Performance outlook softens but remains positive: JLL
JLL's annual Hotel Investor Sentiment Survey indicates that more hotel markets are plateauing as the industry enters its eighth consecutive year of RevPAR growth.
While some investors have a more cautious investment perspective due to a softened growth outlook, transactions are still being completed at a healthy pace and the proportion of cross-border transactions in the U.S. is at an all-time high. All eyes are on whether the recent stock market rally will reinvigorate hotel performance growth in 2017.
Cap rates have increased marginally since the last survey. This trend is expected to continue in 2017, which will likely result in a narrowing of seller and buyer expectations.
Investors’ outlook has decreased from one year ago as more hotel investment markets reach a plateau in performance.
Hotel investors’ outlook for the next two years shifts from 39% positive one year ago to 23% positive, according to the survey.
With investor?s generally making less bold plays due to the mitigated growth outlook, hotel transaction volumes are slated to end 2016 down about 40% from the extraordinary levels posted in 2015. That s??aid, large transactions continue to reach completion and the proportion of cross-border transactions is at an all-time high.
Initial yields (cap rates) have marked a nominal increase from our last survey, driven by investors’ expectations that interest rates will rise in a number of mature markets, investors’ outlook for slower growth in hotels’ operating income, and an overall less liquid transactions environment.
The upward push to cap rates is expected to result in a narrowing in seller and buyer expectations and underpin continued healthy levels of transactions.
Despite headwinds inherent based on the survey data, real estate private equity funds and institutional investors continue to raise a significant amount of capital and hotel real estate investment trusts have posted a recent recovery in share prices.
Recent trends compared to a year ago
Markets in China and Spain marked among the most significant improvement in investors’ hotel performance outlook versus one year ago. On the other hand, investors’ outlook for Miami and Chicago has seen the most protracted softening.
Markets with most significant improvement in short-term hotel operating performance expectations
1. Shanghai 2. Beijing 3. Hong Kong 4. Spanish resorts 5. Kuala Lumpur 6. Moscow 7. Amsterdam 8. Madrid 9. Bangkok 10. Barcelona
Markets with most significant softening in short-term hotel operating performance expectations
1. Miami 2. Chicago 3. Taipei 4. Paris 5. Osaka 6. Caribbean 7. New York 8. Brussels 9. London 10. Melbourne