US$ (Billions) Asia Pacific Hotel MarketView H1 2014 YTD APRIL VISITOR ARRIVALS: 6.0% y-o-y CBRE Global Research and Consulting INVESTMENT VOLUME MODERATES IN FIRST HALF OF 2014 AMID MUTED REGIONAL HOTEL PERFORMANCE Hot Topics International Air Transport Association (IATA) figures released during H1 2014 show healthy demand for air travel in Asia Pacific. April saw a 6.7% increase in passenger traffic and the figure rose to 7.3% in May, largely supported by the gradual improvement in global economic activity. Indonesia is a primary corporate destination in Southeast Asia and the country s Ministry of Tourism and Creative Economy is keen to triple the amount of MICE space by 2019. Next year will see the opening of the Indonesia Convention Exhibition Centre (ICE). With 100,000 sq. m of indoor and outdoor meeting space, it will be the largest convention centre in the country. Chart 1: Hotel Investment Volumes H1 2014 ADR: US$120.68-3.6% y-o-y H1 2014 OCCUPANCY: 68.5% +83 bps Hotel investment volume declines in H1 2014 Hotel investment volume in Asia Pacific declined to US$3.28 billion in H1 2014 compared to US$6.38 billion in H1 2013. Political issues in Thailand and Indonesia; social unrest in Vietnam and the disappearance of Malaysian Airlines flight MH 370 all contributed to the decline in capital flows into developing markets in the region during the period. Regional hotel performance subdued Occupancy for Asia Pacific hotels increased by 83 bps to 68.5% in H1 2014. ADR declined by 3.6% to US$120.68. Correspondingly, RevPAR decreased by 2.3% y-o-y to US$82.67, although any analysis of hotel performance in US$ terms should be treated with caution given recent exchange rate fluctuations. In local currency terms, the market looks resilient. The ADR levels for most hotel markets in the region registered positive growth in H1 2014 compared to the previous period. H1 2014 REVPAR: US$82.67-2.3% y-o-y H1 2014 INV SALES: US$3.68bn Steady growth in international tourist arrivals Tourist demand remained strong in the first four months of 2014. World Tourism Organisation (UNWTO) figures show that international tourists arrivals grew by 6.0% y-o-y in the first four months of 2014, not far from the full year growth rate of 6.5% in 2013. South Asia (7.6% y-o-y) saw the fastest growth followed by Northeast Asia (6.6% y-o-y). Tourism and travel industry remains resilient The strong growth in visitor arrivals witnessed during H1 2014 reflects the resilience of the tourism and travel industry in Asia Pacific as the global economy continues to recover. The ongoing growth and rising incomes of the Asian middle class is also contributing towards an increase in demand for international travel. According to the UNWTO s tourism expenditure data, the strongest growth in tourism demand is coming from emerging markets such as China, Russia, Saudi Arabia and India. 14 12 10 Hotel Sales Price (US$) Asia Hotel Sales Price (US$) Pacific 8 6 1 4 2 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD H1 2013 YTD H1 2014 Source: CBRE, RCA, H1 2014.
