ID HOTELIER - The occupancy cycle, which simultaneously reflects the supply and demand cycles, is but one of the major cycles currently impacting investment returns in Indonesia's hotel sector. Other related cycles include hotel physical life cycles, capital flow cycles (debt/equity cycles), and hotel ownership life cycles.
The growing interest in hotels as an individual asset class in Indonesia puts the hotel market cycle and long-term trend line at the center of strategic investment decisions for hotel investors.
Investors seek to understand if there is a “typical” hotel market cycle, describing the movements of key market variables such as occupancy, ADR, RevPAR, cap rates, and values around their long-term trends. The opportunity to exploit cycles is therefore based on an investor's capacity to perceive events as susceptible to repetition instead of being isolated, random, and non-recurring.
The hotel value cycle methodology employed by investors should therefore incorporate both the physical and capital market real estate cycles. More recent investors in Indonesia have sought to determine current and future market cycle positions for individual hotels, competitive sets, and markets which has provided strategic direction on opportunities to exploit the cycle in terms of acquisition/disposition, capital expenditure, and operating decisions.
We believe that investors in the Indonesian hotel market need to move away from trends, herd mentality, and perpetuity capitalization models and toward a cyclical view of hotel investing – one that is dynamic, constantly changing, rarely in equilibrium, and where flexibility and a degree of contrarianism are important for investment success.
Ross Woods is a seasoned hotel investment advisor with over 30 years of global experience in hotel asset management, portfolio management, and hotel advisory services. Known for his collaborative-based consulting style that integrates a high level of strategic and analytical expertise, his “smarts” are sought by clients to solve complex issues, make better decisions and realize the highest risk-adjusted investment returns. His clients include banks, private investors, REITs and hotel management companies in the United States, South East Asia, Australasia, Europe, and Dubai.