European hotels deliver stable returns in 2011: IPD

The European hotel sector continue to move from an 'alternative' asset class to a mainstream sector, with the IPD sample now reaching a total capital value of EUR 10.2 bn as of December 2011.

Returns in 2011 were 6.0%, and although slightly lower than the 6.6% delivered by European commercial property, hotels still benefited from positive capital growth (0.3%), in an otherwise uncertain market, according to the IPD Pan-European Hotels Performance Report.

'Hotels have continued to see strengthening capital flows from institutional investors attracted to long-term income profiles. However, underlying asset quality and supportability of rent remains a priority,' said Graham Craggs of Jones Lang LaSalle Hotels.

Of the 11 countries measured, the UK saw the strongest performance in 2011, delivering a 10.4% local currency return, whilst Italy was the worst performing country, returning -4.9%. The Italian market suffered considerably from heavy capital declines, -10.3%, whilst in the UK values continued to grow, at 3.7%.

Greg Mansell of IPD, noted that hotel performance across Europe is driven by a number of factors which contributed to make the UK the strongest market last year. 'Despite the lower GDP growth of the UK in comparison to some of its neighbours, other factors specific to the UK market, notably competition amongst investors for fixed leases and the strength of London, boosted returns.'

France and Germany, the two largest markets aside from the UK, returned 9.3% and 4.9% respectively.