Occupancy Percentage Change (%) H1 2014 Asia Pacific Hotel MarketView MARKET FUNDAMENTALS Asia Pacific economic growth outlook looks positive The economic outlook for Asia Pacific remains positive, with long term GDP growth beyond 2014 forecasted by Oxford Economics to be between 4.29% to 4.56%. These forecasts are supported by stronger growth in advanced economies, healthy labour markets and robust credit growth. The International Monetary Fund (IMF) forecasts that stronger growth in advanced economies and generally more competitive exchange rates will help propel Asia Pacific exports. Domestic demand is expected to be supported by healthy labour markets and solid credit growth in ASEAN. Healthy growth in tourist arrivals UNWTO data shows that international tourist arrivals in Asia Pacific increased by 6.0% in the first four months of 2014 compared to the same period in 2013. The healthy growth is due partly to the rapid expansion of the Asian middle class and their growing interest in international travel. For the first five months of 2014, Taiwan, Japan and Vietnam showed the highest growth rate in international visitor arrivals, with only Thailand and Singapore experiencing negative growth. Chart 2: Asia Pacific Visitor Arrivals 12% 10% 8% 6% 4% 2% 0% Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Source: CBRE, UNWTO, YTD April 2014. Chart 3: Y-o-y Growth of Visitor Arrivals YTD May 2014 2 Japan experienced the largest growth rate of 28.4% for the first five months of 2014, compared to the previous period. This was a result of the continued depreciation of the Yen and the easing of visa requirements for some Southeast Asian countries including Thailand and Malaysia. Taiwan and Vietnam registered growth rates of 26.8% and 23.9% respectively for the same period compared to the previous year. However, international visitor arrivals to Vietnam declined by 9.6% for May and 19.9% for June, which is likely due to the riots against foreign-owned factories which occurred in May. Hotel occupancy steadily improves in H1 2014 Consistent with the strong growth in visitor arrivals, hotel occupancy in Tokyo market has improved markedly over the past 17 months, driven by the cheaper currency, with growth of 4.49 percentage points. Melbourne and Sydney have also seen occupancy levels climb steadily with a growth rate of 3.64 and 2.63 percentage points respectively. This is largely down to strong tourism promotional campaigns, steady domestic business travel and the attractive Australian currency against the US dollar. In Australia, as demand grows, hotel operators see opportunities for greater increases in occupancy and ADRs. At the same time, hotel investment and construction is picking up as investors and developers sense that now is the right time to enter the market. Hotel performance remains resilient Hotels in Asia Pacific averaged an ADR of US$120.68 in H1 2014, 3.5% lower than in H1 2013. However, the analysis of hotel performance in US$ terms has to be treated with caution as much of this general decline stems from recent currency fluctuations. In local currency terms, the market has been resilient, with only Shanghai, Ho Chi Minh City, Beijing and Seoul recorded mild decline in ADR growth between the range of 0.75% to 2.13% in H1 2014 compared to H1 2013. Japan Taiwan Vietnam South Korea Hong Kong Indonesia Australia New Zealand Singapore Thailand 88.00% 86.00% 84.00% 82.00% 80.00% 78.00% 76.00% 74.00% (10)% 0% 10% 20% 30% 40% Chart 4: Hotel Occupancy in Key Gateway Cities 72.00% Dec-2012 Sep-2013 Jun-2014 Singapore Hong Kong SAR Melbourne Sydney Tokyo Source: CBRE, YTD May 2014. Source: CBRE, STR, H1 2014.
ADR (US$) MARKET FUNDAMENTALS Tokyo, Jakarta and Sydney record highest RevPAR growth In H1 2014, cities in Asia Pacific with the highest growth of RevPAR in local currency terms were Tokyo, Jakarta and Sydney. The Tokyo hotel market achieved a RevPAR of JPY 14,052, representing y-o-y growth of 11.68%, while RevPAR reached IDR 795,806 in Jakarta in H1 2014, representing 10.5% y-o-y growth. The increase was underpinned by the strong growth in visitor arrivals. The depreciation of the Indonesian rupiah also contributed to a certain extent. Confidence among investors and developers was boosted following the election of Joko Widodo ( Jokowi ) as President in July 2014. Visitor arrivals to Sydney continue to rise and are fueling demand for hotel accommodation. This resulted in surging ADR and RevPAR, which reached AUD 168.21 in H1 2014, representing 8.75% y-o-y