Investors lured by strong hotel trading performance and investment yields
The latest research entitled ‘Spotlight on Thailand – Hotel Investment Market’ by Jones Lang LaSalle’s Hotels & Hospitality Group reveals that Thailand’s major hotel markets saw robust investment activity in 2012. With strong income growth potential due to continued recovery of the country’s tourism market, hotel investment in Thailand is expected to stay buoyant this year.
Mike Batchelor, Managing Director, Investment Sales Asia, Jones Lang LaSalle’s Hotel and Hospitality Group, commented “2012 was an exceedingly strong year for hotel investment in Thailand’s key hotels markets, including Phuket and Bangkok. Phuket, in particular, saw four major hotel transactions of over THB 1 billion each.”
The Movenpick Resort & Spa Karon Beach was sold for a record THB 2.87 billion in 2012.
According to the Jones Lang LaSalle report, the last hotel transaction recorded in Phuket was the sale of the Bundarika Villas & Suites on Layan Beach for around THB 1.1 billion which includes redevelopment and acquisition costs. The other three transactions include The Movenpick Resort & Spa Karon Beach, The Evason Phuket Resort & Bon Island and Laguna Beach Resort, with combined value in excess of THB 8 billion. The Movenpick Resort & Spa Karon Beach was the largest hotel transaction recorded in Thailand in 2012 at THB 2.87 billion.
The report also reveals that there were several hotel sales transacted in Bangkok and Pattaya last year such as the sale of the Siri Sathorn, a 111-room serviced apartment in the Saladaeng area of Bangkok which was acquired by a local business group from HKR International. However, most transactions were not made known to the public as it is still typical in Thailand for hotels to trade directly between owners and investors.
“Robust investment activity has been driven by strong investor interest in Thai hotels due to reasonable selling prices that allow for attractive investment yields ranging between 7% and 9%. In addition, investors anticipate greater income potential and capital gain. Whilst Thailand’s hotel sector across all key markets reported strong performance in 2012, the momentum is likely to continue as the country’s tourism market has recovered from the Global Financial Crisis and unstable political situation,” said Mr. Batchelor.
Strong travel demand strengthening hotel performance
According to the Tourism Authority of Thailand (TAT), the number of visitors to Thailand increased from 14.6 million in 2009 to 19.1 million in 2011. The year 2012 showed a 16% growth over 2011 with 22.3 million arrivals. The TAT has forecast total visitor arrivals of 24.5 million for 2013, a 23.5% growth over 2012. Overall, Thailand’s 14-year Compound Annual Growth Rate (CAGR 1998-2012) is at a healthy 7.7%.
In line with the growth in the number of international visitors, Thailand’s major hotel markets reported a solid performance in 2012.
Last year, the Phuket hotel market enjoyed an average daily rate (ADR) of THB 3,902 and an average occupancy rate of 72.4%, propelling the revenue per available room (RevPAR) to THB 2,824, a 10.1% increase from 2011.
Despite the significant growth in hotel supply, with 2,756 additional rooms anticipated by 2015, the increase in visitor arrivals has provided demand and the outlook remains positive. Given the current growth rate and an increase in the number of affluent Asian travellers with greater spending power, Phuket is poised to retain its position as one of Asia’s most popular tourist and investment destinations.
The Bangkok hotel market was hit hard by the great floods in 2011 that resulted in widespread cancellations. However, the market recovered quickly in 2012, with the RevPAR of three-star, four-star and five-star hotels showing an increase of 11.6%, 20.7% and 22.6%, respectively. The five-star sector, which was the best performer across all hotel segments in 2012, recorded an ADR of THB 4,956 and an average occupancy rate of 68.5%.
An estimated 8,000 rooms across all hotel segments in Bangkok that are in the future pipeline between 2013 and 2015 may limit further RevPAR growth in the short term. However, given the rate of land price appreciation, hotel projects will become harder to get off the ground, with a slower rate of new room supply potentially assisting in a market recovery in the medium term.
“We expect 2013 to be another strong year for hotel investment in Thailand, based on several major deals that are now under negotiation in the country’s major hotel markets of Phuket, Bangkok, Pattaya, Samui and Chiang Mai. Jones Lang LaSalle is currently marketing two additional properties in Phuket in the midscale and upscale segments, one of which is eligible for a BOI incentive, allowing for a majority foreign ownership,” said Mr. Batchelor.
Batchelor also added, “The anticipated formalisation of the new real estate investment trusts (REITs) legislation in Thailand in 2013 is expected to provide another source of investor interest across Thailand. The REIT platform also provides another option to attract foreign investment and is expected to drive continued growth in the Thailand real estate market, including the hotel sector.”