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1、Hospitality InsightsHotels&Leisure|AsiaQ3&Q4 202232ContentsIntroductionKey takeawaysThe repricing of hotel assets the impact of the hike in interest ratesHospitality in the era of technology metaverse and NFTs in hotels.Whats the hype?Co-living the opportunity across Asia3Change in RevPAR YTD Septem
2、ber 2021 vs 2022Asia Pacific22.4%Central&South Asia77.0%Southeast Asia120.4%Oceanic47.3%IntroductionGovinda SinghExecutive Director|Asia Hotels&LeisureNortheast Asia-2.6%Source:STRWhat a difference a day makes,a saying well known in hospitality and now it appears politics!As we head into 2023,it app
3、ears that despite numerous headwinds,the pandemic has heightened the need for travel to such an extent that there are little signs of demand abating in the near term,especially from the leisure segment.Perhaps enforced lockdowns have refocused the importance of not taking too much for granted and th
4、e genuine need for person-to-person interactions as the recent share prices of Zoom and Meta will show.According to the latest(May 2022)data from IATA,international air travel was up to 78.6%of 2019 levels,with only Africa and Asia(mainly North Asia)the only regions lagging in their recovery.The exp
5、ectation is that a full recovery will be circa 2025 as China continues with its zero-Covid policy,combined with a slower recovery in business travel as economic headwinds take centre stage.In terms of hotel performance,year-to-date September 2022,room occupancies across Asia increased to 53.3%,with
6、ADR improving to US$89.07,a recovery in RevPAR of 64.9%.However,there remains a great divide between the more open Southern countries versus the slowly opening Northern region,with China especially remaining closed for the foreseeable future(and in our view,largely remaining so through to 2024,if no
7、t longer).454The onset of the COVID-19 pandemic over two years ago,witnessed an unprecedented demand-side and supply-side shock to the hospitality industry.Rapid vaccination drive and recent easings in travel restrictions had signalled green shoots in recovery.However,what a pandemic could not achie
8、ve,economics threatens to.A potential dampening in pricing could result as rising inflation and hikes in interest rates create further uncertainty for an already fragile industry.Our view is that the turning point as to when pricing may weaken is at the point where hoteliers are unable to pass on in
9、creased costs as demand slows due to a weakened business and consumer confidence.The last 24-months has witnessed a significant drop in hotel transactions;both in terms of volume as well as absolute amount as difficulty in logistics hampered deal making.With the anticipation of increased travel dema
10、nd and further easing of border restrictions,hospitality assets are expected to once again become en-vogue as interest from investors peak on the back of significant dry powder.However,the recent rises in interest rates with the anticipation it will continue to go up in the near term,may well dampen
11、 these encouraging sentiments.Conversely,an expected wave of refinancing in 2023,when interest rates are expected to peak,may well present opportunities.The repricing of hotel assets the impact of the hike in interest ratesSource:FRED,RERC10-year(%)Hotel rate(%)6%4%8%10%12%14%2%0%41995199
12、6920002000420052006200720082009200001920202021On September 21,the Federal Reserve raised benchmark interest rates by another 75 basis points bringing them to a range of 3.00%to 3.25%.The indication is that interest rates will rise to 4.60%in 202
13、3.A significant increase from near zero percent during the pandemic.So,how will an increase in interest rate impact pricing and therefore valuations?Direct/indirect impact of interest rate movement on hotel transactions/valuation:Difficulty in Servicing Debt Rise in interest rates would make existin
14、g variable debt rates more expensive and lead to a further financial strain to hotel owners.Most hotel owners are still coming out of woods in the wake of COVID-19 pandemic;this additional financial burden might lead to higher delinquency/default trends.Rising Cap Rates&Valuation Dip According to a
15、model prepared by Cornell Centre of Hospitality Research,an increase of 100 basis points in interest rates typically leads to a circa 28 basis-point increase in hotel Cap Rates after taking into consideration changes in risk premiums and NOI growth.Cap Rates increase significantly less than interest
16、 rates during periods of rising interest rates;this relationship of for every circa 1.00 bps increase in interest rates to 0.28 the first few years of operations as hotels ramp up.To mitigate these development risks;investors would be more interested in investment for completed/operating hotels.As s
17、uch,whilst there is an inherent correlation between interest rate movements and pricing of hospitality assets,there is not only a lag,but evidence suggests that the level of increase(or decrease)in interest rates is not directly proportional to a widening(compressing)of Cap Rates.Quality of earnings
18、 and asset desirability are both factors that act to mitigate.Hotel capitalization rate and 10-year treasury rate,1992 I 2021 IVin yield spread reinforces expectations that hotel investment remains relatively strong in an inflationary environment.Limited New Developments,Accelerating Momentum for Co
19、mpleted/Operating Assets Increasing construction cost(from materials to labour wages,and machinery hire rates)and limited/higher financing options pose a significant challenge to any developer particularly for greenfield projects where the development timeline is long and a longer payback period con
20、sidering Hotel cap rateAve.9.30%Sta dev.1.47%10-yearAve.3.97%Sta dev.1.79%76With growing influence of the sharing economy,global mobilization of workforce and increasing cost of asset ownership;residential real estate sector in the recent times has been witnessing a paradigm shift in traditional app
