EMEA hotel investment up 17% in 2013: JLL H&H

Hotel investment across Europe, the Middle East and Africa (EMEA) rose by 17% in last year and is expected to grow by over 20% during 2014, according to Jones Lang LaSalle’s Hotel & Hospitality Group.

Full-year volume came to $13.2 bn (€9.8 bn), JLL H&H says in its latest 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 bn 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 JLL H&H.

The adviser reported that opportunities are being bolstered by the 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.

Hubbard: 'We expect to see an increased appetite from institutional investors, not only for direct investment but also to place large amounts of money into the debt market as they seek to increase their allocation to higher yielding real estate and look 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 UK, France and Germany will provide good opportunities for investors in 2014 as the familiarity and maturity of these markets can drive more value.'

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 - which are additionally bringing local relationships to Europe particularly for London assets.

Christoph Härle, CEO Continental Europe at JLL H&H said there was a marked increase in cross-border investment, particularly from US-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, Härle added.

In 2013 the UK was the most liquid hotel market, taking a 37% share of investment volume at $4.7 bn 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 bn, 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 JLL H&H does not foresee 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, JLL H&H expects appetite for German assets to remain strong in 2014 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,' Härle added.