The focus of international and regional investors remains on Japan and Australia where generous cap rate spreads are supported by deep and liquid markets. Elsewhere, opportunities remain challenging due to quality assets being tightly held, but domestic investors have been able to conclude more transactions at a quicker pace compared with cross-border investors.
The focus of international and regional investors remains on Japan and Australia where generous cap rate spreads are supported by deep and liquid markets. Elsewhere, opportunities remain challenging due to quality assets being tightly held, but domestic investors have been able to conclude more transactions at a quicker pace compared with cross-border investors.
Excluding South Korea, the Japan market remains the principal investment market in Asia Pacific, contributing 22.3% of 2013’s total year to date transaction value. The largest transaction in Japan in Q2/2013 was the acquisition of Hilton Tokyo Bay Hotel by the Japan Hotel REIT, a listed investment trust of Singapore based SC Capital Partners. The acquisition price was AUD295 million (US$270m).
Australia recorded AUD210 million (US$192m) worth of investment transactions in Q2/2013, representing a 66.9% increase over the AUD126 million (US$115m) seen in Q1/2013. Over the last six months, domestic investors represented half the total volume of transactions, however the major hotel assets yet to be sold are expected to be acquired by Southeast Asian investors, including Koreans and Singaporeans, who continue to have a strong appetite for Australian assets.
Michael Simpson, Managing Director, Hotels Australia and New Zealand, Savills commented, “a diverse range of investors from Hong Kong, Korea, mainland China and Indonesia are all participating in sales processes in Australian assets, despite some uncertainty in the global economy. Core hotel assets in gateway cities are still highly sought after. Sydney remains a very desirable gateway city for Asian investors. “
There is also concern that prime assets in key cities such as Sydney are fully priced, given the strong interest, generous cap rate spreads and market liquidity. As a result secondary markets or non-core assets are becoming increasingly attractive for investment and development.
Simpson added, “Despite the liquid transaction market, core assets are tightly held. This will push demand to secondary locations. There is also the emerging trend to either demolish or redevelop existing non-hotel sites into new mixed-use assets, incorporating some or all of commercial, retail and residential uses with a hotel. These types of developments are appealing to investors as they capitalise on synergies between different components, and spread risk across different real estate asset classes. Additionally, the activation created by a hotel, together with the use of a hotel operator’s pinnacle brand across some or all components of such a development can anchor the destination and create a “halo effect” for the other components of the scheme.”