GDP growth (annual %)
Source: IHS Global Insight
2008 2009 2010 2011 2012E 2013F 2014F
Western Europe
France -0.2 -3.1 1.6 1.7 0.1 0.0 0.5
Germany 0.8 -5.1 4.0 3.1 1.0 0.9 1.1
Italy -1.2 -5.5 1.8 0.6 -2.0 -1.2 -0.4
Netherlands 1.8 -3.7 1.6 1.1 -1.0 -0.4 0.5
Spain 0.9 -3.7 -0.3 0.4 -1.3 -1.5 -0.7
U.K. -1.0 -4.0 1.8 0.9 -0.1 1.1 1.5
Central & Eastern Europe
CzechRepublic
2.9 -4.4 2.3 1.9 -1.0 0.3 1.8
Hungary 0.7 -6.7 1.3 1.6 -1.5 -0.6 1.4
Poland 5.1 1.6 3.9 4.3 1.8 1.0 2.8
Romania 7.3 -7.1 -1.3 2.5 0.5 1.2 2.7
Russia 5.2 -7.8 4.3 4.3 3.6 3.4 4.0
Turkey 0.7 -4.8 9.2 8.5 2.5 4.0 3.9
MENA
Morocco 5.6 4.8 3.6 5.0 2.5 3.9 4.6
Oman 13.1 3.9 5.0 5.0 4.4 4.0 4.3
Qatar 25.4 8.6 16.7 14.8 4.5 4.3 4.7
UAE 3.2 -4.8 1.3 4.2 4.2 2.0 2.7
Exchange rates (local / USD period average)
Source: IHS Global Insight
2008 2009 2010 2011 2012E 2013F 2014F
Western Europe
Eurozone 0.7 0.7 0.8 0.7 0.8 0.8 0.8
Sweden 6.6 7.7 7.2 6.5 6.8 6.6 7.1
Switzerland 1.1 1.1 1.0 0.9 0.9 0.9 1.0
U.K. 0.5 0.6 0.6 0.6 0.6 0.6 0.6
Central & Eastern Europe
CzechRepublic
17.1 19.1 19.1 17.7 19.6 19.2 20.2
Hungary 172.1 202.3 207.9 201.1 224.9 230.5 256.7
Poland 2.4 3.1 3.0 3.0 3.3 3.2 3.3
Romania 2.5 3.0 3.2 3.0 3.5 3.3 3.3
Russia 24.9 31.7 30.4 29.4 31.1 31.0 29.9
Turkey 1.3 1.6 1.5 1.7 1.8 1.8 1.9
MENA
Morocco 7.8 8.1 8.4 8.1 8.6 8.8 9.2
Oman 0.4 0.4 0.4 0.4 0.4 0.4 0.4
Qatar 3.6 3.6 3.6 3.6 3.6 3.6 3.6
Saudi Arabia 3.8 3.8 3.8 3.8 3.8 3.8 3.8
Hotel market cycle 2013 - Europe
Source: Jones Lang LaSalle
RevPARgrowthslowing
RevPARfalling
RevPARrising
RevPARdeclineslowing
Budapest
Prague
Dublin
Moscow
St. Petersburg
Copenhagen, Warsaw, Krakow
Vienna
Munich, Paris
Dusseldorf
Istanbul
Berlin, Hamburg,Amsterdam, Regional U.K., London
Barcelona,Frankfurt
Madrid
Rome
Milan
Heathrow
Cologne
Brussels, Geneva, Zurich, Gatwick
Lisbon
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20 Hotel Investment Outlook | January 2013
Hotel demand had recovered impressively in the Middle East
since the Arab Spring, led by hotels in Dubai which recorded high
occupancy levels, with RevPAR moving towards its peak of 2008.
For 2013, we expect a further improvement in trading performance
in the UAE on the back of continued growth in international arrivals.Dubai, the safe haven of the region, is expected to achieve a fur ther
growth in RevPAR whereas hotels in Abu Dhabi will continue to
recover from an oversupply situation.
Saudi Arabia will also achieve improved performance linked to new
infrastructure projects dr iven by public spending policy. We anticipate
performance to remain constrained in Bahrain due to the ongoing
local tensions.
