NEW YORK – Jones Lang LaSalle Hotels today released its bi-annual Hotel Investor Sentiment Survey, which reveals that market optimism is taking another positive stride. Investors’ global hotel performance expectations for the short-term (six months) now stand 31.8 percentage points higher than the low point recorded one year ago, marking the biggest positive shift recorded in a single survey period.
Investors’ global ‘buy’ sentiment has also increased. Hotel markets are expected to heat up across the globe, as indicated by 41.2 percent of investors indicating that their main activity in the next six months will be buying. The survey is directed toward the world’s 6,000+ leading hotel investors and owners.
“This unmistakable global turnaround is mirrored in the Americas region. While hotel markets have experienced unprecedented performance declines over the past two years, the tide is turning with investors exhibiting greater confidence for a return to growth which will underpin the revival of the hotel transactions market,” said Arthur Adler, managing director and CEO for Jones Lang LaSalle Hotels.
Investors’ short-term performance outlook for the Americas region marked a survey-high improvement of 37.8 percentage points. Investors’ medium term (two-year) sentiment increased for the third consecutive survey, jumping by a pronounced 20.3 percentage points to reach 38.8 percent, which represents a three-year high. “This increase underscores that investor sentiment is rising at an accelerated pace across the board. Respondents have the most favorable performance outlook for gateway markets such as New York, Washington, D.C., Boston, Los Angeles and San Francisco,” said Adler.
Momentum in the acquisitions market is building and investors’ ‘buy’ intentions dominate again for the first time since the onset of the downturn. In this survey, the proportion of respondents’ signalling ‘buy’ as their dominant intention over the next six months increased by 7.1 percentage points, reaching 50.2 percent in the Americas. Buyers are becoming more aggressive and are increasingly pricing in optimism on future cash flows, knowing they are still establishing a foothold at cyclically low purchase prices. The abundance of equity capital in the marketplace will further drive transactions.
In absolute terms, investors’ ‘buy’ intentions are highest for New York (65.0 percent), Washington, D.C. (62.1 percent), San Francisco (61.2 percent), Hawaii (60.5 percent) and Los Angeles (59.2 percent), indicating that prime assets sold in these markets will generate significant interest. Survey respondents also indicated an increased intent to acquire assets in Denver, Dallas and Atlanta—all of which recorded more than a 15 percentage point increase in ‘buy’ sentiment.
The number of sellers, however largely remained flat and buyers outnumber sellers by 5:1 since many owners are reluctant to bring assets to market amid depressed values and tight debt availability.
Investors’ leveraged internal rate of return (IRR) requirements marked a 200 basis point decrease from the last survey, providing a steadfast indication that risk perception is softening. Respondents’ expected going-in cap rates (initial yields) decreased by 60 basis points. “This improving trend has been evident in several recent hotel transactions and is indicative of the more positive sentiment on operating fundamentals, the weight of equity capital in the market and the scarcity of quality hotel product available for acquisition,” said Adler.
