Bangkok’s Hotel Investment Sector Bounces Back
According to figures issued by the Jones Lang LaSalle (JLL) Hotels and Hospitality Group, the value of hotel transactions in 2014 across Thailand reached 13.9 billion baht. This equals 5.7 percent of all transactions in the Asia-Pacific region and reflected an increase from 10.9 billion baht in 2013.
According to JLL, since 2012 around 58 percent of buyers of hotel properties in Thailand have been local investors, with the other 42 percent being international investors.
Not surprisingly, Bangkok is easily Thailand’s most popular hotel investment destination, since it has consistently rated among the most popular cities in the world as a tourist destination.
The Bangkok hotel market suffered badly during the 2011 floods, but bounced back strongly the following year and has continued to remain vibrant since then, despite political turmoil.
According to the Mastercard Global Destination Cities Index, Bangkok ranks as the second-most popular tourist destination in the world, just behind London and ahead of Paris. Singapore ranked sixth and Kuala Lumpur seventh.
Bangkok attracts tourists in huge numbers but also has a strong corporate traveller profile. This strength has led to asset prices going higher even though there has been a significant growth in the number of hotel rooms in the city over the last few years.
According to the JLL analysis, foreign investors are especially keen on putting their money into hotel assets in Thailand for three key reasons. The first is that capital values are lower than in many comparable locations such as Singapore and Hong Kong; second, the return on investment is relatively higher than similar markets; and, finally, investors view Thailand’s long-term tourism industry as remaining as vibrant as ever, despite the occasional glitches, such as the 2013-2014 political crisis.
Investors note how Thailand’s tourism industry is supported by strong general infrastructure (eg, good roads, especially main highways), its geographic location which places it firmly in the sights of any traveller looking to visit countries such as Laos and Cambodia, and its reputation as a world-class holiday destination.
JLL notes investors look at a number of factors in assessing hotel opportunities. ‘Primarily, hotel investments are a function of purchase price versus existing or potential cash flow that can be generated from the hotel’s operations. For more passive investors, a certain yield expectation is applied to stabilised cash flows being generated by the target property, whether it is approximately six to seven percent in Bangkok or slightly higher in the resort markets,’ JLL noted in a recent commentary published in the Spectrum section of the Bangkok Post.
Investors in the hotel sector tend to fall into five categories: 1. Developers or property companies who purchase with the intention of engaging in redevelopment; 2. Funds investing on behalf of international investors; 3. Owner-operators who control a specific brand or series of serviced apartments and retain all management within those hotels or apartments; 4. Corporations whose prime business or businesses are not hotels, but are keen to add this style of business to their overall portfolio; 5. Wealthy families or individuals.
JLL’s figures note developers and property companies account for almost 60 percent of the total value of transactions recorded with owner-operators as the second-largest group of investors, representing more than 15 percent.
Of course, there are many investors who look beyond the current cash flows of a hotel property and believe they can create and extract additional value either by extensive renovation, additions or simply by engaging the services of a leading international firm to manage the asset.
As Bangkok continues to be a major tourism magnet, the hotel market looks to have a very bright future.