Singapore hotel investment market is 4th most expensive globally: HSR Hospitality

The study looked into hotel investment transactions concluded in the first 8 months of 2012, covering more than 60 transactions in over 25 countries, focusing on main gateway cities.

Sep 28, 2012 04:09 IST India Infoline News Service

A recent hospitality report conducted globally by HSR Property Consultants Hospitality, covering upscale and 4-star business class hotel transactions in the last 12 months, shows that Singapore is now amongst the most expensive hotel investment markets. The study looked into hotel investment transactions concluded in the first 8 months of 2012, covering more than 60 transactions in over 25 countries, focusing on main gateway cities.

The most expensive hotel investment market in terms of capital values (USD per key) is Central London.  Investors paid top prices averaging US$1,078,000 per key in view of the 2012 Olympic Games, which pushed room rates and occupancy level to new highs in August this year.  There have been a slew of hotel sales including Singapore based, Ascott, purchase of The Cavendish Hotel London at US$248 mil and a portfolio of hotels committed by Principal Hayley Group. Hong Kong is ranked a distant second at US$785,000 per key having witnessed the sale of Novotel Nathan Road, sold by LaSalle Investment to Gaw Capital consortium at a record price of US$305.5 mil, representing a new high for a 4-star hotel at over US$700,000 per key. The deal was the largest hotel transaction in Hong Kong in over a decade.  Third on the list is New York at US$736,000. The big apple also took the title for 2012's single largest asset transaction of US$570 mil represented by the sale of The Plaza Hotel to Sahara Group of India. The historic hotel located next to Central Park changed hands for the 3rd time in the last 8 years – a true testimony of a highly liquid asset in an equally liquid market. 

Chart 1: Most expensive hotels ranked by transacted (USD per key)

City USD per room/key
1 Central London 1,078,000
2 Hong Kong   785,000
3 New York   736,000
4 Singapore   684,000
5 Vienna   606,000
6 Male   600,000
7 Paris   458,000
8 Madrid   450,000
9 San Francisco   383,000
10 Sydney   371,000
11 Tokyo   323,000
12 Frankfurt   320,000
13 Bangkok   317,000
14 Jakarta   311,000
15 Los Angeles   302,000
16 Melbourne   269,000
17 Perth   231,000
18 Cairns   191,000
19 Beijing   155,000
20 Kuala Lumpur   142,000

Note: Upscale Hotel Transactions Sept 2011-Aug 2012 ranked in accordance to USD per key. Upscale hotels includes hotels in the 4-star/business class segment and are generally in prime locations or hotels with boutique positioning in prime or distinctive locations

Source: HSR Hospitality

Singapore hotels - a stellar performance

Ranked 4th is the Singapore hotel market, which currently enjoys one of the highest occupancy rates in the world at 89%, outperforming London at 87%. The Republic has seen average room rates climbing steadily by a whopping 52.7% at the start of 2010.  Land values for hotel development have risen by more than 300% in the last 3 years.  In June 2009, a smallish hotel site at Short Street (now Parc Sovereign Hotel) was sold at USD3,043 psm per plot ratio. Fast forward 3 years later in April 2012, a site at Farrer Park Station Road was transacted at USD11,612 psm.  Hotel land values are now 32% higher than the previous peak in 2007.  With the recent opening of the Cruise Centre, Gardens at the Bay and more high impact tourist attractions like Mandai Safari Park (end 2012) to come on-stream, Singapore’s hospitality sector will continue to enjoy steady growth.  Whilst growth may not mirror strong double digit y-o-y rates, growth will nonetheless moderate to a respectable single high digit y-o-y in the next 12 months due to slowing Asian economies like China & India and continued European crisis affecting international travel.


All top 4 markets above will continue to attract global investment dollar as well as huge demand from domestic markets. Both London and New York, along with cities in Australia, are the most liquid markets full of ready sellers and buyers. On the opposite end of the scale lies Hong Kong and Singapore with limited transaction activity for completed hotels. Despite strong demand, there a very few willing sellers (with a majority) seeking excessive market prices. Vendors' asking prices often represent net yields of below 4% pa, whilst buyers are expecting yields in excess of 6% - depicting an insurmountable yield gap of over 200 basis points.

