Asian investment boosts Australian hospitality
Growth in the flow of capital from Asia globally is predicted to continue in 2015, driving mergers and acquisitions (M&A) activity in Australia’s hospitality sector, according to a new report from EY.
The paper, ‘Global hospitality insights: Top thoughts for 2015’ said cross-border capital is “increasingly dominating” M&A activity, accounting for 41.2 per cent of global hotel investments between January and October 2014. This compares to a volume of 34.7 per cent in 2013.
Robust global investor interest is expected to grow, with Asian investors, particularly from China, Hong Kong, Japan and Singapore, making up 43.2 per cent of such transactions.
The report says that the global hospitality sector is “riding a wave of growth, innovation and demand”.
“Future M&A activity will be driven by a desire for incremental growth among the businesses involved, the strategic merit of transactions and the availability of debt and equity on favourable terms,” said David Shewring, EY’s Oceania Hospitality and Leisure Leader.
“The higher volume of global capital chasing real estate opportunities will also be a net positive for deal-making.”
However, Shewring cautions that amid opportunity through acquisitions, there are “additional risks and complexities” in a “hypercompetitive environment”.
“Investors will have to be increasingly diligent when vetting opportunities,” Shewring said.
The report also explored the strength of hospitality and its impact on the global economy, noting that the travel and tourism industry involves 266 million jobs, and contributes 9.5 per cent of GDP globally.
“With growth in the travel and tourism industry expected to increase by 3.9 per cent in 2015, the sector will be increasingly recognised as a key driver of economic growth at the local, regional and global level,” EY said, adding that “the infusion of fresh cross-border capital and innovation in both properties and concepts will be the key drivers of growth in 2015”.
Domestically, Shewring pointed to “a significant opportunity in Australia for tourism asset owners and operators to continue to tap into global growth across the leisure, corporate and group travel segments”.
“To continue to capitalise on these opportunities the Australian industry must keep striving to ensure that their strategy has a clear differentiator,” he said.
“Despite some significant headwinds – such as geopolitical instability, new health concerns and inconsistent economic growth – the global industry is thriving and optimism prevails.”
The global pipeline of new guest rooms stands at approximately 1.3 million, with Australia also seeing considerable hotel development spend and new construction.