Trading performance in North Africa will further stabilise in 2013
as tourists return to countries such as Egypt, Morocco and
Tunisia. Occupancy in Cairo will further recover, although room
rates are likely to remain at low levels due to very competitive
market conditions. Dynamic growth in trading performance is also
anticipated for sub-Saharan Africa, especially for growing tourist
destinations such as Tanzania and Kenya.
Asian and Middle Eastern investors to drive cross-
border deals
In 2012, Middle Eastern investors were one of the most active buyers
of hotel real estate, acquiring assets with a total value of $1.7 billion
or about 15% of total investment volumes in EMEA. In 2013, weexpect Middle Eastern investors predominantly from the United Arab
Emirates (UAE) and Qatar to remain one of the most active buyers
of European hotel real estate. These cash rich investors, primarily
HNWIs and sovereign wealth funds, will remain keen to diversify
into upscale assets in core markets and are likely to place in excess
of $100 million in equity in each of a number of major deals. These
investments often reect non-economic factors such as pride or
prestige of ownership and are more focused on long term capital
preservation than short term cash ow.
Asian investors, although coming from a lower base, have also beenactive, and we expect hotel operators and developers, particularly
from Singapore and Malaysia, to continue purchasing upscale hotels
in key European markets. We also anticipate Chinese investors to
increase their cross-border investments into Europe as they switch
their attention from domestic investments to strategic assets in
advanced economies.
U.K. to remain the most liquid market
The U.K. is anticipated to remain the most liquid market in EMEA,
driven by buoyant investment activity in London, which remains a targetfor risk-averse overseas investors wishing to avoid Euro exposure.
The London hotel market has proven to be resilient with average
occupancy levels predicted to stay close to 80%. Demand for
upscale properties will remain strong and keep prices at record levels
with yields for these type of assets within a range of 2% and 5%.
In regional U.K., investment activity will be driven by a combination
of a large amount of product being offered for sale and a narrowing
price expectation gap between buyers and sellers. Many of these
properties will come from distressed situations, and for the right
buyer, will deliver a healthy yield.
France is likely to achieve second place in terms of investment volume in
2013. Single asset transactions will be driven by Paris, which similar to
London, attracts a large number of overseas investors. A combination of
limited supply for sale and high demand will result in aggressive pricing.
In regional France, we anticipate some activity, mainly in the budget
segment, as hotel operators continue to pursue an asset light strategy.
These assets, likely to be trading as part of a portfolio, will come on the
radar of institutional investors seeking more stable returns and also will
attract the attention of some private equity investors looking to own and
operate properties in secondary markets under franchise agreements.
Hotel market cycle 2013 - MENA
Source: Jones Lang LaSalle
RevPARgrowthslowing
RevPARfalling
RevPARrising
RevPARdeclineslowing
Muscat
Cape Town
Dubai
Johannesburg
Jeddah, Amman
Kuwait
Cairo, Manama
Beirut
Riyadh
Doha
Abu Dhabi
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January 2013 | Hotel Investment Outlook 21
In 2013, many investors will look to Germany, which is expected to
offer some of the most attractive risk-adjusted returns. In addition,
the hotel market benets from a buoyant tourism sector and solid
economic fundamentals.
Hotels are often still subject to long-term leases, which provide
stable cash ows and will, therefore, continue to appeal to
institutional investors such as Deka Immobilien, Union Investment
and Invesco Real Estate. A positive buy sentiment from this
investor group was moreover reected in European real estate fund
manager Internos capability of raising a sum of 75 million from
four German institutional investors for its Hotel Real Estate Fund
in July 2012. Hotels in key markets such as Munich, Frankfurt,
Hamburg and Berlin will also experience signicant buyer interest
from private individuals and family ofces, which are aiming for
long and secure investments.
Southern Europes investor sentiment weakens
In Spain, transaction activity will likely remain weak as investors
face higher risks and a deepening recession in 2013. We therefore
expect many investors to follow a wait and see approach and focus
on key tourist destinations with strong trading fundamentals such as
Barcelona, a high desire for entry such as Madrid, or key seaside
resort destinations. Some activity can be expected from Spanish
banks, which are under growing scrutiny from the E.U. to start
deleveraging and could, therefore, accelerate their plans to sell hotel
loans and assets.
