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Growing confidence in the EMEA hotel market

According to Jones Lang LaSalle Hotel’s latest Hotel Investor Sentiment Survey

London, 2nd June 2010 – As economic conditions gradually improve, investor sentiment continues to shift slowly towards a buy strategy - according to the latest Hotel Investor Sentiment Survey (HISS) from Jones Lang LaSalle Hotels. The survey shows strongest buy sentiments for Paris and London, but also for other core European cities such as Rome, Milan and Barcelona.
Mark Wynne-Smith, CEO of Jones Lang LaSalle Hotels in EMEA, said: "This latest survey shows the positive trend experienced in our October 2009 survey continuing. With buy intentions gently on the rise and some stock appearing on the market, investment activity should pick up considerably in 2010 compared to 2009. Clearly, it will be still considerably lower than in record years like 2006 or 2007".
EMEA trading performance expectations for both the short and medium term continued to improve. Short term trading expectations remained negative but are now closer to stabilisation. Trading performance expectations for the medium term further strengthened to the positive for 29 out of the 36 cities tracked. Lowest expectations have been reported for cities in Central Eastern Europe (CEE) and the Middle East. Strong supply growth in recent years makes it difficult for these emerging destinations to recover at the same pace as Western European markets with higher barriers to entry. The hotel market in Dubai was reported to remain the most challenging market in MENA with negative expectations for both the short and medium term.
In the UK, the outlook for the regional hotel markets like Birmingham or Manchester remained subdued.  Wynne Smith continued: “These cities are highly dependent on domestic tourism which is likely to remain challenging as the UK economy and unemployment levels only gradually recover.”
Yield requirements continued their downward trend and decreased on average by 40 basis points since the last survey in October 2009 and by 120 basis points compared to the survey a year ago. The hardening of yields was most notable in key gateway cities such as London and Paris and also leading German cities. Yield requirements for the UK cities fell to 7.5%. “Although the lowest yield requirements were reported for London, the provincial cities also experienced an average decline of 80 basis points to 7.9%” said Wynne-Smith.
“According to investors, yield requirements will remain stable in the coming six months. With yield requirements having hardened for two consecutive surveys, it is clear that investors perceive that the bottom in the market has been reached. The main concern remains the stock overhang as investors continue to expect more stock to come to the market than is currently available.  As bank controlled owners take the opportunity to go to a market where stock is in short supply, the purchaser to seller ratio can easily switch to the benefit of buyers which will adversely affect pricing” concluded Wynne-Smith.