growth. Developer interest is picking up and construction activity is increasing to meet demand. Growth momentum in Japan expected to continue The Inbound Travel Promotion Project (Visit Japan Project) implemented by the Japan Travel Agency has played a pivotal role in ensuring a strong H1 2014 for Japan. With record visitor arrivals of 5.2 million in the first five months of 2014, Japan is set to achieve its target of 20 million visitors by the 2020 Summer Olympic Games and 30 million visitors by 2030. Moving into H2 2014, strong demand levels and robust visitor arrivals will support the growth momentum for both the Japan and Tokyo hotel sectors. Chart 5: ADR Across Asia 250.00 200.00 150.00 100.00 50.00 0 H1 2014 Asia Pacific Hotel MarketView STR data for H1 2014 indicates occupancy levels for the Japan market increased by 2.8% to 81.6% whilst ADR rose by 7.5% to JPY 12,596 compared to H1 2013. The Japan and Tokyo hotel sector are expected to maintain the growth momentum witnessed in H1 2014, supported by robust visitor arrivals and strong levels of demand. H1 2013 H1 2014 Source: CBRE, STR, H1 2014. 3 Seoul and Bangkok see weaker period Seoul registered a decline of 2.8% in RevPAR in H1 2014 due to the stagnant growth in ADR which is a result of mid-tier hotels are lowering their rates. In Bangkok, RevPAR fell to THB 2,039 in H1 2014, a decline of 9.9% y-o-y. The decline reflects the adverse effect of the political unrest witnessed during the period. New hotel pipeline remains significant According to STR Global there were around 2,313 new hotel developments comprising a total of 519,718 rooms in the development pipeline in Asia Pacific as at July 2014. Among the different segments, upscale hotels account for 27.0% of the total development pipeline, upper upscale (26.3%) while luxury accounts for 17.8%. Developers in China remain upbeat In China, despite the sluggish performance hotel sector, the vast number of projects under construction reflects upbeat confidence among developers, combined with rapid urbanisation and economic growth. Markets with the largest pipelines are Shanghai (9,028 rooms in 37 hotels), Manila (6,456 rooms in 21 hotels), Jakarta (6,152 rooms in 26 hotels), Chengdu (5,869 rooms in 22 hotels) and Bali (5,798 rooms in 42 hotels). Chart 6: RevPAR Performance Tokyo Jakarta Sydney Melbourne Auckland Kuala Lumpur Shanghai Taipei Ho Chi Minh City Hong Kong SAR Singapore Beijing Seoul Bangkok (15.00)% (10.00)% (5.00)% 0.00% 5.00% 10.00% 15.00% RevPAR Growth (%) Source: CBRE, STR, H1 2014. 3
H1 2014 Asia Pacific Hotels MarketView 4 MARKET SUMMARIES Hotel development in China shifts to smaller cities After a period of mass development of the hotel sector, the vast majority of cities in China and their hotel markets are oversupplied. The focus of hotel development activity has therefore shifted to tier II and tier III cities and suburban areas where planned future supply growth is between 25% to 75%. China five-star segment hit by anti-corruption campaign Anti-corruption measures such as the Regulation on Strictly Enforcing Thrift and Fighting Waste in Party and Government Departments have had an adverse impact on demand for the five-star hotel segment in tier one cities such as Beijing and Shanghai. In contrast, the four-star hotel segment is seeing healthy occupancy levels at the expense of the five-star segment. That said, ADR growth potential is expected to be limited as hotel operators may implement price reductions to drive occupancy in these markets. ADR and RevPAR levels soften in Hong Kong As a result of the softening of ADR levels in Hong Kong, RevPAR saw a mild decline of 2.4% in H1 2014. Continued pressure on RevPAR growth for the full year is expected due to the expected increase in supply of hotel rooms and the growing competition from regional destinations for visitor arrivals. In Taipei the hotel sector recorded 4.9% y-o-y growth in ADR (in local currency terms) in H1 2014. The sector will maintain its growth momentum for the full year, supported by positive key market indicators and the surge in tourist arrivals. Tokyo records surge in occupancy levels Tokyo saw RevPAR surge by 11.68% in H1 2014 supported by the increase in occupancy levels on the back of increasing tourist arrivals to the country. Growth momentum is expected to continue in view of initiatives by the government to boost visitor arrivals such as visa waivers, the simplification of visa acquisition and a system whereby wealthy tourists can stay in Japan for