We can also expect some activity coming from Spains bad bank,
SAREB, which was set up in December 2012 and will take over
toxic real estate (including hotel assets) at signicant discounts
from the troubled banking sector. Assets and loans that SAREB
will start ofoading in the coming years will offer attractive returns
and upside potential and, therefore, capture the interest of more
opportunistic investors.
In Italy, we anticipate sustained hotel investment activity despite
a struggling corporate and domestic tourism sector which will put
pressure on trading performance. It is likely that investment activity
will be driven by luxury/trophy hotels in high barr ier to entry business
and leisure destinations such as Rome and Milan. While the Italianhotel investment market remains primarily in the hands of domestic
buyers, we expect capital ows from the Middle East directed
towards trophy assets in core markets.
In Central and Eastern Europe, we predict investment activity to be
strongly correlated with the amount of debt availability. Although
lending activity is expected to improve, it will remain challenging to
nance transactions in this region and therefore hotel investment
volumes could very well remain subdued. However, we can expect
some activity from equity rich investors as well as opportunistic
investors, although with a clear focus on prime assets.
Nonetheless, we anticipate a potential uptick in hotel investment
activity in Poland due to the countrys economic stability, buoyant
hotel market and high yields for new hotel acquisitions relative to
most mature markets. Some transaction activity is also expected
in Prague, where hotels have recorded a signicant improvement
in trading performance and investor interest, particularly from local
private equity companies.
In Russia, hotel investment activity will be conned primarily to Moscow.
The market is still dominated by domestic investors who will invest in
high quality products in central locations with a focus on three to four-
star properties, with yields typically ranging between 9% and 11%.
Policy interest rates - Western Europe
Source: IHS Global Insight
Eurozone Sweden U.K.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
2008 2009 2010 2011 2012E 2013F 2014F
Policyinterestrates
Policy interest rates - Eastern Europe
Source: IHS Global Insight
Czech Republic Hungary Poland Russia
0%
2%
4%
6%
8%
10%
12%
14%
2008 2009 2010 2011 2012E 2013F 2014F
Policyinterestrates
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22 Hotel Investment Outlook | January 2013
Tempered deal activity in the Middle East and Africa
Similar to previous years, we expect no signicant investment activity
in the Middle East and Africa as investors prefer to build rather than
acquire existing hotels. The investment market in the Middle East
will remain very opaque with most buyers being local developmentcompanies or HNWIs. Dubai will be an exception with evidence of some
investor interest outside the Gulf Cooperation Council (GCC) countries.
In Africa, some activity is expected in Morocco, the most mature
hotel market in North Africa. Domestic investors, primarily local
funds and HNWIs, could acquire hotels in key cities such as
Casablanca or Marrakesh, although will likely avoid more volatile
seaside resort destinations.
Sub Saharan Africa: development hot spot
Hotel development activity in Europe will remain restrained in 2013 in
light of continued funding difculties for new projects. Exceptions are
in strong markets such as London that still have a signicant amount
of hotels in the development pipeline although a large number ofthese projects are conversions or par t of mixed use development
schemes. New and popular lifestyle/boutique brands such as Motel
One, Citizen M, Indigo and Aloft are also increasing their presence in
core markets.
EMEA hotel development pipeline through 2014F
2011 base stock 2012 additions 2013 additions 2014 additions
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
Numberofrooms
Source: Jones Lang LaSalle
EMEA 2012 buyer seller net shift analysis
^Net shift = the difference between the respective groups market share as a buyer and its market shareas a seller. A positive net shift indicates group was net buyer; a negative net shift indicates net sellerduring 2012Source: Jones Lang LaSalle
-15% -10% -5% 0% 5% 10% 15%
Sovereign wealth fund
Receiver
REIT
Investment fund/Private equity
Institutional investor
Hotel operator
HNWI
Developer/Property company
Corporates
Net shift^
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January 2013 | Hotel Investment Outlook 23
In the Middle East, development activity will pace ahead with nancing
often provided by public funds. The region is expected to open 150 new
hotels in 2013 with the majority opening in Saudi Arabia and the United
Arab Emirates. Nonetheless, development activity has started to slow
down in Dubai as the market is nearing maturity.One of the development hot spots is expected to be Sub Saharan
Africa, which has politically stabilized in some regions and started
to restore investor condence. Many of these emerging economies,
such as Ghana and Nigeria, are seeing strong economic growth due
to an abundance of natural resources and the benet from growing
levels of direct foreign investments from the U.S., Europe and China.
