Asia Pacific’s hotel industry is outperforming expectations despite a challenging macroeconomic environment and geopolitical tensions across the region, Alan Watts, president of Hilton Asia Pacific, told the Mingtiandi Singapore Forum this week.
“A lot better than people would think,” Watts said of hotel market performance in APAC. “The macros are terrible at the moment for travel and tourism, but if you paid attention to the last earnings cycles, everybody was a beat on the high end of analysts’ expectations. So Asia, a lot stronger than people give it credit for.”
Watts was among four panellists who spoke before an audience of over 270 executives at the Yardi-sponsored event, along with representatives from SC Capital, AB Capital and CBRE, who said visitor diversification, constrained supply and structural shifts in regional travel patterns were keeping hotel fundamentals strong across the region despite short-term headwinds.
The discussion, which was moderated by Xander Huang of CITCO, comes as real estate investors grapple with how to allocate capital across sectors and markets amid fresh economic uncertainty driven by geopolitical conflicts, with panellists arguing that APAC hotels offer more resilience than the current caution suggests.
Intra-Regional Self Sustainability
Bryan Lee, founder and CFO of Hong Kong-based private equity firm AB Capital Investment, said Japan’s visitor numbers illustrate how the country’s hotel market has absorbed a sharp decline in Chinese arrivals without losing momentum.
Alan Watts of Hilton sees APAC’s hospitality industry outperforming this year (Image: Mingtiandi)
Japan welcomed roughly 3.5 million visitors in each of February and March this year — both all-time monthly records per Japan National Tourism Organisation data — even as mainland Chinese arrivals fell about 45 percent year-on-year amid China-Japan geopolitical friction, a sharp reversal for a market that accounted for 30 percent of Japan’s 31.9 million visitor arrivals in pre-COVID 2019.
“Even without the [mainland] Chinese, we are now starting to see a much more diversified visitor base,” Lee said. “Now we don’t just depend on [mainland] Chinese visitors. We have South Korea, Southeast Asia, the US, Europe, and Taiwan as well.”
Watts attributed much of the region’s broader resilience to a structural shift in its travel base. Seventeen years ago, seven in every ten customers at Singapore hotels were long-haul European leisure travellers. Today, eight in ten come from within Asia.
“Thai outbound has become a real market into Japan — 10 years ago, you wouldn’t have thought that,” he said.
Steve Carroll, who leads the Asia Pacific Capital Markets Hotels and Hospitality team at CBRE, said falling travel costs and a more sophisticated hotel industry had accelerated that shift, opening up demand from a far broader base of Asian travellers across the board.
“Airlines have got low-cost carriers. There are much more seats in the air than there ever have been. Hotel operators like Hilton are far more sophisticated on how to drive demand across channels. So when a market like China softens, they replace it,” Carroll said. “And we saw that very significantly in Japan in that first quarter.”
Not all APAC markets proved as resilient, however. Carroll noted that room rates in the Maldives and Thailand have declined as both countries received fewer high-paying European visitors this year due to the conflict in the Middle East.
“Both those markets have been materially impacted by the Middle East situation given the air capacity coming from Europe through the Middle East into those destinations,” said Carroll. “Occupancy is holding up, but the rates are coming off slightly because they’re putting markets in there that are probably playing less rates.”
Supply Crunch Boosts Returns
In APAC’s most developed markets, the high cost of land and construction is constraining the supply of new hotels, which compounds the hospitality industry’s demand-driven strength, said Christopher Hur, managing director of investments at SC Capital Partners, whose platform spans around 16,000 keys across Japan, Indonesia, Vietnam and Thailand.
Bryan Lee of AB Capital at the Mingtiandi Singapore Forum (Image: Mingtiandi)
“In developed markets, you just can’t financially build a hotel. It’s not the highest and best — never really was, but certainly now and going forward. And that creates an effective moat for our industry,” Hur said.
Carroll said the supply shortage was helping hotel operators to roll out room rate increases at a brisk enough pace to keep ahead of rising costs.
“There’s a supply-demand imbalance that’s allowing room rate growth significantly above long-term averages, and that will last the next one to two cycles,” he said.
Lee said that, in addition to the strength of the hotel market across APAC, Japan’s status as a stable economy with deep capital markets adds to the appeal of the country’s hospitality assets.
“Japan definitely checks all the boxes… during times of uncertainty, you want to invest in a country or asset class that provides certainty. Low cost of financing, positive carry, investor confidence — developed market enforcement is there. But most importantly, exit liquidity,” he said.
AB Capital has made 14 hotel acquisitions in Japan since its founding during COVID-19, including two hotels in Osaka last November and one in Sapporo last month, with a 15th transaction in progress.
Carroll said hotel supply in Hong Kong had tightened significantly as buyers converted existing stock to residential use, creating a more favourable supply-demand balance for remaining operators.
“Out of the last 25 hotels sold in Hong Kong, 17 of them have been converted to a living product,” he said. “What we have seen in Hong Kong now is demand from tourism is starting to pick up. We’re running at 80 percent occupancy rates in certain subsets — still not at the peak of 2018 but in the right direction.”
SC Capital is among the investors seeking out markets where new supply can still be built economically. In March, SC Capital Partners founder Suchad Chiaranussati acquired Ho Chi Minh City-based Fusion Hotel Group, a wellness-focused operator with 18 properties and roughly 3,000 keys across Vietnam and Thailand, as well as a pipeline of more than 2,000 additional keys.
Building for the Next Cycle
Watts said investors willing to enter emerging markets early — partnering with local developers to build product ahead of demand — stood to benefit most from the next cycle, pointing to India’s accelerating infrastructure buildout as an example of a market taking shape for future travel growth.
Hilton is backing that outlook with capital. The company has signed agreements with three Indian partners to open more than 250 mid-market hotels across the country, including 75 Hampton by Hilton properties with Nile Hospitality, 125 Hampton hotels with Royal Orchid Hotels, and 10 Spark by Hilton hotels with Olive Hospitality as part of a pipeline targeting more than 400 trading hotels in the country.
“Hotels as an asset class are at the end of the travel cycle. The infrastructure — the super highways that were built in the US in the 50s — are getting built in Asia now,” said Watts. “China Belt and Road continues. India lays 900 kilometres of road. If you think of travel infrastructure and what’s getting built that facilitates people moving from one place to another, you can see why people get a bullish outlook.”
A Panel in Pictures
Leave a Reply