The Asia Pacific hotel sector is undergoing a dynamic shift, positioning itself as a beacon of resilience amidst a fluctuating commercial property investment climate. Hospitality property has ascended as one of the fastest-growing asset classes in the region, despite a broader slowdown in commercial property markets due to rising interest rates. According to MSCI Real Capital Analytics (RCA), hotels were the only major sector to post an annual increase in deal volume for both the second quarter and first half of the year. Overall, Asia Pacific hotel transactions valued at US$10 million or above increased by 20.5% YoY in 1H/2024 to US$7.1 billion, accounting for 11% of the total commercial property investment flow.

On the other hand, office transactions, which previously accounted for approximately half of the total investment volume in Asia Pacific in 2020 have dropped to 37% in 1H/2024 to US$25.9 billion, down 6.5% YoY. The office sector has struggled to adapt to the structural changes in demand as hybrid working becomes the norm. Meanwhile, the momentum in industrial investment (-8.2% YoY) has slowed considerably since the second half of 2022, as pricing hikes continued to cut into returns. The retail sector (-8.1% YoY) meanwhile has grappled with an uncertain rental outlook amid elevated inflation and slower growth in China.

In contrast, the hotel sector has maintained a relatively stable investment performance. With inflation rates in many Asia Pacific markets reaching decade-highs, investors are increasingly drawn to the sector as a hedge against inflation. The sector’s unique proposition of daily pricing adjustments gives investors more control, a flexibility scarcely available in other property types tied to longer-term fixed income. On average, the initial yield for hotel properties has floated around 4% to 5% since Q4/2022.