Pick a Winning Horse: Hotel Investment Hotspots
The Melbourne Cup is one of the richest horse races in the world, with prize money topping A$6 million in 2016. For the high rollers, it all comes down to 24 horses and 3,200 metres of turf. For the rest of us, the process of betting on a horse can seem…complicated. Aside from the betting form itself, which can be difficult to decipher, you have the actual logic of choosing horses. You’re also effectively betting on trainers, jockeys, running styles, weights, distances, classes, and post positions. The more you understand about these details, the more informed your bet is.
Or you can just pick a name that sounds good and hope for the best. But unless you’re a billionaire, you’re probably not going to put up a lot of money on a whimsical wager like that. Without the knowledge and wherewithal that goes with good horse betting, you’re far more likely to be throwing your money away.
In the hospitality industry there are all sorts of investments, from individuals buying into a franchise to corporations buying global hotel chains. Some of these decisions are made on a whim, but most are (obviously) subject to heavy scrutiny — especially the big mergers and acquisitions.
No matter how big or small an investment may be, the people involved can benefit from knowledge of the ever-changing hospitality landscape. And rest assured, the landscape is always changing. There are always new horses in the field, and this year’s race is never a repeat of last year’s. (Case in point: Ten years ago, nobody knew what AirBnb was.)
And the stakes are getting higher. Global hotel revenues have jumped AUD $130 billion in the last five years, with a total of more than $700 billion expected for this year. As you might guess from these numbers, investments are in a stage of massive growth. There were $110 billion worth of hotel deals around the world in 2015.
In short, there’s a lot of money flying around. Where’s it all going? Who is betting and what kind of “horses” are they favouring?
It’s difficult not to start the conversation with China. In the past few years we’ve seen a slew of high profile deals including the acquisition of the Waldorf-Astoria in New York ($2.5 billion), the Sheraton on the Park in Sydney ($463 million), and the Louvre Hotel Group in Europe ($1.6 billion). Each of these purchases were made by a different Chinese corporation.
This tells us a few rather obvious things: That China has become one of the world’s most aggressive foreign investors, and that it (or at least some of its largest buyers) believes luxury brands and premier cities are the way to go.
JLL (a global firm specialising in commercial real estate) has a slightly different take. It predicts that “secondary” markets are the strongest horses in the field today, showing greater prospects for appreciation. Areas mentioned by the firm include Manchester, Glasgow, Frankfurt and Dusseldorf, as well as regional hubs across the United States (Cleveland, Pittsburgh and Columbus are examples commonly given).
In other words, it’s not all about marquee cities. According to a 2015 report by CBRE in Australia, the domestic counterparts to this “secondary” movement appear to be cities like Cairns, Canberra, Gold Coast and even Hobart.
There are a few other points on which hotel investment specialists agree for 2017 and beyond. Single asset sales (Sydney’s Sheraton on the Park, for example) will remain a dominant trend, and Japan (especially leading up to the 2020 Olympics) will be a point of focus for global investors. Several African cities including Abuja (Nigeria), Naivasha (Kenya), Casablanca (Morocco) and Algiers (Algeria) are also attracting fresh capital and concepts.
In terms of hotel and hospitality investments, mature markets will continue to grow. Cities like Melbourne, San Francisco, Paris and London have a higher barrier to entry, but are perceived as a safer bet. It’s not unlike betting the favourite at the Melbourne Cup. Your odds of winning are higher, but the returns if you win are accordingly lower. In today’s hospitality market, there are plenty of other horses with solid odds and higher payouts. Investors large and small are beginning to take notice.
Like horseracing however, hotel investments will always make a better bet if you are well informed and speak to the experts. You can always just take a punt, but why take the risk?