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Analysts believe investment sentiment for the hotel sector is set to return, on the back of a tighter pipeline of supply from 2018 and the expected rise in visitor arrivals, reported Business Times.
With most of the interest coming from foreigners, HVS Asia Pacific managing partner Chee Hok Yean expects investors in Singapore hotels to be Asian family businesses and high-net-worth individuals rather than institutional investors.
This comes as yields for Singapore hotels stand at between 2.5 and three percent, which is relatively lower compared to markets in Europe.
Nonetheless, the investment draws of Singapore hotel market are the city-state’s financial hub status, security, quality of assets and strong Singapore dollar.
“Investment sentiment appears to be returning. A lot of the new supply has been digested. Singapore’s visitor arrivals continue to grow, occupancy rates are still high and room rates are stabilising,” said Julien Naouri, director of Savills Hotels Asia-Pacific.
Singapore saw international visitor arrivals increase 3.8 percent to 10.175 million in the first seven months of the year.
The city-state also witnessed a lack of major hotel deals since 2015.
JLL data showed that hotel transaction deals fell from its 2013 peak of $3 billion to $248 million in 2014, before climbing again to $406 million in 2015 and eventually drop to $145 million in 2016.
For this year, although some large hotels have already been put on the market, no deal has been completed yet. In fact, only three boutique hotels located within shophouses changed hands since January.
Naouri attributed the dearth of hotel deals to price gap, albeit “this gap is narrowing”.
“Last year, owners were seeking, say, 2.5 percent yield, whereas buyers would have been prepared to pay around four percent yield,” he said. Yield refers to the net operating income of the hotel or NOI divided by its price.
Nowadays, the yield expectation of buyers remains the same, while that of owners rose to three percent. The increase in owners’ expectations is not due to a reduced asking price, but to the improved hotel trading performance, which resulted in higher NOI.
“Trading fundamentals for the Singapore market are viewed as positive by the investment market; add on to that Singapore’s gateway status as an investment destination – that is fuelling interest,” said Nihat Ercan, managing director of investment sales for Asia at JLL Hotels & Hospitality Group,
“We’ve had quite a bit of supply coming into the market in the past couple of years, (but as) we now look into the next few years, there really is not a lot of new hotel room supply coming up. So with the continuing visitor arrivals, that is really going to drive trading.”
This article was edited by Keshia Faculin.
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