Don't be afraid of dwindling Chinese investment
Joanne Jia, Head of Investment (Asia) explains why the UK hotel market shouldn’t be afraid of dwindling Chinese investment.
‘The Chinese are leaving the UK’ is a regular statement seen in the media of late. With political uncertainty plaguing the Asian superpower and levels of caution rising, should the UK hotel sector be concerned?
The short answer is no; the truth is that Asian investment, commonly seen as the security blanket of the UK property market, isn’t wearing as thin as suggested. Singapore, Hong Kong, Thailand, Taiwan and Malaysia are driving the flow of capital out of Asia and into the UK. Although a powerful force, Asian investment is not all about China, and how they use their money will not have any significant impact on the UK hospitality industry as demand from other nations continues to soar.
Similarly, the UK property market is not all about London. Even though the Chinese – and other more mature investors – are becoming increasingly reluctant to invest in the London market as prices continue to rise, they have started considering sites in the UK regions instead. While London continues to remain an international hotspot for hotels, tier one UK regional cities such as Manchester, Liverpool and Birmingham are all increasing in demand, price and profitability. Asian investment is gradually steering away from the property bubble of the capital as investors become wise to the myriad opportunities elsewhere.
Essentially, Chinese investors want good returns – not only fancy trophy assets which attract many people with wealth, such as those from the Middle East. This is a common misconception and it is therefore not at all surprising that Chinese investment in London alone is decreasing. Chinese investors always conduct deep due diligence to ensure that assets will be profitable in the long run, so the rise of the hotel market in UK regional cities is largely of interest and will keep funds flowing.
In our annual Business Outlook 2016, we predicted that investment from Asia will continue to rise, not fall. The number of investors from Asia is only set to increase throughout 2016, as will the number of in-bound Asian tourists looking to stay in hotels that are managed by companies who understand their culture. One contributing factor is President Xi Jinping’s highly publicised visit to the UK last October: as a result, more investors and consumers alike have become interested in its offering.
With the hotel market specifically, over the last two years, we have seen a shift in attitudes within the Asian markets with more investors who had previously concentrated solely on residential and office opportunities now considering hotels. With numerous factors contributing to the boost in the hospitality trade in secondary UK cities, this is a prime focus for those seeking guidance on the best opportunities.
Overall, the drivers for investment originating from Asia are extremely diverse. Having a keen understanding as to the variability in decision-making processes, sources of funding and strategic objectives is vital for hotel owners as potential sellers to understand. Whilst there will undoubtedly be an impact in the sector over the long term if the Chinese economy falters, there is still a large appetite for Asian money to invest in a safe haven with freehold property assets and this is set to continue for the foreseeable future.