Hotel investment has taken the world by storm, with record figures being set every year. All market segments are showing strong growth, but within the hotel sector, investment soared during the first six months of 2017, more than doubling the figure recorded in the same period the previous year and marking the highest level of investment on record.
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The Hotel Investment Business
The hotel industry is proving to be a major draw for investment in the real estate sector. The industry is capitalizing on the investment climate to consolidate the position of certain destinations as some of the most attractive hotel markets today.
Hotel properties are real estate assets that can be the subject of investment by various economic actors, ranging from hotel investors themselves to investors with a more financial focus. The expansion of the hotel industry has led to a deeper examination of hotel investment and the relationships among the various economic actors involved in the operations surrounding a hotel. At the same time, the entry of new international investors into the market has led to a rise in the prominence of management contracts and franchises among hotel management models—the preferred options of Anglo-Saxon operators.
What does this business involve?
The hotel investment business is based on property ownership; the shift in investor profiles is the most significant change that has occurred since the crisis, as we are seeing how the The money comes from international markets, including North America, Europe, the Middle East, and Asia. The investor’s background is no longer the key factor; what matters most is that the investor is already an expert in the hotel business or, at the very least, surrounds himself with professionals who are. As a result, transactions are examined in greater detail than they were a few years ago, and analyses focus on factors related to the financial variables of the hotel business—not just the characteristics of the asset or property being purchased or the lot on which construction is planned.
In fact, most transactions involve existing hotels or buildings that are seen as having growth potential, in a process that typically includes changes in concept and positioning, with the aim of increasing future profitability by making asset turnover much more agile under the new market conditions.
What is the profile of investors in hotel assets?
As was the case in 2015 and 2016, international investment exceeds domestic investment in the case of hotel asset transactions. Specifically, foreign capital totaled 2,379 million, accounting for 61% of the total, while domestic capital totaled 1,528 million, accounting for 39% of the total, with 70% of the investment coming from European countries.
The volume of international tourist arrivals is a key factor in the concentration of demand in those countries with the highest percentages. The sector is growing, and there continues to be very high investor interest from international funds; however, the focus is not on new projects but rather on the repositioning of existing hotel assets, as we mentioned earlier, and projects are centered on well-located hotels that require investment or a corporate rebranding.
The vacation sector accounted for the vast majority of assets, representing 69% of total investment, compared to 3% for urban hotels. This marks a return to the trend seen in 2014 and 2015, which can be explained by the concentration of the major portfolios in this type of property.
The onset of the crisis brought many hotel projects and land investment decisions to a halt. In recent years, it has been argued that the return of investor and operator confidence in the sector is based on consolidated results and the positive macroeconomic data surrounding it.
