Global hotel transaction volume reached $68 billion in 2018, but JLL’s 2019 Hotel Investment Outlook predicts that growth will slow in the upcoming year due to uncertainty in trade relations, politics, and economic growth projections. The outlook also predicts that the industry will continue to see the investment strategies of 2018 in the year ahead—including mergers, acquisitions, and joint ventures. Below are six findings from this year’s outlook.
U.S. Investments Hold Steady as Asia Pacific Markets Stand Out
Regionally, investment growth in the United States will continue at its current pace, with large portfolio activity at the forefront. European markets will soften by 5 to 10 percent, with the biggest investment deals being single-asset. In Europe, secondary markets—like Italy and Portugal—will become more enticing to investors. And the Asia Pacific region will stand out more than other markets in 2019, with investment volumes rising to 15 percent. Japan will be the most attractive market as it hosts the September 2019 Rugby World Cup and the 2020 Tokyo Olympic Games.
Private Equity and REITs Will Drive Transactions
According to the Outlook, the investors driving transactions in these regions will mainly be private equity groups, with the focus being single-asset. REITs will be the most active investors in the United States. Additionally, investors will continue and grow cross-border transactions. Europe had the most cross-border investments in 2018 from the Middle East and Asia. And U.S. currency is strengthening, leading more American investors to cross-border opportunities in the Asia Pacific region.
A Shift To Smaller Mergers and Acquisitions
Although in recent years mergers and acquisitions have grown more popular, these transactions will happen on a smaller platform in 2019. Globally-traded brands and publically-traded companies had 13 notable mergers or acquisitions in 2018, leaving the year with one-third of hotel rooms globally. The other two-thirds is owned by smaller platforms, and acquiring these assets will complement existing offerings in a more efficient manner than organic growth.
Luxury Will Be in Demand
Modern-day consumers are seeking experiences and placing less importance on material items. Luxury and high-end hotels are in strong demand because guests are embracing experiences; in 2018, luxury hotel transactions in the United States increased by 76 percent. Brands are not only responding to this growth by acquiring one-of-a-kind luxury brands, but they are also adding luxury elements to already existing concepts.
Adding More Co-Working Spaces
Another trend the Outlook predicts is hotels implementing co-working spaces, a movement that has already increased in hotels. Demand for communal workspaces is at an all-time high as companies switch to more flexible work policies. If designed right, these spaces will boost socialization, productivity, and revenue. Workers in hotel lobbies will order food and beverages, bringing business to other areas of the hotel.
Select-Service Brands Will Launch in Mature Markets
Lastly, growth patterns are changing for top global hotel companies. Brands have grown their portfolios by 30 percent, getting into more secondary and tertiary markets and giving guests a better variety of choices. In mature economies, full-service hotels represent 32 percent of existing rooms. In response, top companies will launch new select-service brands to saturate markets. In those mature economies, 33 percent of under-construction rooms will be branded and flagged.
These trends site the path for investment growth in 2019, and the JLL Hotel Investment Outlook for this year predicts single-asset growth, more mergers and transactions, and growing towards the emerging experience-driven consumer.