The upheaval and uncertainty caused by COVID-19 plunged the entire hospitality industry into a kind of analysis paralysis for more than a year. Investors of all stripes have kept their cash close and their hopes high as vaccines roll out and travel rebounds. Only then, experts say, will purse strings loosen and pent-up capital start flowing back into the market.

Although global hotel transaction activity in 2020 fell by more than 60 per cent over 2019, according to Jones Lang LaSalle’s (JLL) Hotel Investment Sentiment Survey (HISS), there’s cause for optimism. The hospitality sector is one of the most resilient, so it’s expected to be first last to recover, albeit slowly. Estimates range from one to four years for the industry to get fully back on its feet, says the report, with experts predicting domestic leisure travel will be first out of the gate, followed by international.
Meanwhile, “Owners are using this time when it’s quiet to re-invent themselves and make sure that, post-pandemic, they come out with a stronger offering,” says Robin McLuskie, managing director, Colliers International Hotels.

And investors everywhere are sizing up the landscape to see what those offerings are, how they will affect their buying decisions, and, for Canadians, to what extent emerging global trends will pop up here at home.

Popular Properties
According to JLL, as recovery builds, 52 per cent of investors surveyed say they have their eye on major cities in Japan; 46 per cent favour those in Southeast Asia; and 31 per cent are focused on Australia. Also, “trophy hotel assets” in gateway cities such as Hong Kong, New York and Singapore will also grab interest.

Geraldine Guichardo, vice-president, head of Americas Hotels Research at JLL., says there’s focus on the market and then there’s focus on the product. “In the first, the hot markets are resort markets aligned on domestic demand. Think Miami, Tampa, Maldives, China, Sochi – markets that cater to that leisure demand, but it’s more domestic. In the U.S., a lot of the sunbelt states perform really well. We’re also seeing high-growth secondary markets, like Austin and Nashville, now coming to the forefront.”

Mark Sparrow, executive VP, CBRE Hotels agrees. “Activity is very much regionally based given the lack of global travel. And there’s a significant amount of interest towards the U.S., primarily because of the availability of transactions relative to a discount or certain [properties] coming to market. Also, investors are looking toward hard assets such as real estate in key gateway markets on a global level. And the U.S. currency is on sale relative to other global currencies, so groups are looking at it as a medium- to long-term solution to be able to place capital into the U.S.”

Guichardo says gateway cities will continue to attract attention, particularly that of investors willing to look outside the box and think long-term. “Now is the opportunity to find great product in markets like New York, L.A. and London where they have not [previously] come available for sale, [where] they’re rarely traded, but because of the challenging environment maybe now you have an owner who’s willing to let go of it at maybe a discount and it could be a very good time to get into a market that’s traditionally outpricing a lot of investors.”

But investors should not rely too heavily on the so-called “COVID discount” which, according to many experts, simply doesn’t exist apart from those owners struggling under high carrying costs, which could result in opportunities in tightly held markets. “Because hotels are not performing as they should, people want big discounts but owners are not willing to sell at that, so nothing trades,” says McLuskie. “You’ll see investor interest on all of those categories once the market turns.”

Says Sparrow: “The impact of the pandemic has been significant on the operating level but also on the transaction and investment market in hotels. Everybody was expecting a deep discount relative to 2019 levels and we just haven’t seen it. That bid-ask gap is narrowing as we start to get a path to vaccination and recovery. Part of it is supply and demand, where there is a significant pool
of cash that is looking for a home in the hospitality landscape and very little availability of product.”

When Canadians Come Calling
So which international markets do Canadian investors have their eyes on? Well, according to most experts, you don’t have to look far. “A lot of domestic owners tend to keep their money in Canada, but as opportunities come up selectively, we’ve seen some European and U.S. investment,” says McLuskie.

Sparrow agrees. “Certainly, they’re focused in Canada. They’re stuck here; they’ve got a captive audience. But we’re also seeing a very strong trend of Canadian investors looking to the U.S.”

Guichardo echoes both opinions. “From 2016 to 2020, Canadian investors have prioritized investing in Canada, with the highest proportion of hotel acquisitions over the analyzed period taking place on the domestic front. [But] it’s important to note, during 2020 and much of 2021, investors have adopted/are adopting a domestically focused investment strategy given the challenges with travelling internationally and overall uncertainty as to when performance will return to pre-COVID-19 levels.”
Outside of the Americas, she says, India has been a market that Canadian investors have their eyes on, particularly because of its prominent leisure markets that benefit from strong domestic demand.

JLL’s HISS expects assets in less dense and drive-to resort markets to continue their uptick. Resort markets, in fact, represented 21 per cent of global hotel investment activity ó two times the proportion observed in 2019 ó a trend expected to further drive investment up 35 to 40 per cent from 2020 levels.



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