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EMEA Hotel market slows but continues to show growth

According to Jones Lang LaSalle Hotels Latest Hotel Investor Sentiment Survey


London, 10th November 2011 - The EMEA hotel market slowed in Q2 and Q3 this year, but the majority of cities can still expect to see  some trading performance growth in the next six months, according to Jones Lang LaSalle Hotels latest Hotel Investor Sentiment Survey.
 
Of the 37 cities tracked, 20 (54 percent) are expected to show growth in the short term, a figure which increases to 30 cities (81 percent) when medium term performance over the next two years is considered. London, Istanbul, Munich and Paris are likely to be the focus of investor activity in 2012 , although medium term trading expectations are also anticipated to be positive in Stockholm and Copenhagen.
 
Mark Wynne-Smith, CEO of Jones Lang LaSalle Hotels in EMEA, said: “Market movements in the last six months have proven to be a series of contrasts.  While the year started off with evidence of economic recovery across the region and strengthening investor confidence, the second and third quarters experienced increased uncertainty  and the increasing risk of a  widespread economic slowdown. This has had a negative  impact on investors’ expectations for the hotel market.”
 
Investors have more confidence in the ability of Western European cities to outperform their Eastern European neighbours, though Moscow and Warsaw were  highlighted as cities that will experience substantial growth both in the short and medium term. The hotel market in these cities is still in the development stage, which was temporarily put on hold due to the economic downturn. With great potential to expand visitation and still limited graded hotel supply, investors are rightly assuming substantial performance growth potential for the future.
 
Within the UK, the slow rate of economic recovery and high inflation continue to impact on short and medium term trading performance expectations as UK  corporates keep tight control over their travel budgets.  Whilst London continues to perform well due to its unique position, performance in the regional cities has weakened.
 
In terms of investor intentions, buy intentions have undoubtedly strengthened and now clearly dominate investor sentiment at a weighting of 41.8 percent which gives a clear indication that pricing is becoming more realistic.  Hold intentions weakened in the current survey to 28.2 percent - a reduction of 680 basis points compared to April 2011.  Build and sell sentiment were positioned in third and fourth place at a weighting of 16.2 percent and 13.8 percent respectively  indicating that those who don't have to sell are unlikely to do so as more stressed stock is offered for sale.
 
Looking towards cities in MENA, the ‘Arab spring’ and political upheaval have continued to impact on investor confidence. However yields have remained largely stable at approximately 8.9 percent and trading  expectations are anticipated to improve over the medium term. Doha, in particular, is likely to see strong growth potential.
 
Wynne-Smith concluded: “Yield requirements are expected to weaken across the region but the core markets such as London and Paris are less likely to suffer due to the number of investors seeking to acquire prime and secondary assets in these cities.  Yield prospects for secondary cities and assets appear to be worse, reflecting the uncertainty around the pace of future growth and difficult lending market.
 
However, the return of buy intentions on the top of investors’ strategy lists indicates a  potential turning point for the hotel investment market  as it coincides with a marked increase of the number of hotels available for sale”.