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 until 2021, it is perhaps unsurprising that almost half of the growth in tourist numbers was accounted for by departures from lowand middle-income countries, which increased from 121m in 1997 to 564m in 2017. Significant growth was also recorded in the number of arrivals to low- and middle-income countries, increasing from 163m to 515m over the 20-year period, underlining the rapid development of their tourism industries.
As such, there is a clear need for tourist infrastructure. Speaking at a November 2017 conference in Florida, Douglas Quinby, senior analyst at Phocuswright, an international travel market research firm, announced that the global travel industry reached $1.6trn in gross bookings in 2017. 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 17m in 2018. These rooms were provided across 184,000 hotels, an 8.4% increase from 2008.
Investment Landscape
According to the “Hotel Investment Outlook 2019” report by global real estate consultancy JLL, in 2018 cross-border hotel investment reached $9.6bn, some 14% of the global hotel investment total of $67.7bn. Cross-border investment is set to increase in 2019, driven in part by rising inflows to Europe; North America directing their attention towards Asia; and investors looking to expand their assets portfolio and invest outside of primary markets.
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. Particularly, there have been notable increases in both debt financing and mergers and acquisitions activity. This has opened up the sector to more non-traditional players, such as insurance companies, pension funds and private equity firms, who accounted for approximately 70% of total hotel sector investment between 2014 and 2018.
Middle East & Africa
According to JLL, hotel room construction across the Middle East and Africa picked up in 2018, with the number of rooms under construction as a proportion of existing supply increasing by about 2% on the previous year. 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 hotel investment in sub-Saharan Africa will hit $1.7bn in 2019, with investment sales expected to reach $400m. In North Africa, Morocco has been leading the charge both in terms of visitor numbers – with more than 12m in 2018, up 8% on the previous year – and hotel infrastructure. In Marrakech a number of new high-end resorts and hotels are offering luxury accommodation, encouraging visitors to prolong their stay. M Avenue, for example, is a new $100m multi-use project that will include a 168-room hotel run by Portuguese company Pestana as well as 88 private residences operated by the Four Seasons. The project is slated to open at end-2019.
Asia
The Asia-Pacific region (excluding mainland China) experienced the second-highest rate of growth in hotel room construction in 2018. Overall hotel transactions in the region are predicted to expand by 15% in 2019, likely to be driven by growing investor interest in Japan as the 2019 Rugby World Cup and the 2020 Summer Olympic Games in Tokyo draw nearer.
Vietnam is another country where demand for, and supply of, new hotel rooms seems to be continuing at a rapid pace. The country has experienced a surge in overseas tourists since 2010, and in 2018 it clocked a record 15.5m foreign tourist arrivals. 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. Global real estate service provider Savills estimates that an additional 30,000 rooms will be delivered by the end of 2019.
Latin America
Mexico has the most developed hospitality sector in Latin America, boasting 392,000 hotel rooms at end-2017. Chile, Colombia and Peru are also increasingly on the radar of international hotel investors. Carlos Trujillo, executive president of the Mexican Association of Tourism Developers, told OBG 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; however, infrastructure limitations need to be tackled and overcome to provide the resources that high-end tourism demands,” Trujillo said.
Disruptive Models
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.
Prospects
JLL forecasts that global hotel investment will remain steady in 2019 at $67.2bn. With the global economy facing headwinds in 2019-20, there could be knock-on effects on business travel and disposable income, feeding through to weaker performance in the hospitality sector. This may cloud the hotel investment picture over the medium term, particularly in markets that have already become saturated. Global trade disputes, higher interest rates and a slowdown in the pivotal Chinese economy are three factors that could curtail transaction volumes in the future.
Reasons for optimism remain, however. The UN World Tourism Organisation forecasts the number of international tourist arrivals will reach 1.8bn by 2030, which would constitute an average growth rate of 3.3% per year between 2010 and 2030. Rising 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, notwithstanding any near-term cyclical headwinds.
