Asian hotel owners keep calm and carry on – and even see
some silver linings.
ASIA PACIFIC – How U.S. President Donald Trump’s proposed and implemented tariffs actually pan out remains to be seen, but Asian owners told Hotel Investment Today
that while cautious, they remain entrepreneurial and believe every crisis is an
opportunity. They have faith in hotels as a resilient asset class as crises
have proven time and again.
On April 9, Trump paused tariffs for 90 days, barely a day
after the duties kicked off (although he raised the tariff on Chinese imports
to 134% from 104%). The reversal is a stark reminder that gyrations are set to
continue.
However, Asian owners may have sound arguments for potential
silver linings in hotel investment in the region because of the tariffs.
A weaker US dollar, for example, would increase the
purchasing power of investors from countries using other currencies,
stimulating investment in US dollar-denominated assets in Asia. This is because
their currency can buy more US dollars than before, effectively making
investments cheaper, said Luzi Matzig, partner in the 67-villa Royal Sands Koh
Rong resort in Cambodia.
Costs in Asia, in general, and in Cambodia in particular, are primarily based on US dollars, and the value of the dollar is likely to decline. As a result, investment capital originating from countries using RMB, AUD, EUR and CHF [among others] will gain from the US dollar decline and investors will be incentivized to invest in new projects in Asia.
Luzi Matzig
“Costs in Asia, in general, and in Cambodia in particular,
are primarily based on US dollars, and the value of the dollar is likely to
decline,” Matzig said. “As a result, investment capital originating from
countries using RMB, AUD, EUR and CHF [among others] will gain from the US
dollar decline and investors will be incentivized to invest in new projects in
Asia.”
In addition, if the US Federal Reserve Bank prioritizes
economic growth over controlling inflation and reduces interest rates, the Asia
Pacific region could become a buyers’ market for hotels and land. Bangkok-based
Amora Hotels & Resorts, which has been accumulating hotels in Australia –
the latest being its acquisition last month of the Hilton Adelaide – is
monitoring this closely.
Amora Owner/Director Earp Chaowaphat Siriphatrawan said,
“The Fed will probably try to stimulate growth by lowering interest rates. In
Australia, the RBA [Reserve Bank of Australia] normally follows what the US Fed
does with interest rates. So, I predict the cash rate in Australia will be
lowered to a great extent in the years to come. Cost of financing will be
lower.”
Amora is spending another AU$40 million to upgrade and
rebrand the Hilton Adelaide and Siriphatrawan believes construction and
renovation costs in APAC are likely to decrease due to U.S. tariffs on China.
These tariffs will reduce demand for Chinese manufactured goods, while supply
remains constant. Consequently, China and similar manufacturing hubs will
likely offer these goods, including construction-related materials and
commodities, at lower prices to other markets in APAC. Conversely, the U.S. is
expected to experience increased construction/renovation costs, he said.
However, Gary Kwok, co-founder of Axe Management Partners,
expects supply chain disruptions will reduce efficiency, driving up commodity
prices and, consequently, construction costs – potentially delaying new hotel
projects.
“From an investor standpoint, many might pause their
investments until the dust settles or shift their capital toward safe-haven
assets,” Kwok said.
That said, while new construction might decelerate, a
slowdown in investment from certain investor types could reduce competition in
the acquisition market, Kwok added. “This will open doors for value-add
investors like us. Higher renovation costs will simply encourage value-add
investors to think more creatively and adaptively to unlock asset potential,”
he said.
Axe Management Partners has successfully relaunched the
three WBF hotels in Osaka it bought from CapitaLand Ascott Trust last year,
which are now rebranded as IHG’s Garner hotels. Kwok maintains that Japan’s
hotel investment market remains robust.
Historically, APAC hotel investment market remains resilient. This region has consistently demonstrated its ability to bounce back from economic fluctuations. Therefore, we are not modifying our property investments, renovations, or other development activities.
Dillip Rajakarier
“When evaluating an investment, I prioritize fundamentals
above other factors,” Kwok continued. “Japan’s hospitality sector continues to
stand out due to its persistent strong demand and high-quality product
offerings, bolstered by a stable political environment and more. While the yen
is strengthening, it remains relatively weak compared to historical benchmarks.
Thus, Japan continues to be appealing. We will keep seeking out opportunities
to add value.”
Demand questions
But will demand remain strong if consumer confidence on
economic growth is subdued by tariff uncertainties?
