Although global hotel deal volume is projected to remain in line with the most recent three-year average in 2013, Jones Lang LaSalle’s Hotels & Hospitality Group believes that signs point to an on-going uptick in Americas hotel transactions activity sooner rather than later. Jones Lang LaSalle revealed five forces which will drive the hotel investment market during the next five years at the Americas Lodging Investment Summit (ALIS) recently at the J.W. Marriott L.A. LIVE.
“There will be a significant amount of property coming to market in 2013 from a combination of the de-leveraging occurring as $55 billion of CMBS matures in the next few years and we’ll see investors who bought earlier in the cycle want their capital gains and they’ll sell,” said Arthur Adler, Americas CEO of Jones Lang LaSalle’s Hotels & Hospitality Group. “You can’t underestimate the composition of hotel ownership over a long period of time as many hotels today are in the hands of traders versus holders.”
Investors should watch the following five key forces and their impact on the hotel market:
1. Boom or bust?: Global deal volume is projected to reach as high as $33 billion this year, in line with the most recent three-year average, and could rise to $50 billion to $70 billion in the medium term. Foreign investors, primarily groups from Asia and the Middle East, have already put $3.2 billion in off-shore capital into hotels in the United States since 2010 and aren’t expected to slow down in the coming years.
2. Hotel transaction level drivers: The United States will account for half the global deal activity as fundamentals remain strong. Improving industry fundamentals, the availability and cost of capital, REIT stock prices, the amount of product on the market and the composition of hotel ownership all have a significant impact on transactions volume and will continue to drive growth.
3. Cash is king, but debt is on its way back: The formidable return of the CMBS market last year improved pricing and terms for borrowers, while drawing other lenders into the hospitality arena. Debt availability should reach a six-year high as domestic and offshore banks, insurance companies, debt funds and mortgage REITs will augment the increased CMBS lending.
4. Increasing the value of a hotel: As top-line revenue rebounds, owners will fight to avoid profit erosion and maintain asset value through increased emphasis on more dynamic and efficient revenue management and analytical tools. Increasing competition for traveler loyalty and third-party travel agents will challenge operators and come at a cost. Hotels will need to invest more in digital marketing efforts and leverage the use of online travel agencies as part of a diversified distribution channel strategy.
5. Let the games begin in Latin America: Economies in Latin America are expected to grow by four percent annually through 2020 and the region’s share of global GDP is slated to increase by 25 percent from 2000 to 2020. Economic reforms, growth in income per capita stemming from increased economic decentralization in several key markets and events such as the 2014 FIFA Soccer World Cup and Summer Olympic Games in Brazil will make the region attractive for growth in the lodging sector. Brazil, Mexico, Colombia, Peru and Chile will be at the forefront of the increase.
As operating fundamentals remain strong, hotels should remain a favored asset class globally among lenders, institutional and offshore investors. With debt simultaneously becoming more available and competitively priced, asset values and transaction volume should continue to rise.
About Jones Lang LaSalle's Hotels & Hospitality Group
Jones Lang LaSalle’s Hotels & Hospitality Group serves as the hospitality industry’s 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 firm’s 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 five 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 group’s 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 LaSalle’s Hotels & Hospitality Group, please visit: www.jll.com/hospitality or download the Hotels & Hospitality Group’s app from the App Store.
About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet. Its investment management business, LaSalle Investment Management, has $47.0 billion of real estate assets under management. For further information, visit www.jll.com.
