Asian groups zoning in on European, German hotels

East Asian investors and hotel groups are showing rapidly-growing interest in European and particularly German hotels, according to a new study by hotel broker group Christie + Co., entitled "The Dragon has Awoken".

According to Joanne Jia, head of the Asia Desk at Christie + Co., "Given that the economic cycle in the USA is further along, investors are seeing more upside potential in Europe, helped also by the relatively weak euro currency." In addition, she said, the governments in China, Taiwan, South Korea and other east Asian countries have loosened their requirements for when their companies and institutions invest overseas. The increasingly visible tourism from Asia is also spurring investment, which given that only 6% of Chinese yet own a passport, is clearly at an early stage of development.

The Christie + Co study highlights recent moves by Asian groups in Germany, such as those by QGreen Hotel of China's Greenland Group (186 rooms), the first hotel by Capri by Fraser of the Frasers Hospitality Group of Singapore (153 rooms), a New Century hotel coming from New Century Group in China (221 rooms), a Soluxe Hotel from Huarong Group in China (220 rooms), and a Toyoko Inn from the Japanese Toyoko Group (400 rooms) – all of whom have recently opened or are about to open in or around Frankfurt am Main alone. Many more have opened in other German cities.

Other Asian groups looking for German locations for their market entry are the Chinese Plateno Group with its 7 Days Premium chain and its boutique brand H12. The Thai group Absolute Hotel Services from Bangkok are also looking to buy ten hotels in Europe which they would operate themselves, and then to become an operator for other hotel brands.

Also expanding rapidly is the Paris-based Louvre Hotels Group, whom we have covered several times in these pages, and which was bought earlier this year by China's Jin Jian hotel group. Louvre Hotels has just bought the 25-unit Nordic Hotels German portfolio, which gives it a big footprint in Germany.

The 25 hotels are located across 11 German cities and total 1,816 rooms, all handled from a management platform based in Kiel. Out of the 25 hotels in the Nordic portfolio, 23 are in operation and two are under construction, planned to open in 2016, the firm said in a statement. Mostly unbranded, eight hotels are classified as 4-Star, 15 as 3-Star and two as 2-Star budget level. “The deal allows Louvre Hotels Group to double the size of its network in Germany,” the company added.

Louvre is going to rebrand ten of the hotels as Golden Tulips, another ten as Tulip Inns, and the remaining five hotels as budget brand Première Classe hotels.

The announcement about its German plans comes a few months after it rebranded nine Motel One hotels into Première Classe, Louvre Hotels Group to become the second largest European hospitality group by rooms offered. Only in March this year did Jin Jian buy the Louvre chain for €1.3bn from US private equity group Starwood Capital. Louvre Hotels has about 1,100 hotels in 47 countries. Its portfolio, split between six brands, comprises some 93,000 rooms.

It subsequently agreed a €2.5bn line of credit from the Industrial and Commercial Bank of China, a part of which it said was earmarked for further portfolio acquisitions.

The Christie + Co. study identifies five different types of Asian investor who are actively investing in European hospitality groups:

For institutional investors such as the Thai-Chinese Reignwood Group, the primary motivator is buying prestigious and so-called trophy assets, rather than obsessing about the price or getting their market timing right.

Real estate developers such as Wanda or Greenland are attracted to gateway cities where there is proven demand and liquidity, along with good hotel yields. They're interested in buying land and developing apartments and hotels to meet specific profit goals.

Hotel and touristic groups like Jin Jiang, by contrast, often prefer hotel or resort portfolios in tourist areas which tend to have larger customer bases to whom they can market their broadening hotel chains and achieve synergy through volume.

Private equity and investment groups such as Fraser Hospitality Trust are primarily looking for hotels and platforms for investment that they can bundle into the creation of REITs. Their priority is for yield maximisation and risk diversification among existing hotel assets, rather than new developments.

The fifth group are the so-called high net worth individuals for whom hotels are of interest that either offer a high profit from a complete repositioning or refurbishment, or assets which are likely to maintain wealth for the next generation – the type of properties that are found in the very top locations.

Christie + Co conclude in their study that, apart from following the growing number of Asian visitors abroad, and ensuring they get a big piece of that growing pie, Asian investors are being driven by economic uncertainty and falling share prices at home to diversify their bases, with Germany among European countries being viewed as a growing but safe location.