At present, Minor Hotel Group is seeing “consistent booking
performance driven by travelers adhering to established seasonal travel
patterns,” said Minor Hotels CEO Dillip Rajakarier.
Of the future, Rajakarier, who is seasoned at navigating
challenging environments, including hyperinflation in Argentina, said,
“Historically, APAC hotel investment market remains resilient. This region has
consistently demonstrated its ability to bounce back from economic
fluctuations. Therefore, we are not modifying our property investments,
renovations, or other development activities.”
Rajakarier added, “Like many companies, we are closely
monitoring the evolving global economic landscape. While potential trade
tensions can create uncertainty, we are currently maintaining our targets. We
anticipate that even during an economic slowdown, people will continue to
prioritize travel and experience-based spending.”
Royal Sands’ Matzig also sees “a positive development for
Asia, in general.”
“The USA has lost a lot of its attractiveness to tourists,
as they dislike Trump and his nonsensical tariff policies. As such, they tend
to favor Asia for their holidays to a greater extent. Russians are already
visiting Asia since they do no longer feel welcome in the West, for example,” Matzig
said.
Moreover, intra-Asia travel forms the bulk (nearly 80%) of
APAC’s international travel, according to the Pacific Asia Travel Association,
while COVID-19 opened Asian countries’ eyes to the power of their huge domestic
markets and have learned lessons on how to motivate them to travel.
And no amount of tariffs could take away Asia’s diverse
attractions and value-for-money proposition.
We are also trying to paydown leverages so that we can, in essence, ‘buy the dip’ and finance at cheaper interest rates. Real estate markets often behave much slower than equities, so we can expect significant lag time before developers/hotel owners become distressed from the recession or stagflation.
Earp Chaowaphat Siriphatrawan
HMD Asia, which together with KS Hotels, bought Belmond’s La
Résidence D’Angkor Cambodia and La Residence Phou Vao Luang Prabang last year, continues
with upgrade plans for both properties. Work has started on the latter and is
scheduled for completion in November this year. The former will begin upgrading
later this year. “This is a significant renovation with new spa, F&B and it
will be just beautiful,” said Anthony Lark, executive director of HMD
Asia.
Cambodia is one of Southeast Asian countries slammed by a
shockingly high tariff, but Lark said the company sees 2025/26 as being “very
strong.”
“Cambodia is such an underdeveloped market with so many
fabulous experiences that while there may be a slowdown, the number of
travelers will continue to increase,” Lark said. “We are forging ahead with
significant renovations and upgrades to our properties here. We are super
bullish and are building a strong PR and digital marketing strategy to drive
new business regionally from Singapore, Bangkok and Hong Kong, and investing in
long-haul markets that drive business in November-April.”
Lark added, “New highways between Phnom Penh and the
southern provinces like Kampot with fast access to offshore islands like JATI
[the company's newly opened resort in Koh Russey, Cambodia] are providing great
opportunities. If hotels and cruise companies continue to focus on creating
great travel experiences that previously weren’t easily accessible, the
interest will keep increasing. Cambodia is much more than the temples and Tonle
Sap.”
Likewise, Amora’s Siriphatrawan wants to make sure that the
group’s hotels in Thailand and Australia have a well-diversified market mix.
“We try to not be too reliant on leisure from the U.S. or on corporates that
have significant portion of earnings from the U.S. as we can expect the demand
from these markets to decrease,” he said. “We try to tackle more domestic
markets and run a tight ship in controlling costs with less aggressive revenue
budgets/forecasts than before.”
Siriphatrawan is also preparing to seize opportunities in
the event of a global recession, which will cause hotels to underperform due to
less demand and disposal income. “I would keep a very good eye on oversupplied
markets such as Melbourne, Auckland and potentially Bangkok,” he said.
“Financially, I am retaining a higher proportion of profits in cash in
preparation for more acquisition targets to pop up in key strategic locations
that we are targeting.
“We
are also trying to paydown leverages so that we can, in essence, ‘buy the dip’
and finance at cheaper interest rates. Real estate markets often behave much
slower than equities, so we can expect significant lag time before developers/
hotel owners become distressed from the recession or stagflation. No doubt this
is a period of high uncertainty, especially with currency exchange rates. To
me, it is still questionable whether holding cash in US dollars or other
currency is best because of the reciprocal tariff act.”