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July 26, 2017

Geopolitical and economic changes are combining with structural shifts caused by technological disruption, changing leisure patterns and new market players to transform the global hotel industry. Established international destinations continue to dominate the hospitality landscape. Yet dynamic, emerging hotspots – particularly in the Middle East and Asia – are gaining ground.

According to recent analysis from JLL, there are five categories of cities to watch within the global arena, each presenting hotel investors and operators with their own combination of risks and opportunities.

The Global Giants
The research reveals that an elite group of nine cities dominate the industry, accounting for almost a quarter of the total number of rooms available, and nearly half the total global investment going into these 106 city markets.

“Within this group, London and New York – with their deep concentrations of business and leisure activities – are the undisputed leaders,” says Lauro Ferroni, Global Head of Hotels & Hospitality Research at JLL. “Their ability to support a large and diverse hospitality industry has seen them attract almost 30 percent of the total hotel investment across these cities, amounting to more than US$23 billion between 2014 and 2016.”

Rising Giants
Shanghai, Beijing, Guangzhou, Bangkok and Dubai have all emerged as successful growth cities, according to the report. Highly dynamic and quickly gaining global scale, these hotel markets continue to increase their visibility on the global stage, making them attractive targets for investors.

Shenzhen’s strong performance indicators and growing demand suggest it could be next to join these Rising Giants. Moscow and Seoul are other candidates. However, the fortunes of Istanbul and Sao Paulo, which recently dropped out of this group, highlight the vulnerability of such markets to geopolitical tensions and economic headwinds, says Jeremy Kelly, Global Research Director at JLL.

Gateways
Gateway cities enjoy strong investor interest, attracting roughly 25 percent of hotel investment across the cities included. But their markets, while significant, are on a smaller scale to the Global Giants.

The report shows U.S. cities dominating this Gateways group, demonstrating the depth of hotel room supply and demand across the United States. San Francisco, Chicago and Miami lead the way. Dallas is also coming to the fore as a dynamic momentum market, having seen both robust performance in recent years and a significant pipeline of new rooms.

Munich, Berlin, Amsterdam and Sydney are among the leading destinations in terms of investment intensity (investment volumes as a proportion of city GDP). Sydney in particular is set for a wave of new supply from 2017 onwards, which will likely be matched by high levels of occupancy and demand.

New World Cities
These highly liveable, mid-sized cities are gaining greater attention from the hotel sector.

“In Europe, Dublin and Copenhagen have seen double-digit RevPAR growth on the back of high demand and low levels of supply,” says Kelly “This is encouraging further development of a strong supply pipeline in Dublin.”

Denver, Seattle and Vancouver rank among the world’s top 30 investment destinations for hotels. Construction is especially active in Seattle and Denver, resulting in a big increase in new hotel room supply.

Melbourne is also seeing high levels of new supply. Its exceptional occupancy rates though mean the city is well positioned to absorb the increase in new rooms.

Emerging Hotspots
According to the research, some of the world’s most dynamic hotel markets can be found in the Middle East, and South and Southeast Asia.

Following in the footsteps of Dubai, the Saudi Arabian cities of Riyadh and Jeddah are each set to double their hotel room supply in the coming years. Jeddah, as the principal gateway to Mecca, is set to be the major beneficiary of the decision to relax the quota on religious tourists visiting Islam’s holiest city. However, the exceptional supply pipeline in both Riyadh and Jeddah is impacting performance.

In terms of emerging markets, Kelly points to Southeast Asia where Ho Chi Minh City, Hanoi and Manila rank among the top performers.

“As they gain global visibility and become more fully integrated into global networks, they continue to attract high levels of foreign direct investment, helping boost the cities’ hotel sectors,” he says.

Exceptional socio-economic growth in India is buoying the prospects of the hotel markets in the country’s leading cities. The top tier of Delhi, Mumbai and Bangalore are witnessing strong momentum, as are the hubs of Hyderabad, Chennai and Kolkata. These cities combine rapid growth with high levels of new supply and growing demand. Nevertheless, to date they are yet to attract large-scale real estate investment into their hotels sector.

Meanwhile, Chengdu is leading the charge among China’s second-tier cities. It is one of the more balanced of China’s cities in terms of demand drivers. However, Chengdu also has the largest supply pipeline in the country, putting it at risk of oversupply.

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Jeremy Kelly

Global Research Director, JLL

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