up to a year. In South Korea the government has implemented a number of Smart Tourism initiatives to induce job creation and boost domestic expenditure. Korean Air has also increased the number of flights to Chinese cities, given that China is a major feeder market for the Korean tourism sector. Tourism arrivals will continue to pick up and push up the occupancy and ADR rates in the hotel sector. Jakarta expected to continue to see healthy hotel demand As Jakarta is primarily a corporate destination, it will continue to see healthy demand for hotel rooms, especially low cost hotel accommodation in the midscale and economy segments. To improve tourism and transport infrastructure, a new terminal is planned at Soekarno Hatta International airport and is expected to open in late 2015. In addition a new international airport is planned for West Java to ease pressure on Soekarno-Hatta International Airport which is Jakarta s main gateway. Thailand hit by political turmoil but should pick up The tourism sector in Thailand which accounted for more than 20% of Thai GDP in 2013 (approximately US$75 billion) has been seriously affected by the ongoing political turmoil. Keen to put the economy back on track, the National Council for Peace and Order (NCPO) led by the ruling military government is planning various schemes and has resumed approving foreign investment projects which had been suspended under the previous administration. One initiative for the tourism sector includes the exemption of visa fees for Chinese and Taiwanese tourists for a period of three months. However, more will need to be done as other Southeast Asian countries become more attractive as a tourist and investment destination. Kuala Lumpur hit by decline in Chinese visitors RevPAR growth for the Kuala Lumpur hotel market maintained a steady 7% in H1 2014 with its ADR and occupancy levels holding up well despite the damage to the country s image caused by the disappearance of Malaysian Airlines flight MH 370 in March.The subsequent decline of 20% in Chinese visitors has impacted the country s tourism sector, and visitor arrivals are expected to remain soft for the remainder of the year. The outlook for hotel market performance in Kuala Lumpur is cautious as the market is already beset by rising operational costs for hotel properties and the influx of new hotel supply. Singapore continues to perform well Singapore is expected to remain one of the top hospitality markets in the region due to its strong fundamentals, with the Union of International Associations naming the city-state as the top International Meeting Country for the third consecutive year. A stable political and economic environment will be essential for the future development of the industry. Strong growth in tourism arrivals to Vietnam The political situation in Thailand is prompting visitors to consider other Southeast Asia destinations such as Vietnam. The first four months of 2014 saw 24% growth in tourism arrivals over the previous period and the government is targeting 8 million international visitors in 2014. There has been an increase in hotel supply of around 8% for Ho Chi Minh City and Hanoi and the quality of infrastructure and hotels has improved considerably over the last few years. However, the outlook for full year 2014 is cautious, primarily due to the recent riots in Vietnam against foreign-owned factories, which is likely to have an impact on visitor arrivals and foreign direct investment.
Proportion of Investment Sales (%) INVESTMENT MARKET Hotel Investment slows in H1 2014 After a record breaking 2013, hotel transaction activity in the Asia Pacific investment market slowed in H1 2014. Investment demand in 2013 was supported by the low cost of borrowing for Asian investors, excess liquidity, growing competition and increasing prices in the direct real estate investment market. Transaction volume declines 42% y-o-y Approximately US$3.68 billion worth of hotel investment transactions was registered in H1 2014, representing a 42% decrease over the same period in 2013, when US$6.38 billion worth of deals were recorded. The decline is partly due to continued concerns over vulnerability to political issues in markets such as Vietnam and Thailand and economic uncertainty in China. Interest rate rise will impact capital flows As the United States begins to taper QE and central banks elsewhere expect to exit their loose monetary policies in the near future, there is a likelihood of increasing interest rates. This will have