We believe that these countries will offer much growth potential
especially in terms of business tourism and, therefore, will attract
a growing amount of international hotel operators that would like to
expand into these emerging markets. Development activity will besupported by improved accessibility to nancing due to the recent
creation of African hotel funds with capital provided by African and
international investors. However, risks remain very high and strong
relationships with local development companies and governmental
institutions are critical when entering these markets.
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Asia Pacic
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January 2013 | Hotel Investment Outlook 25
Highlights
Asia Pacic transaction volumes are projected to record
a slight uptick in 2013 to reach $3.5 billion with the lions
share of deals in Australia and Japan. The gap between
buyer and seller pricing expectations which emerged in2012 will continue to feature in 2013.
Inter-regional capital will remain active in Asia Pacics
hotel investment market in 2013. The successful listing of
two new hotel REITs in 2012 and more planned for 2013 is
likely to result in higher volumes by these groups, for whom
diversication is crucial. REITs have been willing to consider
assets in secondary locations to ensure overall viability.
Australia remains a target for cross-border capital
with interest from Asian groups in prime hotels stillexceptionally strong and selective interest from new
capital sources such as the Middle East and China.
As operating companies digest an oversupply of luxury
rooms in major cities in China, the mid-market will be an
exciting space to watch over the next ve years.
Investment benchmarks are being established in India.
The dynamics in 2013 will favour both buyers and
developers with a slowdown in development activity
and more opportunities to acquire.
Transaction volumes in Japan are expected to improve
with trading performance returning to pre-quake levels.
The market offers signicant leverage opportunities with
interest rates at near zero and lenders more willing to
originate non-recourse loans.
Thailand has emerged as one of the regions hotel
investment hot spots with more deals expected in Phuket
and Bangkok in 2013. The introduction of a new REITlaw is also expected to increase liquidity in the hotel and
property investment market.
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26 Hotel Investment Outlook | January 2013
Volumes fall short
Hotel trade activity slowed in 2012, reducing 30% to $3.3 billion,
as investor valour gave way to opportunistic play. Australia
dominated deal ow, whereas bank inaction in Japan and a
noticeable absence of sales in Asias key gateways were the majorcontributors to lower than anticipated transaction volumes against
a backdrop of investor conservatism.
For 2013, Asia Pacic hotel transaction volumes are projected to
reach $3.5 billion, slightly above the 2012 volume but below the
short-run average of $4.1 billion. Australia and Japan will see the
lions share of investment dollars, but with pockets of activity across
the rest of the region. Availability of stock in the key gateways
and the willingness of sellers to close deals through transparent
processes in emerging markets will dictate the overall investment
landscape in 2013.
The gap between buyer and seller pricing expectations, which
emerged in 2012 after the strong appreciation of assets over the past
four years, will also remain a feature in 2013. While the long-term
fundamentals for Asia Pacic hotel markets remain strong wealthier
travelling middle class, improved connectivity, rapid urbanisation,
rising education, high savings rate and lower taxes there has
been a subtle softening in trading performance across the region,
tempering investor enthusiasm.
With such low levels of established product available for sale,
investors continue to consider development in order to achieve
sufcient scale across the region. Asia remains the global hotel
development hot spot with supply increases projected to average
5.5% per annum across 23 major markets over the next two years
although commencements have slowed in India, South East Asiaand China as cities suffer indigestion following signicant new hotel
openings in recent years.
Development in the regions two most liquid hotel investment markets
Australia and Japan continues to be held back by the cost versus
value equation. Therefore, low levels of new supply will continue to
be an attractive driver for global investment capital.
