Hotel investment levels in Europe reached €21.6 billion in 2006 exceeding all expectations; 37.9% up on 2005 and more than doubling the deal volume of 2004. Despite this steep increase, the number of rooms which changed ownership grew at a slower pace, reflecting a significant growth in average price per room across Europe, says a report by Jones Lang LaSalle Hotels.
Mark Wynne-Smith, CEO Europe, Jones Lang LaSalle Hotels: “Europe boasts the most international profile of investors with almost half of the total investment coming from outside the continent: 26% global sources, 10% Middle Eastern, 9% from the US and 3% from Asia.”
“Last year saw portfolio transactions at an all time high across the region and the UK remained the leader in hotel investment activity taking 56% share of Europe’s total investment”, he continued. “Other Western European hot spots included Spain and Germany, but as predicted, the capital flowed further east too. In 2005 the focus was on Turkey and Russia but last year saw investors target other areas in the region including Poland, Bulgaria, Slovakia and Serbia. The market is set to stabilise this year and interest in the more traditional Western European cities may transfer to Central and Eastern Europe.”
Investment drivers
Last year the debt markets remained competitive, allowing investors to negotiate attractive loans thus driving hotel real estate prices upwards. Strong international demand combined with a shortage of stock in prime locations resulted in decreasing yields and started to force investors towards secondary locations in search of more attractive investment deals with lower income growth potential.
Major European Players
Across Europe, private equity houses have continued to hold the lion’s share of total hotel investment in 2006 representing 43%, while high net-worth individuals represented 13%, property companies 11%, REITs at 6% and institutional investors 5%. Hotel groups made up half of all the vendors.
Mark Wynne-Smith commented: “As hotel operators largely divested their hotel real estate a new type of vendor is likely to emerge in 2007. We may see a number of private equity investors selling off their hotel assets, perhaps looking to enter emerging markets. We also expect institutional investors to gain momentum in hotel investment. REITs may take a little longer to establish in the market as hotels must take further steps to restructure their rental agreements to become suitable for the REIT model.”
Theodore Koumelis - Friday, February 09, 2007
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