2020 China Hotel Investment Market: Light at the end of the tunnel

Beijing, February 26, 2020 - Asia Pacific hotel transaction volume totaled USD 12.7 billion in 2019, representing a 44% increase year-on-year and making 2019 the market's best year on record. Entering 2020, the outbreak of Coronavirus inevitably sends short-term shockwaves through the hotel investment market, in particular China, but investors are expected to remain confident in the hospitality sector in the long-term, says JLL.

Asia Pacific recorded its best hotel investment year ever in 2019

The latest data from JLL reveals that global hotel transaction volumes in 2019 reached USD 66 billion, bolstered by a resilient global economy, strong employment markets and demand from domestic and international travelers. However, the length of the current market cycle, global trade tensions and the ongoing uncertainty surrounding Brexit gave investors cause to feel more cautious last year, which led to a 6% decrease in total hotel market liquidity compared with 2018.

Hotel transaction volumes in Asia Pacific totaled USD 12.7 billion in 2019 that led to a 44% increase relative to 2018, exceeding previous projections of a 25-30% increase. This marks the second time that regional hotel transactions surpassed the USD 12 billion mark. The region’s remarkable performance was supported by several high profile deals, including the 615-room Grand Hyatt Seoul, which sold for USD 481 million and the 342-room Andaz Singapore, which sold for USD 344 million, the highest single asset transaction in the country’s history.

China emerged as the third most liquid hotel transaction market after Japan and Singapore, recording approximately USD 1.4 billion in transaction or 11% of Asia Pacific’s total hotel investment volume. Investment trends in 2019 continued to mirror those seen in previous years where older hotel properties were purchased with the intention to convert them to alternative uses, for example, the acquisition of Beijing Jade Palace Hotel by JD.com which is said to be converted to office and R&D facility. At the same time, there is a rise in interest for real estate with hospitality at the core, such as the sale of Pan Pacific Suzhou which was completed last year with a purchaser who continued to operate the hotel with Pan Pacific Hotels Group.

How will Coronavirus outbreak affect hotel investment activities in China?

In 2020, global hotel transaction volume is expected to decrease from last year as factors such as stagnant economic growth, global trade tensions and risk of epidemics (such as the Coronavirus) influence investors’ decisions.

China market has undeniably borne the brunt of impact of Coronavirus outbreak. Investment activities are likely to remain muted in the first half of the year due to investors taking a wait-and-see approach. Nonetheless, in the medium- to long-term, the hotel investment market in Mainland China is expected to remain resilient.

The impact of the SARS (Severe Acute Respiratory Syndrome) outbreak in March 2003 on the hotel investment market provides meaningful insights on the potential recovery path from the epidemic for China：

• Hotel transaction activities in Asia – the region which was most affected by SARS – were subdued in 2013 Q2 and Q3 but quickly rebounded in the last quarter. Hotel transaction volume also exceeded the USD 1 billion mark in the same year as well as in the following years, another strong reflection of investors’ confidence in the hotel sector.    

• According to a recent analysis published by STR, Beijing, which was one of the more severely infected areas had occupancy fall to as low as 10% in May but swiftly recovered back to 52% in July, 65% in August and 72% in September. Similarly, the lowest occupancy month for mainland China during the SARS outbreak was May 2003 at 18% but market demand quickly rebounded once the virus was contained, jumping back up to 67% by August. From an ADR perspective, mainland China reported just three months of declines in April, May and June of 2003. 

“If we take a leaf out of SARS’ book to look at hotel trading performance, we can assume that China’s hotel sector can recover quickly following the containment of the virus. Meanwhile, we expect hotel transaction activities to resume towards the end of the year as private equity and institutional investors still have pressure to deploy capital. To our knowledge, several large hotel deals are also on track to complete this year,” says Ling Wei Tan, Vice President, Investment, Hotels & Hospitality Group, JLL Greater China.