An increasing number of investors eyeing Pattaya hotels
Hotel owners considering to dispose of their assets must refine the transaction process to optimise deal certainty and proceeds
Pattaya is poised to become another bright spot for hotel investment in Thailand in 2021 as more investors are exploring investment opportunities. Historically, demand in the Pattaya hotel market relied very much on international tourists. However, many investors are reimagining the market’s prospects based on domestic demand potential, in addition to the ongoing development of the Eastern Economic Corridor (EEC), according to property consultancy JLL.
Pattaya is one of Thailand’s major tourism markets with hotel inventory ranking second after Bangkok and slightly ahead of Phuket at almost 64,000 rooms. The city has been put on a spotlight as its hotel sector benefits from its close proximity to Bangkok and the development of the EEC. Many ongoing infrastructure projects supporting the new economic zone are expected to stimulate demand for hotels from both leisure and corporate standpoints. In addition to U-Tapao Airport’s plan to increase capacity to five million passengers, Pattaya is well-positioned to benefit from the planned high-speed railway project connecting Suvarnabhumi, Don Mueang and U-Tapao Airports, which is planned for completion in 2025.
Despite positive long-term fundamentals, Pattaya is among Thailand’s major hotel markets that have suffered badly from the pandemic. But the market is also getting a radar of more investors.
“In recent months, we have been getting an unprecedented level of enquiries from investors who are looking for opportunities to acquire investment-grade hotels in Pattaya. We have yet to see a wide trend of deeply discounted hotels in the market, particularly institutional-grade assets. However, the situation is delicate, and the landscape could potentially shift swiftly,” says Chakkrit Chakrabandhu Na Ayudhya, Executive Vice President of Investment Sales - Asia, at JLL’s Hotels and Hospitality Group. “Owners are being pressured by the extended burn rate. As the crisis prolongs, the pricing gap between owners and investors will naturally become narrower,” he explains.
Pimpanga Yomchinda, Vice President of Investment Sales – Asia, at JLL’s Hotels and Hospitality Group, says “Since the pandemic started, we have seen a lot of engagement from hotel owners. They want to understand the implications of various hold and disposal scenarios to get themselves prepared to make the most informed decisions. As there is no one-size-fits-all approach, the best way for us to understand the situation is to meet owners on the ground, look into their needs and help them customise their asset/portfolio strategy.”
Adding to Ms Pimpanga’s statement, Mr Chakkrit says “The disposal process will need to be refined to accommodate the current situation by allowing more flexibility with additional deal features such as vendor financing, income guarantee, staged payments or delayed handover. This will, in turn, optimise deal certainty and proceeds.”
Investment activity in the Pattaya hotel market is likely to resume in 2021
“Pattaya has seen no major hotel transactions since 2018 due largely to the lack of investment-grade assets being offered to the market. It is to be seen whether the pandemic will unlock some of them over the next 12 months,” says Mr Chakkrit.
According to JLL, the average number of keys for hotels sold in the last five years in Thailand was approximately 180. While hotels in Pattaya have approximately 100 keys on average, almost half of the hotels across the city have less than 50 keys.
Mr Chakkrit explains, “With a lower-key count, it is harder to achieve sufficient economies of scales from an investor point of view. In addition, investors are more interested in Pattaya’s upscale hotel segment that accounts for less than 20% of the city’s total hotel stock. In contrast, the balance of the stock is in the midscale and budget segments with strong competition.
Traditionally, investor demand for Pattaya hotels would lean more towards rarer and more sought-after upscale and upper-upscale segments because the midscale and budget segments are viewed as offering lower profitability and being difficult to differentiate due to large supply of rooms.”
Domestic investors to dominate the market
“Due to border restrictions, we are naturally seeing more engagement from domestic investors compared to what we saw in almost 40 hospitality deals (over THB 40 billion in volume) that we brokered in Thailand since 2010. We are also seeing more enquiries from corporates with diverse income streams and private equity funds since the pandemic started,” says Mr. Chakkrit.
JLL’s Hotels & Hospitality Group in conjunction with The Thai Hotels Association has planned a series of hotel investment conferences in Thailand’s key hotel markets this year. The last event was held in Pattaya and the next one is planned for Phuket on 11th November 2020.
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $18.0 billion in 2019, operations in over 80 countries and a global workforce of nearly 93,000 as of June 30, 2020. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.