The 5 Hottest International Growth Markets for Hotels
What do people mean when they say the world is getting smaller? Well, I'd suggest it boils down to three things. First, the Internet and social media have led to an explosion in cross-border connections and travel information. Second, air travel is more affordable than ever, with more frequent routes to every corner of the globe. Third, there are more places to stay at every price point (AirBnb has a lot to do with that).
All of this adds up to a booming trade. The global travel industry produced nearly AUD $11 trillion in 2017 - up nearly a trillion from 2016. Economic forecasts predict continued growth for overseas travel in particular; and despite the rise of AirBnb, a lot of these guests will be staying in hotels. Investors are scrambling to build new properties in key areas of growth, in order to secure a bigger piece of the action. Here are three of the hottest areas for hotel investments right now.
1. Africa
According to statistics put together by TopHotelProjects.com, there are well over three hundred hotels in the planning phase, currently under construction, or nearing the point of completion on the African continent. Radisson, Hilton and Accor are all leading the charge in new properties, but there are a lot of companies on the list.
Michele de Witt, the South African director of hotel consulting firm Horwath HTL, acknowledges the political concerns that has held Africa's tourist industry back in the past, despite the continent being a unique "bucket list" destination for people around the world. However, as she points out, "first mover advantage" has compelled many investors to give the green light. By the time African tourism reaches peak growth, it will be more difficult to enter the market.
2. Japan
The hotel industry in Japan continues to be among the most favorable for investors, as the county's international arrivals have increased steadily in recent years. The 2020 Summer Olympics are projected to bring in 45 million international visitors in that particular year - and Tokyo, where the games will take place, continues to be an attractive market.
Lesser-known areas of Japan are even more promising for investors; especially the Hokkaido region in the north, and Kyushu in the south. According to HotelNewsNow, these regions are currently showing RevPAR growth around 10%, due in large part to the underdeveloped nature of the travel industry in rural areas.
3. Southeast Asia
Several countries in Southeast Asia have emerged as hotspots for hotel investors. Indonesia, Vietnam, Thailand, Malaysia, and the Philippines are all squarely on the radar. In late 2017, HospitalityNet reported 123 new hotel projects in Indonesia alone, with Thailand and Vietnam following close behind. Key cities like Ho Chi Minh, Manila and Hanoi continue to attract fresh capital as air travel and infrastructure make Southeast Asia more accessible to leisure and business travelers alike.
4. China
We hear a lot these days about China's growing middle classes, and their appetite for international travel - but the influx of international travelers to China (particularly in major cities like Shanghai, Beijing and Guangzhou) is attracting the attention of global investors. It's true that China's growth is down, but a lower bar to entry has many companies betting that the next big turnaround is not far off.
5. Europe
Several markets within Europe show great promise to hotel investors in 2018 and beyond, including Spain. After years of turmoil, the economic situation there has improved. The commercial real estate markets in key cities like Barcelona and Madrid offer good values, and a whole lot of promise for years to come.
JLL's 2018 Hotel Investment Outlook talks about how the travel industry has been effected by terrorism in key cities like Brussels and Paris. However, as political situations stabilize, investors can see better RevPAR opportunities in those cities - as well as several others, including London, Dublin, Rome, Vienna, Prague and Zurich.
Making sense of the global travel industry
There are a many reasons for the growth of hotel investments in the areas discussed here, and it's not all as simple as a few paragraphs or bar graphs. We do know that more developed areas (such as Australia and the U.S.) are on the tail end of a serious hotel growth cycle. Many of these markets are relatively saturated, with thinner margins for turning a profit on new projects. Emerging markets promise higher returns for those willing to risk the capital before it becomes an altogether safe and conventional bet.
Clearly some of the projects in these emerging markets will succeed and some will fail because opening a new property in a hot market is never enough. You still have to choose the right location and buy at the right price. The services, amenities, community connections, and overall guest experience though will ultimately decide which investors end up happy and which ones go back to the drawing board.
Dean Minett
Director - Minett Consulting
Minett Consulting
