ey-global-hospitality-insights-2015

Appetite for investment: the currentcapital climateReal estate fundamentalscontinue to improve, and debtand equity capital are abundant,providing a solid foundation foran uptick in transaction volumeand overall competition. Globalhotel investment continues tosteadily increase, with 2014’stotals expected to exceed US$54.5billion compared to US$52 billionin 2013. Global hospitality andleisure transactions increased8% year-over-year through Q32014, showing that the industrycontinues to gain momentumeven in the face of acceleratinggeopolitical instability, healthand terrorism concerns. 2 A waveof new hotels will open in 2015,and a robust global developmentpipeline of approximately 1.3 millionguestrooms is in place. 3Throughout the Americas, strongperformance continued in 2014, with realestate transaction volumes in some marketsreaching pre-recession peaks. 4 Specificallyin the US, economic and employmentnumbers have grown increasingly positive,and hotel performance has followed suitamid a rise in business and leisure travel.Cross-border investment into the USincreased approximately 137% from 2013to 2014, with foreign buyers continuing tolook beyond traditional gateway marketsto secondary markets, such as Phoenix,Atlanta, Houston and Orlando. Investorsfrom Canada, China, Malaysia, Japan,Singapore and the Middle East have chosento deploy a large amount of capital in UShotels. 5 Greater competition among theseinvestors and subsequently lenders isallowing for more aggressive loan-to-valueratios, averaging 73% through Q3 2014,compared to 66% in 2013. Investment in theUS hotel sector was expected to continueaccelerating throughout the end of 2014,with both the full-service and limited-servicesectors demonstrating large pipelines ofdeals under contract. 6As a result of strong fundamentals andan increasing array of capital sources,capitalization rates in the US are anticipatedto trend lower, with the rates in six majormetropolitan markets, including New YorkCity, San Francisco and Boston, averaging5.5%, compared to 6.9% in 2013. The lowrates are highly influenced by the country’slow interest rates, which are anticipated torise in 2015. 7 Nevertheless, with currentcapitalization rates close to the previousmarket lows of 2007, potential speculationabout a bubble is countered by the fact thatrisk has been priced into the deals seenthroughout 2014. 8In Latin America, many countries, includingBrazil, Argentina and Venezuela, currentlyface economic challenges, such as highinflation rates, worsening unemploymentand currency devaluation. These issues,coupled with their political instability,translated into weaker fundamentals inthe first half of 2014. Hotel occupancy inCentral and South America through Julywas down approximately 1.6% over theprevious year, despite the boost from the2. “Global Market Perspective Q4 2014: Hotel investmentmaintains momentum despite downside risks,” Jones LangLaSalle, www.jll.com/gmp/market-perspective/hotels, accessedNovember 2014.3. “New Hotel Construction Pipeline in Global Shift,”Hotel Interactive, www.hotelinteractive.com/article.aspx?articleid=32644, 17 April 2014.4. “Hotel Investor Sentiment Survey,” Jones Lang LaSalle,www.joneslanglasalle.com/hotels/EN-GB/Pages/HISS-June-2014-Americas.aspx, June 2014.5. “US Capital Trends – Hotels,” Real Capital Analytics,August 2014.6. “US Capital Trends – Hotels,” Real Capital Analytics,third quarter 2014.7. “Fed’s Dudley: expectations for mid-2015 rate lift-offreasonable,” Reuters, www.reuters.com/article/2014/11/13/ususa-fed-dudley-idUSKCN0IX0ZS20141113,13 November 2014.8. “US Capital Trends – Hotels,” Real Capital Analytics,third quarter 2014.Global hospitality insights4