21、roach of BTS(Build-to-Sell)to BTR(Build-to-Rent)models.Globally,organizations have been spending time to understand opportunities in alternative asset classes to diversify portfolios,enhance returns,and manage assets more efficiently.This combined with a shift in demographic expectation has led to g
22、reater emphasis and evolution of a number of hybrid business models in the residential space,co-living being one of those.With price and rental pressure,millennials are a generation which has principally led to significant demand for quality and socially compatible accommodation especially for the w
23、orking class and students.Through this,collaborative consumption has gained significant attention.This has led to demand shift in rental accommodation options in recent time with the increasing popularity of the co-living concept.Right from basic transportation services to workspaces,collaborative/s
24、haring economy has already redefined the way of life of the post Baby Boomer generation.Unlike earlier generations,where owning a home was a major life goal,for many millennials accessibility to experiences,being digital nomads and a sense of community are arguably more important than ownership of p
25、roperty.So which region holds a bigger promise?From our research,Asia holds a great prospect for the co-living concept,especially as attitudes shift.The potential size of the market?Out of a total millennial population of 1.8 bn worldwide,Asia constitutes over 61%(1.1 bn).Co-living the opportunity a
26、cross AsiaMillennial population breakdown by region Source:Analysis based on the 2019 Revision of World Population ProspectsAsia61%1.1bnAfrica15%278mnLatin America/Caribbean9%155mnEurope8%148mnNorth America4%76mnOceania2%9mnDemographic shiftsConcerns on ownership/lack of affordable housingRapid urba
27、nisation trendsAttractive business models:PropCo,OpCo,lease,profit sharingLifestyle changesLow investment yields traditional residentialSharing economy,mobility,and flexibilityLucrative investment alternative model to residential real estateOpportunities to diversify portfolio,enhance returns,manage
28、 assets more efficientlyWith changing lifestyles and demographics,various living sectors(e.g.co-living,multifamily,student housing,senior living)cater towards the changing residential requirements.Most living formats have a relatively well-defined age bracket within their targets,with sectors like c
29、o-living coming in to fill emerging demand gaps and focus on building a community.898Key takeawaysCo-living has,until now,remained the domain of niche operators and needs to evolve with real estate implications and investment rationale on the back of widespread institutional acceptance and integrati
30、on.Co-living can serve as an attractive compliment to a portfolios residential allocation,offering higher yields and has attractive potential in urban locations that offer proximity to transit and employment centres and lifestyle options(entertainment,F&B Offerings).Ample conversion opportunities to
31、 focus on repositioning,retrofit and refurbishment together with selective Build-to-sell options within mixed-use developments.Evolving business models including management agreement and lease with risk-adjusted deal structures.Sale&lease back model could be an attractive option for developers where
32、 operators could manage the units with a rental pool arrangement.Building upon this,will be potential brand franchising opportunities.Challenges with co-living business(not limited to operational issues,space configuration,regulatory guidelines,length of stay,mandatory amenities/facilities particula
33、rly around conversions)would need to be discussed and addressed on a common forum with various stakeholders involved.Whilst we always advise caution on developing a business around one source market or demographic,it is evident that the concept can be extended to wider generations.From senior living
34、(not care homes)to the mobile Gen Z,there is a certain longevity in the concept,with concepts being tailored,much like hotels are.Advantages on co-living asset ownershipDiversification of residential business into operating asset class.Attractive exit options Co-living emerging as a niche asset clas
35、s for institutional investors.Enhance visibility and return economics of mixed-use projects by associating with branded operators for select Co-living portion.Mitigating issues relating to slower sales and mounting unsold inventory of residential units.Co-living has developed as a natural progressio
36、n from Build-to-sell to Build-to-rent,responding to demographic forces in meeting younger generations desire for affordable space in Asia that offers flexibility and community living.1011Further to this,with the advent of metaverse,the hospitality sector is exploring the opportunity to enhance real
37、travel experience through virtual tourism and connect with customers in innovative ways through the use of technology.The possibility of creating a metaverse hotel/a virtual chain could provide potential guests to visit the hotel virtually with an avatar during the booking process;give access to vir
38、tual rooms to hold meetings or events,and many other avenues.Such platforms could provide the hotels an ability to create new opportunities for guests/travellers to compare products and engage with their brand by creating customized experiences which could lead virtual clients to turn into real-life
39、 hotel guests.In the post pandemic-era,while technology has taken the centre stage of discussions on integration/amalgamation with hospitality services/offerings;what we are seeing is a disparity between functionality and experience.There is no doubt that the future of the hospitality industry lies
40、with technology,however to what extent?For F&B facilities/restaurants in the hotels,technology can bring significant upside in terms of operational efficiency;this could be in multiple forms working robots in the kitchen to waiters,online/mobile orderings,robot bartenders,AR menus,cloud kitchens,pre
