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2013 was a resurgent year for the hotel investment market in Europe, Middle East and Africa (EMEA), with transaction volumes up 17% to $13.2 billion and 2014 set to grow by more than 20% according to the latest figures released by Jones Lang LaSalle’s Hotel & Hospitality Group (JLL H&H) in their Hotel Investment Outlook report.
“With increasing confidence for EMEA-wide recovery and growth, we forecast hotel investment volume in the region to grow by more than 20% to approximately $16 billion in 2014. Although some markets are at different stages of the recovery curve, underlying sentiment is much more positive, leading to increased interest in hotel investment.” Said Jon Hubbard, CEO Northern Europe at Jones Lang LaSalle’s Hotel & Hospitality Group.
Opportunities are being bolstered by continued sell-down of over-leveraged assets in the control of the lenders, as well as a number of private equity funds reaching the end of their life-cycle. JLL H&H also expect brands to continue their asset light/ asset right strategy, which could lead to more asset disposals, taking advantage of strong investor sentiment.
Additionally, debt conditions have also improved across Europe, with a number of banks wanting to lend to the European hotel sector and also new alternative lenders being more active across Europe.
“We expect to see an increased appetite from institutional investors, not only for direct investment but to also place large amounts of money into the debt market as they seek to increase their allocation to higher yielding real estate and looking to the hotel sector as part of a well-diversified real estate portfolio. Alternative lenders such as AIG and M&G are entering the senior debt markets, whilst there is no shortage of mezzanine debt available from a number of debt funds. Core markets such as the U.K., France and Germany will provide good opportunities for investors in 2014 as the familiarity and maturity of these markets can drive more value.” Said Hubbard.
It is not only established European lenders, such as Aareal increasing lending to the European hotel sector. A growing number of domestic and overseas banks are also helping to improve debt conditions including; the Bank of China, United Overseas Bank, RBS and a number of Middle Eastern banks - who are additionally bringing local relationships to Europe particularly for London assets.
“We are seeing more cross-border investment, particularly from U.S. based private equity funds who are primarily looking towards core markets in Europe and institutional or opportunistic assets as their domestic markets near their previous peak. Investors from Asia are keen to tap into this region too, as the European real estate market offers some very attractive returns and medium term growth prospects compared to their domestic markets. In the last 12 months, more Chinese investors have arrived on European soil, and we expect this trend to continue as the number of outbound travellers from China swells.” Added Christoph Härle, CEO Continental Europe at Jones Lang LaSalle’s Hotel & Hospitality Group.
In 2013 the U.K. was the most liquid market, taking a 37% share of investment volume at $4.7 billion supported by three large portfolio deals in the first quarter. Looking ahead, this positive trend is set to continue with RevPAR growth in London expected to rise 4% in 2014, a more positive result than 2013 when the capital experienced softer trading whilst it absorbed additional supply, amid the post-Olympic hangover.
France secured the second highest share of total EMEA transaction volume at 18% or $2.3 billion, led by the sale of a number of trophy assets and some notable portfolio deals – including Groupe du Louvre and Mandarin Oriental Paris. Due to the size of some of those transactions from 2013 we are not foreseeing massive growth in the French transaction market in 2014.
The German hotel industry remains one of Europe’s most sought-after destinations for operators and investors as it continues to benefit from strong underlying market fundamentals. While still dominated by institutional investors, we expect appetite to remain strong in 2014 also from other investor types, reflected by Germany’s status as being the third most liquid market in terms of hotel transaction volumes in Europe.
“Distressed areas such as Spain, Italy and Ireland will also offer good buys and investors will be eager to move on well-positioned assets in these markets. The CEE has seen a good number of assets trading in 2013 after years of slow activity and we would expect this trend to continue in the core markets, so overall another diversified and exciting year ahead for the industry.” Said Härle.
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