The global hotel industry is being reshaped by geopolitical and economic forces, as well as structural shifts resulting from technological disruption, changing leisure patterns and new market players. These factors stand to influence the global geography of the hospitality industry, with new and dynamic markets gaining clout vis-à-vis the established destinations. This new and evolving landscape of hospitality requires innovative ways of assessing market opportunity and risk. Based on a detailed analysis of 106 cities worldwide covering scale, demand growth, construction, investment and performance, JLL identified five groupings of cities, each of which offers different opportunities and risks for hotel investors and operators.

The Global Giants — led by New York and London, but also including Hong Kong, Las Vegas, Los Angeles, Orlando, Paris, Tokyo and Washington, D.C. — are elite cities that attract half of global hotel real estate investment and have the deepest concentrations of business and leisure activities to support a large and diverse hospitality industry. These nine cities have the world’s most established hotel markets, which dominate the hospitality industry and, in particular, real estate investment. They account for nearly 50 percent of total investment in the hotels sector and represent seven of the 10 largest markets by room numbers (23 percent of rooms across the 106 cities surveyed). They are firmly on the radar of investors, notably Chinese, Asian and Middle Eastern capital targeting trophy assets. Leading this group, London and New York are without doubt the biggest global players. Between them they attract almost 30 percent of hotel real estate investment (of the 106 cities included), amounting to more than $23 billion over the past three years.

The Rising Giants is a group of cities that includes Bangkok, Beijing, Dubai, Guangzhou and Shanghai, which are maturing quickly and rivaling the world’s leading markets in terms of size and prestige. However, they are yet to attract the same level of real estate investor interest as the Global Giants. Still, the Rising Giants represents a distinct group of dynamic hotel markets that are quickly gaining global scale. These are the successful growth cities that are now establishing themselves as targets for investors and continuing to increase visibility on the global stage:

• Shanghai is on the path to becoming a true “global city” and is already one of the largest hotel markets in the world. Beyond its massive scale, Shanghai attracted $1.3 billion of hotel transaction volumes between 2014 and 2016.
• Beijing is now among the top 20 hotel investment destinations in the world, drawing more than $1 billion of investment over the past three years. However, Beijing’s momentum has slowed due to lower government demand and lower levels of new development.

Gateways is a second tier of mature markets in terms of scale and includes cities such as San Francisco, Singapore and Sydney. This cluster accounts for another 25 percent of global hotel investment. U.S. cities again dominate the Gateways group, demonstrating the depth of hotel room supply and demand across the United States. Chicago, Miami and San Francisco are rivaling the Global Giants, while the likes of Atlanta, Boston, Dallas, Houston, Phoenix and San Diego are also markets of significant scale. In Europe, this group includes Amsterdam, Berlin and Munich, while Asia Pacific is represented by Sydney, Singapore and Osaka.

New World Cities are a set of highly livable, mid-sized cities that include Dublin, Melbourne and Vancouver — markets that have outperformed in recent years, in terms of hotel occupancy, demand and revenue per available room (RevPAR), as their global status has grown.

Several New World Cities are gaining the attention of the hotel sector. These are typically mid-sized cities that are highly livable with robust infrastructure and economic specialties that enable them to punch above their weight in the global economy. Dublin, Copenhagen, Edinburgh, Melbourne, Denver, Seattle and Vancouver are archetypal cities in this group.

• In Europe, Dublin and Copenhagen have seen double-digit RevPAR growth on the back of high levels of demand and low levels of supply. This has encouraged development in Dublin, with a strong supply pipeline planned.
• Denver, Seattle and Vancouver are among the top 30 investment destinations for hotels. Meanwhile, Edinburgh heads the ranking for investment intensity (investment volumes as a proportion of city GDP).
• In terms of construction, Seattle and Denver have come to the fore with regards to new hotel room supply.
• Melbourne is facing high levels of new supply, but with exceptional occupancy rates, the city is well positioned to absorb the increased number of new rooms.

Emerging Hotspots is a group of predominantly Asian and Middle Eastern rising stars, such as Chengdu, Bangalore, Ho Chi Minh City and Riyadh, that are experiencing rapid expansion. Proportionally they have among the largest supply pipelines in the world.

Some of the world’s most dynamic hotel markets are found in the Middle East and in South and Southeast Asia. The Middle Eastern markets of Riyadh and Jeddah are following in the footsteps of Dubai and are each set to double their hotel room supply in coming years. This exceptional supply pipeline is impacting performance, however. In coming years, Jeddah is set to be the major beneficiary from the decision to relax the quota on religious tourists visiting Makkah. In Africa, Nairobi is a fast expanding market, backed up by strong economic growth.

In Southeast Asia, increasing global visibility has boosted the hotel sectors in Hanoi, Ho Chi Minh City and Manila. These cities are among the top performers in JLL’s 2017 City Momentum Index. They are starting to be more fully integrated into global networks, attracting high levels of foreign direct investment, gaining global visibility and building new connections.

In India, exceptional socioeconomic growth is buoying the prospects of the hotel markets in its leading cities. The megacities of Delhi, Bangalore and Mumbai are showing strong momentum, as are the hubs of Hyderabad, Chennai and Kolkata. These cities are combining rapid growth with high levels of new supply and growing levels of demand. These cities, however, are yet to attract large scale real estate investment into the hotel sector, although Bangalore saw more than $250 million invested between 2014 and 2016. Chengdu is leading the charge among China’s second-tier cities, possessing the country’s largest supply pipeline. While Chengdu is one of the more balanced of China’s cities in terms of demand drivers, it is nonetheless at risk of oversupply.

Excerpted from the JLL report The Changing Global Landscape of Hospitality. The full document can be accessed at this link: https://bit.ly/2khPNml