Since the end of the Second World War, global tourism has grown markedly. In 1950, there were 25 million international tourist arrivals. In 2018, there were 1.4 billion – a recording-breaking figure that marks a 6% rise over 2017, according to the UN World Tourism Organisation (UNWTO).
In fact, tourist numbers have risen uninterrupted since 2009, making travel and tourism as one of the world’s largest economic sectors. For example, in 2016 it created one in 10 jobs (319 million) worldwide and produced 10.4% of world GDP ($2300bn), according to the World Travel & Tourism Council (WTTC).
Currently, FDI into hotels is especially popular. Greenfield FDI in the sector has witnessed non-stop growth since 2014, according to greenfield investment monitor fDi Markets.
However, 2018 saw the highest amount of greenfield FDI in hotels since the 2008/09 financial crisis, with 519 projects valued at $49.7bn, thereby almost tripling 2017’s figures. Foreign investment into all world regions, with North America the exception, nearly doubled, while the leisure and entertainment sector also experienced all-time highs.
This meteoric growth continued into the first five months of 2019, which witnessed more foreign investment in hotels than most full years since 2011. Patrick Fitzgibbon, Hilton’s senior-vice president for EMEA, development, says: “We are in a golden age of travel, with more people travelling than ever before, which has undoubtedly shone a spotlight on the huge opportunities available for developing and investing in hotels.”
Since the financial crisis, the tourism industry has been growing at a much faster pace than the wider global economy, and this demand is underpinning the almost worldwide growth in supply and investment, according to Thomas Emanuel, director of STR, a provider of data and analytics for global hospitality sectors. “[And] when you look at hospitality and hotels compared with many other forms of commercial real estate that are going under, it’s certainly a lot more attractive than opening another retail park,” he adds.
Foreign investment in hotels across emerging economies is heating up. In 2018, the top 12 most active greenfield foreign investors – Barcelo, Club Méditerranée, Marriott, Hyatt International, InterContinental, Melia Hotels International, Nuo Hotels, Radisson Hospitality, Selina, Six Senses, Thomas Cook Group and Wyndham Worldwide – were particularly busy in Asia-Pacific and Latin America.
Of the top 20 destinations that these 12 giants invested in, 16 were emerging economies. Mexico received the world’s highest number of greenfield FDI projects in hotels in 2018, while in terms of capital expenditure, the Philippines received the largest amount of FDI, according to fDi Markets.
“Some [emerging markets] are actively encouraging foreign investment in their tourist infrastructure, including through the offer of incentives to investors. In Colombia, for example, foreign investors in hotel developments are being offered 10-year tax breaks. Incentives such as these, coupled with the general growth of tourist demand, have ensured [increased FDI in recent years],” says Manuel Butler, executive director at UNWTO.
Meanwhile, Asia-Pacific was the top regional destination for hotel FDI in 2018, capturing $24.3bn – three times more than Latin America and five times more than Western Europe. The region has also received the highest number of FDI projects, drawing in 25 more than Latin America and 40 more than Western Europe.
Last year’s investment highs into Asia-Pacific and Latin America have not been seen since before the 2008/09 financial crisis, with foreign investment to the region being particularly subdued since 2014, according to data from fDi Markets. And while rebounding China did well in 2018, other Asian countries are stealing the show, as the Philippines, Japan, Vietnam and Indonesia received an unprecedented share of FDI into their hotels.
“Demand for new and better tourism infrastructure is on the rise right across Asia as tourism grows in the region; Asia and the Pacific is among the fastest growing [areas],” says Mr Butler. “In 2010, there were 208 million international tourists travelling in Asia. Today that number has surged to 345 million – and this does not include the immense volume of domestic tourism, which in China alone totalled 5 billion individual trips in 2017.”
The giant awakes
The vast majority of global greenfield foreign investment in hotels comes from western Europe and North America, which have accounted for 67.1% of the market since 2003, according to fDi Markets. However, their share of the pie has decreased. In 2003, western Europe and North America was the source of 77% of all greenfield FDI projects in hotels, but this dropped to 69.3% by 2008, and in 2018 the figure was down to 56.6%.
The biggest change is the growing role of Asia-Pacific as a source of investment. The region was the second top source for foreign investment in hotels in 2018, behind western Europe, according to fDi Markets. In 2006, investors from Asia-Pacific only invested in 12 countries, in 2012 they branched out to 20, and in 2018 they invested in 44 countries.
Moreover, in 2018, the top 20 sources for global FDI in hotels included five Asian countries, while in 2007 there were only three.
“China’s investment share of the Asian region was 44.8% [in 2018], up from 40.2% in 2012... I think that the increased investment [from and into Asia-Pacific] is due to [growing] domestic and outbound travel in the region,” says Rochelle Turner, director of research at the WTTC.
Asia to Asia
Increasingly, Asian companies are investing in Asia, with 57.7% of Asia-Pacific’s foreign investment in hotels having stayed in the region since 2003, according to fDi Markets. In 2018, the top five sources of FDI projects into Asia-Pacific hotels were the US, Thailand, Hong Kong, China and Japan, whereas in 2010 and 2003 the top five had only two countries from Asia-Pacific.
Four-fifths of tourists travel within their own region, and Asia-Pacific (the second most visited region after Europe) has grown the fastest of all world regions in international tourist arrivals since 2005, with visitor numbers increasing by an average of 6% annually, above the world average of 4%, according to the UNWTO.
“A large proportion of Chinese tourists travel within the region. It makes sense, then, for Chinese investors to put money into hotels and other infrastructure in these destinations. Increasingly, cruise operators are also including Asian destinations on their itineraries. At the same time, the aviation market within the Asia-Pacific region continues to grow,” says Mr Butler.
China provides the world’s largest number of international tourists, says the UNWTO, and accounted for 48% of Asia’s outbound tourism spending in 2018, according to the WTTC.
Europe still shines
Europe remains the world’s number one destination for tourists, receiving a massive 713 million visitors last year according to the UNTWO. France takes top place, followed by Spain, the US, China and Italy.
Western Europe also takes first place as the world’s top source of greenfield foreign investment, commanding 41.4% of the market since 2003, while runner-up North America takes 25.7%, according to fDi Markets.
Western Europe is also a popular destination for FDI in hotels, being the second top region since 2003, after Asia-Pacific. The region has enjoyed uninterrupted growth in foreign investment in the industry since 2014, according to fDi Markets. “If you look at the European hotel industry as a whole, it’s attracting strong investment at the moment, in fact more investment than there has ever been in hotels. One reason for this is that Europe has achieved sustained and good revenue growth for nine years in a row,” says Mr Emanuel.
“Also, the European hospitality industry is still very unbranded and very fragmented. So, 40% of the hotels in Europe are branded, while 60% are still independent. In North America, only 33% of the hotels are independent, and 67% are branded. There is, for regional players and big US hotel chains, significant opportunity to gain market share in Europe,” he adds.
This ‘fragmentation’ opportunity is also very present in emerging markets, where there is also an early-mover advantage, according to Mr Emanuel. With foreign investment in hotels continuing to boom in 2019, more FDI to all world regions can be expected in 2019 – especially in emerging markets – despite the slowdown in global growth.