an impact on capital flows into developing markets in Asia such as India, China and Malaysia. That said, the outlook for long-term economic growth in Asia Pacific remains strong. In China reforms will support long term growth and there continues to be strong demand for hotel properties. Asian investors account for bulk of transactions Asian investors dominated transaction activity in H1 2014, with 58% and 38% of all deals completed by North Asian and Southeast Asian investors respectively. Sales in Japan accounted for 47% of transactional volumes across the region. J-REITs such as Hoshino Resorts and United Urban Investment Corporation completed a number of portfolio purchases. One major deal saw the portfolio of Chisun Inn hotels purchased by Hoshino Resort REIT for approximately US$143 million, at a cap rate ranging between 7.3% to 7.8%. INVESTORS WITH A HIGHER RISK APPETITE WILL DISPLAY STRONG DEMAND FOR ASSETS IN SECONDARY MARKETS OR OTHER EMERGING MARKETS WHICH CAN OFFER SIGNIFICANT GROWTH POTENTIAL Chart 7: Investment Sales by Source of Capital 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2009 2010 2011 2012 2013 YTD H1 2014 Americas EMEA Pacific North Asia Rest of Asia Southeast Asia Source: CBRE, RCA, H1 2014. H1 2014 Asia Pacific Hotel MarketView Steady buying activity in Australia Australia accounted for 14% of all transactions. Key deals included the Sofitel Wentworth Sydney which was bought by Frasers Centrepoint for A$464,908 per room and the Park Hyatt Melbourne which was acquired by GIC at A$541,667 per room. Australia s strong fundamentals, maturity and transparency continue to attract Asian investors. Demand for assets in secondary markets set to pick up H2 2014 is expected to see investors with a higher risk appetite display stronger demand for assets in secondary markets or other emerging markets which can offer significant growth potential. Chart 8: Investment Sales by Country, H1 2014 Others 27% China 12% Japan 47% 5 Australia 14% Source: CBRE, RCA, H1 2014. 5
H1 2014 Asia Pacific Hotel MarketView CONTACTS For more information about this Regional MarketView, please contact: CBRE Hotels Art Buser Executive Managing Director, Asia Pacific t: +65 6229 1120 e: arthur.buser@cbre.com APAC Research Henry Chin, Ph.D. Head of Research, Asia Pacific t: +852 2820 8160 e: henry.chin@cbre.com.hk Robert McIntosh Executive Director, Asia Pacific t: +65 6326 1200 e: robert.mcintosh@cbre.com CEA no. R003904J Zhang Jiahao Consultant, Asia Pacific t: +65 6326 1674 e: jiahao.zhang@cbre.com.sg For more information regarding Global Research and Consulting activity, please contact: Nick Axford, Ph.D. Global Head of Research t: +44 (0) 7557 896 889 e: nick.axford@cbre.com.hk Follow Nick on Twitter: @NickAxford1 Richard Barkham, Ph.D., MRICS Global Chief Economist t: +44 20 7182 2000 e: richard.barkham@cbre.com Neil Blake, Ph.D. Head of Research, UK and EMEA t: +44 20 7182 2133 e: neil.blake@cbre.com Henry Chin, Ph.D. Head of Research, Asia Pacific t: +852 2820 8160 e: henry.chin@cbre.com.hk Raymond Wong Managing Director, Americas Research t: +1 416 815 2353 e: raymond.wong@cbre.com + FOLLOW US Global Research and Consulting This report was prepared by the CBRE Asia Pacific Research Team which forms part of CBRE Global Research and Consulting a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. 6 Disclaimer All materials presented in this report, unless specifically indicated otherwise, is under copyright and proprietary to CBRE. Information contained herein, including projections, has been obtained from materials and sources believed to be reliable at the date of publication. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. Readers are responsible for independently assessing the relevance, accuracy, completeness and currency of the information of this publication. This report is presented for information purposes only, exclusively for CBRE clients and professionals, and is not to be used or considered as an offer or the solicitation of an offer to sell or buy or subscribe for securities or other financial instruments. All rights to the material are reserved and none of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party without prior express written permission of CBRE. Any unauthorised publication or redistribution of CBRE research reports is prohibited. CBRE will not be liable for any loss, damage, cost or expense incurred or arising by reason of any person using or relying on information in this publication. Agency License No: L3002163I