Alta Thoughts (March 2023)
By Rakesh Patel
Having taken a number of short-haul flights through Asia in the last few weeks, it is obvious that air fares remain elevated. Whilst there is clearly a surge of revenge travel demand, this is also a supply-side issue. OAG estimates that January 2023 flight seat capacity in SE Asia was still 35% below pre-pandemic levels. Some of this is China related. In 2019, there were 30 airlines offering flights from China to Thailand, with 17 million seats.
Whilst it may take some time for air infrastructure to be re-installed, the positive news is the recovery in hotel occupancy and ADRs through the year according to STR (see chart), suggesting that for now, passengers are accepting the higher air fares.
The real estate sector is experiencing an unprecedented set of dynamics.
Macroeconomic cyclical challenges of higher interest rates and inflation, are matched by the structural shift in consumer and tenant behaviour, alongside the urgency on climate change.
Navigating these challenges is no easy task, however the environment also provides opportunities, for those investors and operators, that are proactively getting ahead of the curve.
McKinsey advices six imperatives for success as a real estate player, across client-centric solutions, embedding digitalisation and embracing sustainability. Those that fail to adapt, risk being left behind.
Despite obvious challenges, US hotel investors seem bullish on 2023, according to comments from Americas Lodging Investment Summit. A rapid rise in funding costs put a brake on investment in the 2H 2022, even as operating performance was recovering.
The positive sentiment is driven by the dry powder waiting to be deployed for the right deals, and expectations that the operating environment will remain robust.
Added to this will be more cross-border transaction flow, with foreign SWF capital moving into the US, and US outbound investment in regions like Europe, that offers interesting pricing.
More sustainable homes are being developed in the UK and US, but it is still inconclusive as to whether buyers are willing to pay a “green premium”.
The FT looks at some anecdotal evidence and finds that, whilst some surveys point to buyer desire for more green housing, developer feedback suggests a mixed picture on the premium that can be demanded.
With the residential sector accounting for 20% of total building emissions, the need for change is apparent. This will have to come from not only the carrot of a consumer pricing shift, but also the stick of governmental regulatory change.