Some of the best yields are derived from the highly liquid markets in the United Kingdom and Australia with net initial yields hovering between 7-8% pa.  Japanese hotels offers highest yield arbitrage of between 5% to 7% pa. Yields are typically within 6% to 8%, with cost of funds just about 1% pa.

Singaporean investor’s heads up the 'predator' list for regional acquisitions

Out of the top 10 largest hotel transactions in 2012 (Jan to Aug), Singapore based companies are prominently featured in 5.  4 transactions involve the purchase of single assets and the other comprises a portfolio purchase by Ascendas and Accor Groups.  Another transaction involves GIC in the sale of Shangri-La Sydney.  The relatively high acquisition prices in Singapore have led many Singaporean based investors to look beyond the shores for ‘cheaper’ and more compelling buys. Just illustrate the point - to buy a 4-star hotel in the Republic, the Singaporean based investor will have to fork out US$684,000 per key.  The same amount would enable this investor would be able to buy 2 hotels in Tokyo and 3 hotels in Perth.

Chart 2: Largest Hotel Deals in 2012
Date Hotel/Property City Sale Price (USD) Transaction Details
Aug  2012 The Plaza Hotel
New York 570 mil Elad sold to Indian based Sahara Group
June 2012 Marriot Hotel portfolio Sydney/ Brisbane/Melbourne 432 mil Starhill REIT purchased Marriot hotels from Colonial First State Global Asset Management
July 2012 Manhattan Hotel Jumerah Essex House New York 375 mil Jumeirah sold to Strategic Hotels & Resorts
June 2012 Sydney Shangri-La Sydney 338 mil Singapore based GIC sold to
Shangri-La Asia, current hotel operator
Jan 2012 Mirvac Hotels & Resorts Multiple cities in Australia/New Zealand 327 mil Singapore based Ascendas & Accor buying Mirvac’s hotel portfolio of 46 hotels
July 2012 Novotel Nathan Road Hong Kong 305 mil Gaw Capital/CSI Properties  acquiring the asset from LaSalle Investment Management
2012 Hotel Portfolio Multiple cities in United Kingdom incl London 309 mil Property Fund AAIM sold to Principal Hayley Hotel Group a portfolio of 6 hotels.
Aug 2012 The Cavendish Hotel London 248 mil London based Ellerman Holdings sold to Singapore based Ascott Ltd
Ascott Raffles Place/ Ascott Guangzhou Singapore/ Guangzhou 226 mil CapitaLand sold 2 serviced residences to Ascott Residence Trust
May 2012 Hotel Ariake Sunroute Tokyo 194 mil Ariake Property TMK sold to Singapore based Ascendas Hospitality

Source: HSR Hospitality

Buoyed by improved optimism in the hospitality sector coupled with high liquidity and ready cross border funding from Singapore banks, investors like home-grown Ascendas and Ascott, have capitalized on the region’s weakening currencies, relatively cheaper asset values and high yields to start series of hotel acquisition to source revenue growth.  Grand Line Group, led by father and daughter team of Michael and Jocelyn Kum, has acquired hotels in Singapore, Australia, NZ and Japan is contemplating a hospitality REIT.  Across the causeway, Malaysia's Starhill REIT recently purchased 3 Marriott hotels from Colonial First State Global Asset Management located in Sydney, Brisbane and Melbourne for US$411 mil.

Changing the regional landscape by cash-rich Singapore investors

Until recently, there has only been one Singapore based Asian hospitality REIT on the acquisition trail (ie. CDL Hospitality Trust).  That lone trail is now being joined by potential REITs in the making.  These include newly listed Global Premium Hotels, Ascendas Hospitality Trust and Far East Hospitality Trust, all listed on the on the Singapore Stock Exchange this year.  More are mulling to join the foray including the M&L REIT by the Kum family.  They provide a fertile ground fueling further acquisition of hotels not only in Singapore but in the region, putting Singapore on the 'predator radar' for more regional and global hotel acquisitions.  Other Singaporean investor groups include various high-net-worth investors (HNWIs), institutional funds (eg. GIC), hotel operators (Rendevous, Amara, Pan Pacific/ ParkRoyal, OUE/Meritus), have joined the foray and are on the look-out for more hotel acquisitions in 2013.   As more Singapore-based hotel investors emerge scouting for limited/scarce assets locally, the competition for regional trophy assets has just begun right at our door-step.

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