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Corporate investors lured by hospitality sector, say consultants

Hotels and serviced apartments are increasingly finding favour among corporate investors in Singapore, according to property consultants.

SINGAPORE: Hotels and serviced apartments are increasingly finding favour among corporate investors in Singapore, according to property consultants.

Chesterton Singapore says the segment is compelling, leveraging on the growth in tourism as well as rising interest in hospitality real estate investment trusts.

Mapletree Investments recently signed a deal to buy a 49-per cent stake in Oakwood Asia Pacific, with plans to acquire and develop US$4 billion worth of corporate and serviced apartments in Asia, Europe and North America.

Analysts say the hospitality segment is attractive to investors who wish to diversify their business.

It also presents upside potential as real estate investment trusts (REITs) continue to be well received in the market.

Donald Han, managing director of Chesterton Singapore, said: "You have City Developments hospitality REIT… Far East Hospitality REIT… Ascendas Hospitality Trust and more might be jumping on to the bandwagon.

“Companies like Mapletree may… be mulling potential listing once their acquisitions have hit a particular matured level."

Analysts say investors are looking at hotels and serviced apartments as they tend to offer higher yields compared with investments in retail malls or commercial offices.

Consultancy Colliers International says the rate of returns of hotels and serviced apartments is around 5.25 to 5.75 per cent in Singapore.

This is higher than the rate of returns of offices, which is around 3.5 to 4.25 per cent, and retail properties, which is around 4.75 to 5.5 per cent.

However, it is slightly lower than the rate of returns of industrial properties, which is at around 6 to 6.75 per cent.

The consultancy added that total investment transaction value for the hotels and serviced apartments sector in Singapore has increased sharply from S$298 million in 2009 to S$3.7 billion last year.

However, some analysts say rising prices in Singapore’s hospitality market could send investors scouting for opportunities abroad.

"Luxury property like what has been transacted at Westin recently went for about S$1.5 million per key,” said Mr Han.

“Compare that to Australia, where the price per key for a 5-star hotel would hover around S$500,000 to S$550,000 per key (while) in Tokyo, probably around S$400,000 to S$500,000 per key -- about more than 50-per cent discount compared to some of the properties in Singapore."

Tang Wei Leng, executive director of investment services at Colliers International, said: "One hot country right now is Japan. Call it "Abenomics" or the Japan Olympics that they will be hosting in 2020, all this will lead to people wanting to travel to Japan. Where do they have to stay? Serviced apartments and hotels.

“The other one that we think highly of is Seoul. There are two casinos that have been announced."

Market watchers say the expected growth in international visitor arrivals to Asia Pacific over the next five years will continue to support investments in the hospitality sector.

According to preliminary findings from a recent report by the Pacific Asia Travel Association (PATA), visitor arrivals to the Asia Pacific region will continue to grow at an average annual growth rate of 6.2 per cent from 2014 to 2018, to hit 660 million by 2018.  

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