Indian hospitality market bouncing back but institutional investments still weak

The Indian hospitality market is seeing a strong recovery driven by domestic demand, but is at an “infancy stage” compared to other Asia Pacific markets in attracting institutional investments, Nihat Ercan, senior managing director Asia Pacific at JLL Hotels & Hospitality, has said.

Across Asia Pacific (Apac), JLL has forecast $10.7 billion worth of hotel transactions this year, up 15% from last year, with India’s share remaining miniscule.

“When you look at Apac relative to the US and Europe, it’s about 15-20% of global transaction volumes,” said Ercan who is also head of investment sales in Asia Pacific at JLL Hotels & Hospitality. Australia, Japan, China, and South Korea account for 70-80% of the transaction volumes across the region mainly due to their institutional investor base and a strong domestic demand base, he said.


“Throughout Covid, all these markets fared well because of the strength of domestic demand, which also exists in India,” Ercan said. “However, they have a very strong institutional investor base which the Indian market doesn’t really have, or it is still at an infancy stage relative to those markets.”

Another driver of activity in the four most active hotel investment markets has been alternative use, he said.

“In gateway markets like Sydney, Melbourne, Tokyo, and Seoul, there has been a trend of converting hotels into multi-family use or into residential or co living products. The assets are being converted for highest and best use,” Ercan said.

Jaideep Dang, managing director, hotels and hospitality group, South Asia, at JLL, said the scale of investments in the sector is far less in India compared to Australia, Japan and Korea both in terms of stock availability and institutional capital for hotels. Family offices, high net worth individuals and private equity players are showing interest, he said.

“In the last six months, we have seen a trade of about $120 million. That has been largely done through JLL. India’s number looks small when compared with the Apac level. But from an India perspective, it gives you encouragement that things have started moving. The trade is across greenfield, brownfield as well as operating assets. Are people still looking at stress situations? Perhaps no. The bid ask is narrowing," he added.

At the start of this year, Ercan had said there was a lot of private equity interest in Asia Pacific. “As a result of that frenzied activity, we have seen in the first half of this year, quite a few large scale private equity and institutional investments being done in Apac,” he said. “However, come quarter two, the tide did start to turn, and it was all the headwinds that came through.”

Cost of debt has increased suddenly and substantially in the last couple of months as inflationary pressures pushed interest rate and base rate up across markets with a few exceptions such as Japan, and that has taken the wind out of private equity investments, Ercan said.

“Private equity is unable to be as aggressive as it was at the start of the year because of that increase in the cost of debt,” he said. “So, what we are seeing is more high net worth family offices, or corporates/developers backed by high net worth family money, coming into the market now. Private equity is there but it’s not as aggressive.”

Ercan also cited labour shortages in the hospitality sector and talks of recession. “The war in Ukraine would have impacted the sentiments at the investment committee level of some global private equity players. There was less of a direct impact in Apac,” he added.