Borders blur as capital moves across the map
Intra-regional capital will remain active in Asia Pacics hotelinvestment market in 2013, accounting for an estimated 70% of
the total transaction volume and underpinned by some large-scale
deals in Australia and Japan. In order to be successful in the worlds
growth engine, investors need to be prepared to do deals where
assets are offered. In 2012, this resulted in higher transaction volumes
in the Indian Ocean and Thailand, but in 2013 we also expect
investment in Indochina, Indonesia and India to come to the fore.
Investment will continue to be opportunistic rather than strategic, with
investors targeting markets which represent value or where there is
a positive growth story. Investors are looking at the expansion of LowCost Carrier (LCCs) networks and where tourism infrastructure is
being developed. These markets are the focus for their ags and for
capital growth.
However, with only 70 transactions occurring on average each year
over the past decade, visibility of investment metrics is generally low
and the extent of liquidity a concern, particularly for institutional and
global capital. The exceptions are Australia and Japan. Domestic and
regional capital is likely to dominate where real estate transparency
remains opaque.
Asia Pacic hotel development pipeline through 2014F
*Branded hotel stock onlySource: Jones Lang LaSalle
2011 base stock 2012 additions 2013 additions 2014 additions
0
20,000
40,000
60,000
80,000
100,000
120,000
Sydney
Melbourne
Auckland
Beijing*
Shanghai*
HongKong
Mumbai*
NewDelhi*
Jakarta
Bali
Tokyo
Osaka
Singapore
Bangkok
Phuket
HoChiMinhCity
Numberofrooms
Asia Pacic hotel transaction volume 1998 to 2013F
Source: Jones Lang LaSalle
Single asset transactions Portfol io transactions
0
3
6
9
12
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012E
2013F
Volume($Billions)
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January 2013 | Hotel Investment Outlook 27
Two new hotel REITs and more to come
With the listing of two new hotel REITs in Singapore in 2012 and
more in the making, cross-border investment and expanding liquidity
will characterise the region over the coming years.
Diversication is a key component for REITs, limiting exposure to any
one segment or geography. While such structures can be prohibitive
for the acquisition of larger hotel real estate, REITs have been willing
to consider assets in secondary locations in Japan and Australia to
ensure overall viability, while also being yield accretive, and given the
limited number of investment opportunities available in Asia.
Notwithstanding, REITs are generally more risk averse as they are
marked to market daily and therefore subject to changes in sentiment
in accordance with the external environment. While the global
economy remains under pressure, movements in the political arena,
which impacted in 2012, have now been resolved with the Chineseand U.S. presidential elections both held in November 2012.
REITs now exist in many countries across the region and are
permitted to invest offshore in Australia, Hong Kong, Malaysia,
Singapore and South Korea, and to a lesser degree in Taiwan and
the Philippines. The imminent passing of REIT legislation in Thailand
will also allow offshore investment. Therefore, regional REITs are
likely to remain net buyers of Asia Pacic hotel real estate over the
next few years.
We do not expect to see a major shif t in the buyer prole in 2013.
Investment will continue to be dominated by the aforementionedREITs, as well as Asian family companies, owner operators and
possibly the re-emergence of opportunity funds in Japan.