41、-order,post payment loyalty etc.On top of this,experiential offerings could be provided by virtual dining options such as Dine in the Dark concepts and animated 3D experiences such as Le Petit Chef.However,it would be interesting to see whether consumers will be slow to return to old habits or be mi
42、ndful of environments.This would also depend highly on the customer demographics including spending power/potential.Typically,economy,business class and mid-scale hotels tend to attract a more functional group where speed of service and pricing are key influencing factors.As we move up the guest exp
43、erience chain,experience becomes more relevant for luxury segment,and Hospitality in the era of technology metaverse and NFTs in hotels.Whats the hype?guests will be willing to pay a premium to stand out and/or be private.As such,the use of technology to enable service will not be the same up and do
44、wn the hospitality value chain.12131213Wider applications of AI(Artificial Intelligence)in metaverse through 3D images,animations,creative artwork and speech could lead to enhancement in customer service based on business analytics tools/data analysis and other technology offerings.The metaverse cou
45、ld also assist with additional revenue generation by:The metaverse is in constant evolution and certainly provides hotels a chance to expand their offerings to the virtual landscape,widening their outreach and connecting with customers in an effective way.Virtual guests present a new source market o
46、vercoming physical boundaries which could lead to increase in revenue together with opening up new sales channels.Virtual tourists can convert into in-person guests who have the potential of becoming brand advocates for the hotel/brand both in the virtual and in the real-world space.In addition,the
47、use of the metaverse and VR technology could also be looked at to enhance back of house functions including staff training and purchasing control.In the recent times,the importance of NFTs(non-fungible tokens)has been well acknowledged across industries to leverage technology in existing products an
48、d services.With NFTs coming into the limelight in a big way,the traditional hospitality market is on the cusp of disruption where virtual travel/metaverse platforms have started gaining a lot of prominence during the pandemic.NFTs have come far ahead in bringing a complex technology to global audien
49、ces in a simplified manner.Every industry is now gearing up to leverage NFTs to grow their business,and the hospitality industry can also harness this digital experience to improve customers first interaction and discover new audiences.Replicating the property as a virtual asset,hotels can allow tra
50、vellers to tour the hotel,view and choose rooms of their choice,and make the booking receipt as an NFT.The travellers can even swap/sell the reservation NFT if there is any change in their travel plans,this P2P(peer-to-peer)NFT sale also reduces the pressure on hotels to rebook for cancellations.NFT
51、s can add value in capturing visitor log record by creating a permanent record of visitors on the blockchain.Hotels can issue an NFT(similar to loyalty program membership)for visitors,featuring all the required information in the metadata and guests can also hold the NFT as their loyalty badge which
52、 could be used for loyalty points/rewards in various properties under that hotel brand.The use of NFTs could also ease out the tedious data management and hotels can also improve their back-end operations through the blockchain.By managing daily tasks like visitor logs,housekeeping,maintenance,suppl
53、ies,room key/booking code,inventory etc.From the investment side,the metaverse and NFTs present a different scenario to the extent it can be leveraged.In our view,unless the metaverse/NFT can relate to a tangible real-world asset,it will effectively remain a gaming token akin to a VR Sim City experi
54、ence.Investors can leverage the metaverse/NFT to raise capital,much like offering shares/units in the virtual world to develop/invest in real world assets.The metaverse/NFT can therefore be another fund raising platform.It can also be another forum for marketing real-world assets.Perhaps this will p
55、resent an opportunity for real-world advisers to extend their services in becoming virtual brokers and valuers as well!Unlocking a new sales and marketing channel with a wider outreach to a larger audience clientele by using technology to target new potential customers that would have been otherwise
56、 difficult to reach out or require expense incurred with sales&marketing networkUpselling through the metaverse could be a great mechanism as well,customers within metaverse could be invited to explore upgraded room options together with amenities/products and service offeringsEvents and meetings Wi
57、th no geographical constraints and travel hassles,metaverse platforms could provide an effective marketplace/platform to create parallel events for networking,seminars,and guided toursLoyalty program Through the metaverse,guests could be invited to participate in activities or virtual events which c
58、ould lead to special rewards,promotional codes or exclusive deals by becoming a loyalty club member for the hotel About ColliersColliers(NASDAQ,TSX:CIGI)is a leading diversified professional services and investment management company.With operations in 63 countries,our 18,000 enterprising profession
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60、 billion of assets under management,Colliers maximizes the potential of property and real assets to accelerate the success of our clients,our investors and our people.Learn more at ,Twitter Colliers or LinkedInLegal DisclaimerThis document/email has been prepared by Colliers for advertising and gene
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63、This communication is not intended to cause or induce breach of an existing listing agreement.Primary author and further information:Govinda SinghExecutive Director|AsiaHotels&LOur expertsZoe ZhouDirectorHotels&L Shaman ChellaramSenior Director|AsiaValuation&Advisory SGreg CondonAssociate DirectorHotels&LManish KumarAssociate DirectorHotels&L