Panelists on an APAC-focused webinar discussed the transactions market, how certain segments are performing as hotels reopen and what the region needs to keep momentum for recovery.
GLOBAL REPORT—With hotel transactions largely on hold in the Asia/Pacific region, and guest preferences evolving over the course of a slow recovery, the hotel landscape for the region could shift, sources said.
On a recent webinar focused on the APAC region—“HICAP 6x8: Recovery Top of Mind”—hoteliers and analysts based in the region discussed the state of the hotel industry and shared their outlooks for the recovery from the COVID-19 pandemic.
Mike Batchelor, CEO of Asia for JLL, said the deals market in the Asia/Pacific region is relatively still.
“There’s certainly a lot of opportunistic buyers who are circling, but we’re not seeing a lot of owners put assets to the market,” he said. “I use the analogy ‘nobody wants to catch a falling knife.’ At the moment, we’re unsure of where values are going to land, and how long this is going to go on. Is a vaccine around the corner, or is it one to two years away?”
He said APAC investors should be more active in the second half of 2020.
“We do expect in Q3 and Q4 of this year that we will start to see the investment market kick back into gear,” Batchelor said.
He said currently bank moratoriums are not requiring investors or owners to make debt repayments, “but come Q3 and Q4, we believe that investors will need to start making repayments again, and the banks will require updated valuations done.”
“That’s when I think we’ll start to see some liquidity returned to the market,” he said.
Tina Yu, principal and head of Asia for KSL Capital Partners, said the bid-ask gap hasn’t changed.
“You haven’t really seen that many true (merger and acquisition) transactions because from an owners’ perspective, the majority of the valuation expectations haven’t changed,” she said. “That’s not to say there’s an expectation that there should be tremendous distress and vultures buying these opportunities, but there is an expectation that the risk profile of every investment philosophy must change.”
Underwriting will be difficult in the short term, Yu said.
“You just have to be careful with how you underwrite the next two years,” she said. “I believe fundamentally that there will be a recovery in the medium to long term, but I don’t believe that anyone knows what’s going to happen in the short term, even if we want to. We can say all we want about predicting Q4 and looking at green shoots, but we just don’t know. … Governments can shut down travel at any point.”
Hotel development and financing are also at a standstill, said Robert Hecker, managing director of Pacific Asia at Horwath HTL.
“It’s pretty hard … to justify something that’s going to be opening in the next couple of years obviously because there’s so much capacity that needs to be absorbed of the existing stock, and that’s going to take … anywhere from one to four years,” Hecker said. “To get something off the ground for a new project in that environment is a tough sell for financers. Even investors would have some questions.”
Redefining luxury, experience
Michael Issenberg, CEO of Asia/Pacific for Accor, said as his company’s hotels reopen across the region, lower segments are recovering more quickly, including in China.
“Travel is going to start local and build out from there,” he said. “But it’s really all about each individual country and how they’ve not only dealt with the pandemic but how they intend to deal with pandemic. There’s no question about China; our business continues to climb. We hit a low of about 7% occupancy in February, and we’ll exceed 50% in May, but initially, certainly midscale and economy perform better.”
As occupancy stabilizes, hotel guests expectations are likely to change, Ho Kwon Ping, executive chairman of Banyan Tree, said.
“COVID-19 has shown people what really matters in their lives,” he said. “There’s going to be a lot less influence, a lot less emphasis on the ‘bling bling’ side of luxury. … There’s a natural momentum towards a more expensive consumption, rather than mass consumption, but even the more expensive consumption will no longer be led by sheer ostentation but with a lot more importance on authenticity.”
Ho said crises don’t create trends, but accelerate them, positively or negatively.
“I've always maintained that crises do not really change anything,” he said. “Fundamentally, they essentially accelerate trends … that are negative or trends that are positive. For example, working from home was already an existing trend, but it’s going to be accelerated by this crisis. The trend towards experiential tourism was already there, and it’s going to be just much more rapidly accelerated by COVID-19.”
Momentum for recovery
Speakers each shared their thoughts on how the Asia/Pacific region can build momentum for recovery:
Ho Kwon Ping, Banyan Tree: “Regional domestic travel in the Asia/Pacific region has not yet risen to levels that we needed to replace the fact that a lot of people in the West are not going to travel to Asia. There’s going to be a lot more political decoupling between China and the U.S. We just have to have a lot more Asians who are now in a middle class bracket and younger people who now can travel. We need them to travel a lot more so that they can make up for the loss of travel from the Western countries.”
Michael Issenberg, Accor: “The agreement on how we’re going to travel from country to country is crucial, and getting that protocol in place—just like after 9/11 when all of a sudden the security came into place. Here it’s all going to be about health checks and what’s required, what information is going to be shared. That is going to be the most crucial element of getting our business back to where we want it to be.”
Tina Yu, KSL Capital: “It’s important to really not … completely shift focus but also focus on those (domestic) travelers. A lot of the supply that’s gotten built within the Asia/Pacific largely caters to a certain international clientele, and they’re all random luxury properties. If we’re talking about the rising middle class and looking at the income levels of countries like Vietnam, etc., that’s not what where they want to stay and where they can afford to stay. If you look at the U.S., where 80% of their travel is domestic, that allows them to be resilient in black swan events that impact international travel.”
Jesper Palmqvist, STR: “What’s the new normal of this different demand, because don’t plan for … what’s going to happen next year. What are you going to do this year? Adjust your sources, respect that we will see variations within these markets for some time.”
Mike Batchelor, JLL: “We’ve got to get these borders open again, we have to work with other like-minded countries who have contained the virus, and governments have to get behind incentivizing people to start traveling.”
Robert Hecker, Horwath HTL: “The next step is the messaging that the travel industry needs to convey to potential travelers—not just (about) health and safety, but also go back to say it’s all about the fun of the travel, the experience of the travel. … Try to just encourage them to get back into that travel mode, despite all of the uncomfortableness that might be involved in doing it.”