Asia Pacic cross-border capital 1998 to 2013F
Source: Jones Lang LaSalle
Asia Australasia Proportion of Asia Pacific total volume
0
3
6
9
12
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012E
2013F
Volume($Billions)
0%
10%
20%
30%
40%
50%
60%
70%
80%
Totalproportionofcross-borderinvestment
Asia Pacic 2012 buyer and seller net shift analysis
^Net shift = the difference between the respective groups market share as a buyer and its market shareas a seller. A positive net shift indicates group was net buyer; a negative net shift indicates net sellerduring 2012Source: Jones Lang LaSalle
-50% -40% -30% -20% -10% 0% 10% 20% 30%
Other
Sovereign Wealth Fund
Receiver
REIT
Investment fund/Private equity
Institutional investor
Hotel operator
HNWI
Developer/Property company
Corporates
Net shift^
Real GDP growth (annual %)
Source: IHS Global Insight
2008 2009 2010 2011 2012E 2013F 2014F
North Asia and India
China PRC 9.6% 9.2% 10.5% 9.3% 7.6% 7.8% 8.3%
Hong Kong 2.1% -2.5% 6.8% 4.9% 1.8% 3.7% 4.6%
India 4.9% 7.1% 9.6% 6.9% 5.1% 5.8% 6.9%
Japan -1.1% -5.5% 4.6% -0.7% 1.7% 0.3% 2.0%
South Korea 2.3% 0.3% 6.3% 3.6% 2.1% 2.0% 3.6%
Taiwan 0.7% -1.8% 10.7% 4.0% 1.2% 3.3% 4.4%
South East Asia
Indonesia 6.0% 4.6% 6.2% 6.5% 6.2% 6.1% 6.1%
Malaysia 4.8% -1.5% 7.2% 5.1% 4.8% 4.3% 4.8%
Philippines 4.2% 1.1% 7.6% 3.7% 4.9% 4.7% 4.9%
Singapore 1.7% -1.0% 14.8% 4.9% 2.0% 2.9% 4.0%
Thailand 2.5% -2.3% 7.8% 0.1% 5.4% 3.6% 4.5%
Vietnam 6.2% 5.3% 6.9% 5.9% 5.1% 5.3% 5.9%
Pacic
Australia 2.5% 1.4% 2.5% 2.1% 3.4% 2.3% 2.9%
New Zealand -0.6% -0.2% 0.9% 0.5% 1.8% 2.7% 2.8%
Fiji 1.0% -1.3% -0.2% 2.0% 1.2% 1.7% 1.9%
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28 Hotel Investment Outlook | January 2013
Pockets of bank-driven sales
As in 2012, sellers in 2013 will primarily include investment funds,
institutions, and corporate companies who are restructuring their
portfolios to free up equity to make strategic investments elsewhere.
Asia Pacic hotel real estate is predominantly owned by large Asianfamily companies, many of whom are inter-generational investors
with assets held over the very long term (30-50 years). These
investors are well-capitalised.
Japan, and to a lesser extent Thailand and India, are the markets
where bank action is likely to be a factor. In Japan the extent of
CMBS, to be renanced in the next 12-18 months, will likely result in
more asset disposals. Corporates are also selling non-core assets
as debt terms on major assets come up for renewal. Having been
extended in 2011, the loan moratorium act will expire in 2013. Under
this act, Japanese nancial service agencies protected small andmid-sized companies who were struggling to renance corporate
loans. The challenge for owners will be renancing at the 2006-07
values which are on their books.
In Thailand (Bangkok) and India, trading has come under pressure
from the weight of new supply. This is resulting in a greater focus on
non-performing or underperforming loans, thereby motivating asset
sales. On the whole, however, structured receivership sales will
remain limited across the region.
Pricing gap amps challenges
The pricing gap between buyers and sellers has widened with
some sellers reticent to accept the changed outlook. Growth rates
have softened, yet some markets in Southeast Asia and Australia
are trading above previous peaks, making the extent to which to
underwrite further growth unclear.
In Japan, trading performance has recovered much better than
anticipated in the wake of the 2011 earthquake. With interest rates at
near zero and lenders more willing to originate non-recourse loans
to hotels, the market offers signicant leverage opportunities, driving
down yields and pushing prices up. Transaction evidence remainslimited however with sales in 2012 primarily undertaken by Japanese
corporates and REITs and with few sales in excess of $50 million.
The dynamic trading environment and lack of liquidity in emerging
markets also presents challenges for potential investors. Hotel
valuations in China remain low with cash ows under pressure given
the oversupply in many markets. Yields are also given little regard as
Chinese real estate is typically evaluated on a cost per square meter
basis and these two metrics continue to diverge.
The environment in India is more positive. With a few deals
completing in 2012 and the expectation of more to come in 2013,investment benchmarks are being established. This includes
both trading assets and those which are in the latter stages of
development, as well as land cited for hotel development. This will
provide greater clarity for investors to evaluate pricing and explore
opportunities through a formal process. Improved transparency and
visibility of the market will also result in higher capital inows, thereby
providing a free kick in terms of capital growth.
