The risk-adjusted performance of hotel investments in the Asia–Pacific

Purpose Hotels are an important real estate sector, with the Asia–Pacific seeing dynamic real estate markets and high-quality real estate assets and being well-suited to institutional investor portfolios. This paper assesses the risk-adjusted performance and portfolio diversification benefits of Asia–Pacific hotels, and the added-value role of Asia–Pacific hotels in an Asia–Pacific mixed-asset portfolio. The strategic implications of investing in Asia–Pacific hotels for institutional investors are also highlighted, with effective hotel investment pathways identified. Design/methodology/approach Using annual total returns, the risk-adjusted performance and portfolio diversification benefits of Asia–Pacific hotels over 2006–2024 (2007–2024 after de-smoothing) are assessed. Constrained and unconstrained asset allocation diagrams are used to assess the role of Asia–Pacific hotels in an Asia–Pacific mixed-asset portfolio. Using global real estate capital flows, the impact of COVID-19 and the current economic uncertainty on the Asia–Pacific hotel sector is also assessed. Findings The results show that the Asia–Pacific hotel sector is a higher-risk, moderate-return real estate sector, with its diversification benefits mainly observed when combined with stocks and bonds. Its role in the optimal mixed-asset portfolio was also found to be market-specific, with allocation seen in Japan but not at the Asia–Pacific aggregate level or in Hong Kong, indicating that the investment case for direct hotel real estate varies according to market. The depth of the impact of COVID-19 on the Asia–Pacific hotel sector was also highlighted, as well as the impact of the current economic uncertainty, with these impacts generally being more evident in the Asia–Pacific hotel sector than in the other Asia–Pacific real estate sectors. Practical implications This paper provides institutional investors with an empirical basis for assessing the role of Asia–Pacific hotels in their real estate portfolios. The investment case is shown to be market-specific; hotels add value to a mixed-asset portfolio in Japan but are not included at the Asia–Pacific aggregate level or in Hong Kong, where the higher-performing core real estate sectors are preferred. Where there is a valid investment case, the inclusion of Asia–Pacific hotels adds to the exposure institutional investors already achieve via office, retail and industrial real estate in achieving high-quality real estate exposure in the Asia–Pacific. A range of Asia–Pacific hotel funds from the leading real estate investment managers is available to effectively achieve this hotel real estate exposure. Originality/value Hotels are an important real estate sector for institutional investors, with the Asia–Pacific real estate markets being dynamic real estate markets, having unique features and high-quality real estate assets. This paper is the first to assess the importance of Asia–Pacific hotels, their risk-adjusted performance, portfolio diversification benefits and their role in an Asia–Pacific mixed-asset portfolio. The strategic implications for investing in Asia–Pacific hotels for institutional investors are also highlighted.