US/GLOBAL -US hospitality investors are looking to Asia for returns but will face increasing competition from local investors, according to a report by Ernst & Young.
The report, which draws on data from 300 US hospitality investors, claimed a combination of asset scarcity and the potential for "double-digit returns" were positioning China and India as major investment centres.
However, the purchasing power and return requirements of Asian investors, notably sovereign wealth funds (SWFs), gave these investors a competitive advantage.
"Sovereign wealth funds are liquid, and they're looking within their own localities, as well as overseas," said Brian Tress of Ernst & Young's hospitality advisory services group.
"They [SWFs] are already filling a gap in the US in the hospitality sector. They have the liquidity to invest in the US, and their return requirements - in terms of return-on-investment but also the time it takes make their money back - are more flexible than those of some US investors."
The report's authors claim the US hotel market remains buoyant despite struggling debt markets. However, it suggests US domestic investors are increasingly looking for development opportunities, rather than the acquisition of existing assets, because of "prohibitive" overpricing in the sector.
The cities slated for most growth domestically in Washington, New York and Los Angeles, driven by regeneration programmes in those cities. "It's expensive to find hotels, especially in gateway cities," said Tress. "Development will supplement acquisition."
He also forecast continued growth in the global luxury segment, with the potential for industry consolidation.
"The US industry has already undergone significant consolidation. It's pretty much done," he said. "But it may happen in newer markets, for instance with domestic hotel companies in China and India."