Alta in the News

Hotel investment in Asia has been buoyed by the region’s own reopening since early last year. Beijing’s U turn gave 2023 a great start. But it’s the picture at end of the year that will count.

When it finally happened, it was kind of anticlimactic. Dealmakers in Asia see China’s travel reopening as obviously positive but resigned themselves to more guesswork on when and how that demand will return and what the impact is on asset performance and M&A.

China removed quarantine requirements for inbound travelers from January 8. It also resumed passport applications and approved visits to Hong Kong, although this is cap at up to 60,000 visitors per day both ways presently.

But no one is expecting a giant market of 155 million outbound travelers spending more than $250 billion in 2019 to reappear overnight. Sentiments are a respectable volume is likely only in the third or fourth quarter – assuming all goes well.

This, after all, is unlike other travel reopening where citizens have achieved high immunity and vaccination rates, posing no question mark on health safety. A lack of transparency on rising cases and deaths in the mainland quickly saw a division of countries into two camps. The U.S., Italy, Japan and South Korea are among those that have imposed restrictions on Chinese visitors. Virtually all countries in Southeast Asia have not.

The speed of policy reversal also throws doubts on how quickly the industry can welcome back Chinese travelers, said Tony Chisholm, principal, head of APAC hospitality at KSL Capital Partners. Air capacity was just 15% of pre-pandemic levels in the week after the reopening, according to ForwardKeys data. There’s fair assumption that a mountain of passport renewals and visas is waiting to be processed as Chinese have not traveled for three years. A lack of Chinese-speaking drivers, guides and service staff who have left the industry and settled in other industry sectors is another obstacle worth considering.

Another big question for Chisholm is the shape of demand. “Considering the assets we have in the Maldives, does the Chinese market still only desire two nights in a beach villa and two nights in an overwater villa? Or does their pent-up demand mean they have a desire to stay eight nights? Or perhaps do multiple trips, say combine Maldives with Dubai or Singapore. What will that travel look like, because they haven’t traveled in so long?”

Nevertheless, everyone welcomes the reopening.

“It’s the final piece of jigsaw for us in getting back to normality,” said Nihat Ercan, senior managing director and head of investment sales Asia-Pacific at JLL Hotels & Hospitality Group. “The expectations around improving trading fundamentals will enhance the positive sentiment that investors have towards recovery. And that will encourage investments in the hospitality sector.”

Total hotel transaction volume in Asia-Pacific was $10.1 billion last year, or 70% of pre-pandemic level, according to JLL. Its forecast for this year, made before China’s reopening announcement, was $11.5 billion in transactions.

Last year, capital was chasing Japan, South Korea, China (including Hong Kong), Singapore and Australia, in that order. China’s reopening should “logically” increase investors’ appetite for countries that are popular with Chinese tourists, Ercan said.

With 11 million arrivals in 2019, Thailand is the top international destination for Chinese travelers, followed by Japan, Vietnam, South Korea and Singapore, according to governments tourism data. The two Northeast Asian countries, however, have placed restrictions on Chinese arrivals. China has retaliated, suspending visas for South Koreans going to China.

Even without China, which was in lockdown for over 1,000 days, Asia Pacific’s hotel deals market didn’t crash, and there were no distressed assets overall.

Coming into 2022, COVID already seemed a secondary concern as Asian countries unlocked borders. The shock was the Ukraine war and macroeconomics – rising interest rates, inflation, higher energy costs and supply chain issues.

“I had three hotel projects that were close to signing last year – they all died. It has nothing to do with China but interest rates,” said Koh Tien Gui, a partner in the real estate team at Withers Khattar Wong in Singapore. “Now rates are coming down slightly and one of the clients is relooking the deal.”

“With China, I’d be surprised if anything happens until Q4 or even January 2024,” Koh said. “People are wary; the change happened so fast. They see that the Chinese government can make decisions at the last minute and there’s no certainty on policies moving ahead. For hotel investors or any kind of big M&A play, sudden changes that may impact yield are always worrisome.”

“We do not expect to see any knee-jerk reaction to hotel investment [as a result of China’s reopening], neither will we be jumping too quickly into new projects.” – Serena Lim

Likewise, Serena Lim, who moved recently from IHG and is now chief growth officer at The Ascott, said, “We do not expect to see any knee-jerk reaction to hotel investment [as a result of China’s reopening], neither will we be jumping too quickly into new projects.”

But there is new capital flowing into the sector and, with interest rates peaking, Ercan believes deal momentum seen in 2022 will continue.

“A record number of family offices were set up in Singapore last year, so there’s new high net worth money coming in, diversifying into hotels and other asset classes,” Ercan said. “Underlying all that is the longer-term belief the sector will always recover. So, it’s really about the making the right entry at the right point in the cycle to be able to then benefit from the swing.”

It’s also about investing to meet changing demand, of which co-living, wellness and lifestyle are most mentioned.

 

“We want to be plugged into growth trends,” said Rakesh Patel, CEO and founder of Hong Kong-based Alta Capital Real Estate.Its Alta Hospitality Fund Asia, raised to seize COVD-related opportunities, is focused on experiential wellness. Last year Alta acquired both asset and brand of the 61-key Vikasa Yoga Wellness Retreat in Samui, and a 30-key under managed midscale beachfront hotel in Phuket which will be extended to 100 keys and repositioned as Vikasa. Alta is eyeing other acquisitions in destinations such as Bali and Vietnam.

“Customer tastes have changed. Even within the mass market, people want experiences,” Patel said. “We believe experiential wellness will grow and if we build a strong and profitable wellness brand, we can get a better exit multiple alongside the physical asset.”