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Investment in hotels coming back strongly

October 21, 2011

On the back of a significant turnaround in hotel trading environment across Asia Pacific, Thailand is experiencing a similar strong interest in its hotel investment market.

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After a strong year of B5.5 billion of hotel transactions in 2010, the momentum has continued into the first half of 2011 with two major properties totalling B3.4 billion transacted.

According to data compiled by Jones Lang LaSalle Hotels (JLLH), though a long way from the peak in 2006 where close to B16 billion of hotel transactions was recorded, 2011 could surpass levels of the past four years.

Since the start of the year, Bangkok and Phuket have attracted strong interest with approximately B2 billion and B1.5 billion in transactions respectively. This contrasts to 2010 when Bangkok recorded no major transactions while Phuket dominated with B4 billion and Samui with B1.5 billion.

According to Mike Batchelor, Managing Director Investment Sales JLLH , “The seller profile to date has been limited to institutional investors and corporates, with the exception of a receiver sale in the case of Baan Taling Ngam Koh Samui, which we sold in 2010.

“In reverse, investor interest has been generated from a wide range including private investors, public companies, investment funds as well as high net worth individuals,” he said.

Notable investors in Thailand have been property funds which have been involved in the transactions of the Mercure Koh Samui as well as the largest transaction of 2010, the Dusit Thani Laguna Phuket, which was sold by JLLH for over B2.6 billion to Dusit PCL.

The property was eventually sold into their new property fund. Such investors could become more prolific as the more flexible real estate investment trust (REIT) structure is introduced in the near future.

While domestic investors continue to dominate the hotel investment landscape, regional private equity firms have started to also make major acquisitions during the first half of 2011.

Tom Oakden, Executive Vice President Investment Sales JLLH said, “Looking forward, Thailand continues to face the twin challenges of limitations on foreign ownership and political instability though the latter to a lesser extent with the recent smooth transition of government.

“Two notable transactions represented by Jones Lang LaSalle Hotels this year, that of Sofitel Silom Bangkok and the Laguna Beach Resort, were both sold to foreign investment funds, however both funds had a Thai platform that allowed the investment to be made.”

China overtook Japan to become Thailand’s top source market for the first time in 2010 accounting for 7.1 per cent of all arrivals versus Japan’s 6.2 per cent. The trend looks set to continue into 2011 as the disaster in Japan slowed the country’s outbound travel and China arrivals continues to grow rapidly.

Russian travellers, another key growth market grew 78 per cent this year to July, and are typically attracted to Bangkok as well as the resort markets of Phuket and Pattaya.

Regional Asian markets continue to dominate visitor arrivals, with traditional European markets no longer present as a top-five source market.

Approximately 11.2 million tourists have visited Thailand up till July this year, up from 8.8m in the same period last year. In Bangkok alone, arrivals are up almost 30 per cent to 7.4m as of July this year, looking set to exceed 2010’s total of 10.3m, with each month’s visitor arrivals higher than anytime in the past five years.

The improved market environment is reflected in hotel trading performance across all star categories, in fact, RevPAR in Bangkok’s 3, 4 and 5 star markets were three of the top 10 most improved markets in the region in 2011.

The 5-star market saw the strongest year on year RevPAR growth with 29 per cent, the 3-star market with 22.9 per cent and the 4-star market with 21.3 per cent. Their average RevPARs are now B2,918, B981 and B1,557 respectively.

While Bangkok still faces the specter of an oversupply in rooms with over 12,000 due to open by 2014, its key strengths in tourism and potential as a meetings, incentives, convention and exhibition (MICE) hub will underpin hotel performance in the medium term.

JLLH still sees opportunities in certain niches such as the 3-star hotel market which continues to perform strongly and where future supply only makes up 21 per cent of total Bangkok supply.

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