ANALYSIS: Hotel volumes tipped to surpass €10b for 2013

European hotel investment for full-year 2013 is set to surpass last year's volume assuming a number of large pending transactions get across the line before end-December.

Jones Lang LaSalle Hotels & Hospitality and Colliers International have both reported €8 bn-plus of transactions for the Europe, Middle East and Africa (EMEA) region in the first nine months of 2013.

Europe accounted for the vast majority of the investment activity, while the Middle East was a major source of equity for European deals.

Colliers International noted that its €8 bn of trades for the period was only slightly behind the 2012 volume of €8.3 bn, making it likely that 2013 will top the previous year. The UK, Colliers said, remained the most liquid market with €2.1 bn of hotels transacted, followed by France with €1.6 bn and Germany with €773 mln.

Brokers' figures for a period or sector can differ, depending on their coverage of various markets, and more importantly on how volumes for deals that are announced in the latter part of one year and officially completed in the next are recorded.

It is therefore striking that JLL's volume for the first three quarters was €8.2 bn, very near in relative terms to Colliers' figure. Taken together their reported volumes give a good picture of activity from January to end-September.

Market watchers expect the full-year volume will be even higher.

Full-year volume
JLL Hotels had initially expected 2013 to end on a volume of €9.2 bn, Christoph Harle, CEO of Continental Europe, Hotels & Hospitality at JLL, told PropertyEU. 'We are now on a par with 2012 and are probably going to exceed it. We would think now it is probably going to hit double digits, about €10 bn. There are quite a few things hopefully happening in the market but similar to last year there is the risk of one or two of the deals slipping into the next year.'

An example of this phenomenon boosting the 2013 volume was the sale by RBS of 42 Marriott hotels in the UK to Abu Dhabi Investment Authority (ADIA). The deal was signalled in late 2012 but completed for about €734 mln this year. Similarly, Starwood Capital's sale of a Groupe du Louvre portfolio of luxury hotels in France to a joint venture headed by Qatar Investment Authority (QAI) straddled 2012-2013. This was also a €700 mln-plus deal. Interestingly, QIA had also eyed the RBS portfolio but lost out to ADIA.

The optimism is based on increasing demand from the US and Asia for the secure cash-flow generated by hotel assets, and several significant portfolios hanging over the market in Europe.

Project Europe
One of the biggest is Project Europe, a portfolio of 18 mainly hotels being sold by Ivanhoe Cambridge, the real estate arm of Caisse de dépôt et placement du Québec, according to Dominic Murray, director for brokerage EMEA at CBRE Hotels. Most of the hotels are in Germany, with other Holiday Inn-franchise assets dotted around Europe.

'Project Europe is under offer at the moment and the question is whether it will complete by year-end. Broadly speaking it is just shy of €500 mln so that would have a material impact on the final transaction volume,' he said.

2014 forecast
JLL's Harle tentatively forecasts a further increase in investment volumes by 10-15% to €11 bn or €12 bn in 2014. 'The GDP outlook for most of the core countries is pretty good so we do think there will be an increase in appetite among investors. We also think there will be a good group of people ready to sell, but whether we will have the same size of medium-to large-size portfolios for sale remains to be seen.'

A special report on the European hotel sector appears in the December edition of PropertyEU Magazine.