The hotel sector has come a long way in the last few years in Europe and is now a mature but fast-moving market at the forefront of innovation, experts agreed at the PropertyEU European Hotel Investment Briefing which was held in London on Tuesday at the City offices of Paul Hastings.
'Everyone has fallen in love with hotels, as they are an income-producing asset and income is the one thing all investors want today,' said Jochen Schafer-Suren, partner and head of the hotel & leisure division at Internos Global Investors. 'Investors also know that continental Europe offers huge opportunities in this sector.'
Hotel investment more than quadrupled last year and is set to for another stellar performance in 2016. In the last 15 years, it has been the highest-yielding asset class in terms of returns. Investors are coming from Asia, especially China, the Middle East, the US and Europe and competition is intensifying, driven by the search for yield and the availability of capital.
'The hotel sector was once seen as a difficult and complicated asset class because of its many variables, but now so many investments have turned out well that it has become a mature industry, everyone wants to invest and everyone is looking at Europe,' said Dirk Bakker, head of EMEA Hotels at Colliers International.
In the US the market is seeing a decline in major cities and investors are now increasingly turning to Europe, said Rick Kirkbride, partner and global head of hospitality at Paul Hastings: 'A lot of our clients are net sellers in the US and are now looking at Europe for yield and returns. They are becoming more and more committed to the Continent.'
Competition from local players
Asian and US investors face competition from local players: 'There is more activity from European institutional investors too, who are now looking for higher yields and so they are moving from offices to hotels,' said Andreas Locher, head of acquisitions & sales, investment management for hotels at Union Investment Real Estate.
Private equity funds are also likely to shift from the UK to continental Europe following Brexit, said Eric Jacobs, founder of Horeca Investment Partners: ‘I expect private equity money to move to Europe to avoid short-term uncertainty, as there will be uncertainty and volatility in the UK in the next few years and no guarantee of the liquidity private equity needs.'
More demand, more liquidity and more players in a crowded field have pushed yields down, forcing investors to re-think their strategies and move up the risk curve. ‘In today's overheated market, in order to generate the same returns, you have to go for value-add, create opportunities for growth at asset or branding level,' said Schafer-Suren. 'Ideally I would go for a conversion in a city centre, difficult to find but valuable because irreplaceable.'
