Aided by easier and cheaper travel, global tourism has experienced two decades of almost uninterrupted growth. According to the World Bank, the number of international departures more than doubled between 1997 and 2017, from 687m to 1.57bn per annum. With the global middle class estimated by the US-based think tank Brookings Institution to be expanding by as many as 160m people per year, it is perhaps unsurprising that almost half of the growth in tourist numbers was accounted for by departures from low- and middle-income countries, which advanced from 121m in 1997 to 564m in 2017. There was also significant growth in the number of arrivals to low- and middle-income countries, rising from 163m to 515m over the period, underlining the rapid development of their tourism industries.
As such, there is a clear need for tourist infrastructure. In 2018 global accountancy firm Deloitte projected growth of 5-6% in gross bookings, to reach an all-time high of $170bn. Additionally, STR Global, an international hotel market data firm, reported that the number of hotel rooms globally had increased by 17.7% since 2008 to reach 17m in 2018. These rooms were provided across 184,000 hotels, an 8.4% increase on 2008.
Cross-border hotel investment accounted for $10bn, some 15% of the global total ($62.5bn), in 2017. Of this, nearly 90% was accounted for by hotel investments in Europe ($4.5bn) and North America ($4.4bn), with South America and Asia ( excluding mainland China) receiving about $800m each. Asian investors are expected to account for the largest proportion of hotel assets in the near term, even as the flow of outbound capital from China slows. In particular, South-east Asian investors are becoming increasingly important players in the international hotel market.
In addition to the traditional approach of direct hotel acquisitions, new channels for investors to gain exposure to the hospitality sector have become more prevalent in recent years. There have been notable increases in both debt financing and merger and acquisition activity. In its “Hotel Investment Outlook 2018” JLL noted that this has opened up the sector to more non-traditional players, such as insurance companies, pension funds and private equity firms. They have been attracted by the relatively high yields on offer, given the low interest rate environment that prevailed for the much of the past decade. Such generalist investors accounted for 71% of total hotel sector investment in 2017, up from 62% in 2014, a trend that JLL expects to continue as the asset class matures further.
Middle East & Africa
According to JLL, hotel room construction across the Middle East and Africa picked up in 2017, an acceleration second only to that seen in mainland China. This positive development can be attributed to notable economic growth in the region and the rise of the middle class, leading to increased demand for travel. Sub-Saharan Africa has experienced rapid expansion in hotel room supply, which has heightened competitive pressures in the region’s hospitality sector. JLL forecasts $1.7bn in hotel investment in sub-Saharan African in 2019, with investment sales expected to come in at $400m for the year. In North Africa, Morocco has been leading the charge both in terms of visitor numbers – with an estimated 12.5m in 2018, up 10% on 2017 – and hotel infrastructure. In Marrakech, for example, a number of new high-end resorts and hotels are offering luxury accommodation, encouraging visitors to prolong their stay.
JLL’s report points to a sharp divergence between hotel room construction trends in mainland China, which accelerated in 2017, and the rest of the Asia-Pacific region, which saw a deceleration, attributed to “emerging regions seeing a slowdown in new development”. However, Vietnam is one country where demand for, and supply of, new hotel rooms seems to be continuing at a rapid pace. With an estimated 15.5m foreign tourist arrivals in 2018, Vietnam has experienced a surge in overseas tourists since 2010. Between 2010 and 2017 the number of hotels operated by international chains has more than doubled, from 30 to 79, with more in the pipeline.
Mexico has the most developed hospitality sector in Latin America, boasting 392,000 hotel rooms at the end of 2017 – ahead of Brazil’s 257,000 and Argentina’s 60,000. Chile, Colombia and Peru are also increasingly on the radar of international hotel investors. Carlos Trujillo, executive president of the Mexican Association of Tourist Developers, told OBG that the that the range of high-quality products and services in the industry is limited by infrastructure constraints, echoing challenges seen in less developed hospitality sectors across Latin America. “The Mexico Tourism Board is working on bringing more high-purchasing-power tourists or premium tourism to the country, but infrastructure limitations need to be tackled and overcome to provide the resources that high-end tourism demands,” Trujillo said.
Hotels have faced growing competition from accommodation-sharing technology platforms, like Airbnb, as well as more established alternatives, such as timeshares. Research by JLL suggests that such listings tend to be higher in cities that have high hotel occupancy rates. Cities are increasingly imposing restrictions on accommodation-sharing, but in cities where such platforms have already gained a foothold, there has not been a noticeable impact on hotel performance, according to JLL data. This suggests that hotels and shared accommodation may not necessarily compete for the same market. Technology has also brought about important gains. Online booking platforms such as Expedia and Hotels.com allow hoteliers to reach a wider pool of potential customers and boost occupancy by offering discounted rates.
Globally, the hospitality sector tends to be cyclical, driven by both macroeconomic trends and its own internal dynamic – strong demand leads to high occupancy and positive financial performance, which in turn triggers a supply response leading to an increase in available rooms. This puts occupancy rates and financial performance under pressure, dampening investment and causing the cycle to repeat.
Global hotel investment in the first nine months of 2018 reached $43.3bn, down 5% on the same period in 2017. The slowdown can be seen across all regions with the exception of the Americas, which posted a 9.2% gain. With the global economy facing headwinds in the 2019-20 period, there could be some knock-on effects on business travel and disposable income, feeding through to weaker performance in the hospitality sector. In the longer term, the UN World Tourism Organisation forecasts that the number of international tourist arrivals will reach 1.8bn by 2030, which would constitute average growth of 3.3% per year between 2010 and 2030. Continued growth in income levels in emerging and developing economies, coupled with further expansion of the global middle class, is likely to underpin longer-term demand for hotel rooms globally.
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