Asia Pacic average single asset deal size 1998 to 2013F
Source: Jones Lang LaSalle
0
10
20
30
40
50
60
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012E
2013F
US$(Millions)
Exchange rates (local / USD, period average)
Source: IHS Global Insight
2008 2009 2010 2011 2012E 2013F 2014F
North Asia and India
China PRC 6.8 6.8 6.6 6.3 6.3 6.3 6.1
Hong Kong 7.8 7.8 7.8 7.8 7.8 7.8 7.8
India 48.5 46.7 44.8 53.3 53.9 52.4 51.5
Japan 90.8 92.1 81.5 77.7 78.2 77.7 75.0
South Korea 1,259.5 1,164.5 1,134.8 1,153.3 1,102.8 1,005.4 980.4
Taiwan 32.9 32.0 30.4 30.3 29.2 28.8 28.2
South East Asia
Indonesia 10,950 9,400 8,991 9,068 9,577 9,833 9,626
Malaysia 3.5 3.4 3.1 3.2 3.1 3.0 3.0Philippines 47.5 46.4 43.9 43.9 41.2 41.1 41.0
Singapore 1.4 1.4 1.3 1.3 1.2 1.2 1.2
Thailand 34.9 33.3 30.2 31.7 30.7 31.5 30.4
Vietnam 16,977 17,941 19,503 20,828 20,870 21,662 22,639
Pacic
Australia 1.4 1.1 1.0 1.0 1.0 1.0 1.0
New Zealand 1.7 1.4 1.3 1.3 1.2 1.3 1.3
Fiji 1.8 1.9 1.8 1.8 1.8 1.9 1.9
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January 2013 | Hotel Investment Outlook 29
Australian investment pace moderates
2012 provides a good barometer for the Australian hotel investment
landscape in 2013. Transaction volumes are projected to reach
AU$1.0 billion, reecting a slight moderation compared to 2012 when
volumes recorded the third highest annual total on record. Similarly, anumber of large transactions will underpin overall volumes. However,
the number of sales will rank below historic norms with low levels of
liquidity in regional centres and key leisure markets.
Whilst Australia has had the complete focus of many active buyer
groups over the past couple of years, increasingly assets will need
to compete on a global scale as the great deleveraging gains pace.
For now, Australia remains a target for cross-border capital with
interest from Asian groups in prime hotels st ill exceptionally strong
and selective interest from new capital sources like the Middle
East and China. Regional REIT players will also continue to make
acquisitions whilst balancing portfolios. Many offshore groups have
the added bonus of relationship banking or corporate nance, which
means they are not held back by the conservative debt facilities and
lengthy approval processes, boosting buying power.
Chinas development slows
Chinas most uncertain leadership transition in decades has
impacted the overall pace of hotel investment activity across China
as opinion has become splintered about the direction and speed of
the regions economic powerhouse.
The incumbent government was largely inactive during the second
half of the year and is expected to remain so until March 2013 as
the new government transitions into power and policies are moved
forward. Whilst some developments have progressed, it has been
at a lower speed than in recent years, as access to debt and equity
capital has become more challenging. This has enabled the private
equity and real estate funds to become active again, primarily by
offering preferred equity and mezzanine nancing. On the whole,
foreign investment remains very subdued with limited direct hotel
investment, even on a speculative basis.
As operating companies digest an oversupply of luxury rooms
in major cities while trying to emulate the success of the budget
sector, Chinas mid-market will be the most exciting space over the
next ve years. The mid-segment is currently under-represented
from a brand and investment-grade product perspective, however,
rising incomes and a wealthier travelling middle class all point to
signicant opportunity.
Operators are also increasingly looking to Tier 4 and 5 cities for new
opportunities as they look to familiarise brand-conscious Chinese
consumers with their stable of high-end hotels, even if rates aredepressed and the management fees are low. Examples of Tier 4
and 5 cities where international brands have been developed include
Anshan in Liaoning province and Dali in Yunnan province.
Policy interest rates Australia and New Zealand
Source: IHS Global Insight
Australia New Zealand
0%
2%
4%
6%
2008 2009 2010 2011 2012E 2013F 2014F
Policyinterestrate
Hotel market cycle 2013 Australia and New Zealand
Source: Jones Lang LaSalle