According to hospitality investors and top executives, there is plenty of optimism despite some ‘clouds on the horizon’ in terms of the economy. We rounded up key insights on hospitality investment from industry experts.
Hospitality investment experts share signs of positivity
Keith Lindsey, Managing Director EMEA at CBRE Hotels.
There is an absolute wall of money looking at the hotel sector at the moment.
CBRE’s Hotels Investor Sentiment survey saw 37 percent of investors looking for capital growth in 2018, compared to 24 percent a year ago.
We’ve been in the longest cycle in the history of the industry. So since roughly 2009 it’s been quite a good cycle. I think everyone was looking over their shoulder, wondering when the party would end but the fundamentals are good.
What they’re looking for in the hotel industry is the opportunity to make good money and use that investment to get a stronger foothold in the sector. No longer is it the poor relation of real estate but an asset class in its own right.
I think there are a few more years left in (the industry cycle) and I look for signs and can’t see any. Yes, there will always be shocks … but for the most part, the industry is on a firm footing. I don’t feel any declines coming our way.
You only have to move the needle a little bit and anybody who’s worried about demand growth need have no worries at all. And that’s only two countries in the world. One of the staggering facts is that 90 percent of Americans also don’t have passports. They have a lot on their own doorstep they can enjoy, but it’s still a fraction of the total population that has traveled outside their shores.
I’ve never seen so much interest in the sector. Importantly, hotels have a yield premium.
First and foremost, hotels is a growth sector. You can look at supply-demand fundamentals in Europe; demand is growing quicker than supply in most markets. Some of the biggest challenges European economies have are how do we cope with the influx of tourists coming into the market? Every increase of one percent (in those populations with passports) leads to tens of millions of new travelers coming into the European market.”
There is a myth out there that hotels are this volatile asset class with very fluctuating income. According to benchmark data, hotels outperform the all property index. In addition, the sector shows very little volatility and was the only commercial asset class that didn’t go negative in terms of total return during the crisis. So there are lots of reasons why hotels are interesting out there. They just have to be understood. It’s a specialist class after all.
Abhishek Agarwal, Managing Director of Real Estate, Blackstone.
Private equity, asset management and financial services firm Blackstone is investing in the hotel sector, particularly resorts.
Blackstone’s investments are underpinned by our belief in the fundamentals in the sector, especially if you look at the demand-supply side. There seems to be an imbalance.
Spain is a major focus. 2017 saw a nine percent increase year on year in international visitors to 82 million, making it the second most visited country after France. “That’s huge and good for the leisure business.
What’s the view of hoteliers?
The industry is at all-time high:
People are really looking to us. There’s a lot of money available. For the first time, we’re getting a seat at the table. So we’re awfully excited. There’s always been money, it was just never interested in our industry.
What can we do with it? It will, for a short period, shows us quite a (number) of transactions. In the long run it will filter out a lot, because the minute the industry starts to shift a little in an economic downturn – and let’s say the best of breed survives and others have a more difficult time – you will see a big shake-down again. So I think it will be a short-lived cycle.
The boom days may be here – for now. However, further consolidation may be on the cards.
It’s not about optimism, it’s about realism. As an industry, we don’t offer great differentiated products. As an industry, we’re not consistent in our products. As an industry, we don’t produce brands. You can see ‘incredible returns,’ in other investment classes.
We’ve just never done that as an industry. So we’re a cork afloat on the ocean and just because we’re on top of the wave … we shouldn’t get too excited because it’s a (long) way down again.