Update: November 10th, 2020-We have added a press release sent to us by JLL with more information below our original article.
A deputy managing director of a top real estate services firm has said that many investors have been approaching them recently inquiring about purchasing hotels in Pattaya post Covid-19, which has been decimated by the pandemic and lack of foreign tourists.
Mr. Chakkrit Chakrabandhu Na Ayudhya, the Deputy Managing Director for the Hotel Investment Service Business Unit Asia, JLL (Jones Lang LaSalle) stated to the Thai press yesterday that they have received many inquiries from investors interested in purchasing hotels in Pattaya. Many hotels have stood empty since the Covid-19 pandemic ground international foreign tourism to the city to a halt. Pattaya previously welcomed close to ten million tourists a year prior to Covid19 and was the 19th most visited city in the world.
Pattaya depends on foreign tourism for over 80% of its GDP.
Mr. Chakkrit did not disclose where the investors were coming from but stated that interest was high, showing many think there could be a high demand for travel when the pandemic resides and borders re-open. However, he said that many sellers, despite showing some interest, were not being flexible enough and many were not allowing buyers to split payments into installments or to extend delivery time of the property thus being potential roadblocks for any deals.
Prior to Covid-19, Chakkrit said Pattaya had not had any major hotels for sale since before 2018 as the market and economy were fairly strong in terms of the high and mid range hotels in Pattaya. Now, post Covid-19, interest was high again for long-term investors to re-enter into the market, hoping that when borders re-open the city will see a surge in visitors once more.
Chakkrit added that most investors are interested in 4-5 star high end properties which only comprise about 20% of the total properties in Pattaya. The majority of hotels are 3 star in Pattaya, he added, and is a very competitive market.
Pimpanga Yomchinda, Vice President of Investment Sales – Asia, told the press that JLL had been approached since the Covid-19 pandemic by multiple Pattaya hotel owners on potentially selling. However, the previous roadblocks mentioned by Chakkrit and “unrealistic pricing” were holding back any true sales. She said JLL is meeting with hotel owners one on one and case by case to understand their needs. Many had not expected the crisis to last as long as it had, especially into the normally profitable high season and are now uncertain when tourists can return in larger numbers.
JLL notes that the average hotel size in Pattaya is 100 rooms and almost half have less than 50.
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. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with nearly 300 corporate offices, operations in over 80 countries. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated.
In Thailand, JLL is the largest international property services firm with 1,600 employees.