Related Stories
| Nov 29, 2010
Renovating for Sustainability
Motivated by the prospect of increased property values, reduced utility bills, and an interest in jumping on the sustainability bandwagon, a noted upturn in green building upgrades is helping designers and real estate developers stay busy while waiting for the economy to recover. In fact, many of the larger property management outfits have set up teams to undertake projects seeking LEED for Existing Buildings: Operations & Maintenance (LEED-EBOM, also referred to as LEED-EB), a certification by the U.S. Green Building Council.
| Nov 23, 2010
The George W. Bush Presidential Center, which will house the former president’s library
The George W. Bush Presidential Center, which will house the former president’s library and museum, plus the Bush Institute, is aiming for LEED Platinum. The 226,565-sf center, located at Southern Methodist University, in Dallas, was designed by architect Robert A.M. Stern and landscape architect Michael Van Valkenburgh.
| Nov 23, 2010
Honeywell's School Energy and Environment Survey: 68% of districts delayed or eliminated improvements because of economy
Results of Honeywell's second annual “School Energy and Environment Survey” reveal that almost 90% of school leaders see a direct link between the quality and performance of school facilities, and student achievement. However, districts face several obstacles when it comes to keeping their buildings up to date and well maintained. For example, 68% of school districts have either delayed or eliminated building improvements in response to the economic downturn.
| Nov 16, 2010
Brazil Olympics spurring green construction
Brazil's green building industry will expand in the coming years, spurred by construction of low-impact venues being built for the 2016 Olympics. The International Olympic Committee requires arenas built for the 2016 games in Rio de Janeiro meet international standards for low-carbon emissions and energy efficiency. This has boosted local interest in developing real estate with lower environmental impact than existing buildings. The timing couldn’t be better: the Brazilian government is just beginning its long-term infrastructure expansion program.
| Nov 16, 2010
Green building market grows 50% in two years; Green Outlook 2011 report
The U.S. green building market is up 50% from 2008 to 2010—from $42 billion to $55 billion-$71 billion, according to McGraw-Hill Construction's Green Outlook 2011: Green Trends Driving Growth report. Today, a third of all new nonresidential construction is green; in five years, nonresidential green building activity is expected to triple, representing $120 billion to $145 billion in new construction.
| Nov 16, 2010
Calculating office building performance? Yep, there’s an app for that
123 Zero build is a free tool for calculating the performance of a market-ready carbon-neutral office building design. The app estimates the discounted payback for constructing a zero emissions office building in any U.S. location, including the investment needed for photovoltaics to offset annual carbon emissions, payback calculations, estimated first costs for a highly energy efficient building, photovoltaic costs, discount rates, and user-specified fuel escalation rates.
| Nov 16, 2010
CityCenter’s new Harmon Hotel targeted for demolition
MGM Resorts officials want to demolish the unopened 27-story Harmon Hotel—one of the main components of its brand new $8.5 billion CityCenter development in Las Vegas. In 2008, inspectors found structural work on the Harmon didn’t match building plans submitted to the county, with construction issues focused on improperly placed steel reinforcing bar. In January 2009, MGM scrapped the building’s 200 condo units on the upper floors and stopped the tower at 27 stories, focusing on the Harmon having just 400 hotel rooms. With the Lord Norman Foster-designed building mired in litigation, construction has since been halted on the interior, and the blue-glass tower is essentially a 27-story empty shell.
| Nov 16, 2010
Where can your firm beat the recession? Try any of these 10 places
Wondering where condos and rental apartments will be needed? Where companies are looking to rent office space? Where people will need hotel rooms, retail stores, and restaurants? Newsweek compiled a list of the 10 American cities best situated for economic recovery. The cities fall into three basic groups: Texas, the New Silicon Valleys, and the Heartland Honeys. Welcome to the recovery.
| Nov 16, 2010
Landscape architecture challenges Andrés Duany’s Congress for New Urbanism
Andrés Duany, founder of the Congress for the New Urbanism, adopted the ideas, vision, and values of the early 20th Century landscape architects/planners John Nolen and Frederick Law Olmsted, Jr., to launch a movement that led to more than 300 new towns, regional plans, and community revitalization project commissions for his firm. However, now that there’s a societal buyer’s remorse about New Urbanism, Duany is coming up against a movement that sees landscape architecture—not architecture—as the design medium more capable of organizing the city and enhancing the urban experience.
