Uncertainty and caution plagued hotel investor interest in 2020 due to the Covid-19 pandemic, however, the global lodging industry is poised to rebound in 2021, according to a new research report published by broker JLL.
JLL Hotels & Hospitality’s annual Hotel Investment Outlook says that the industry’s resilience shaped new experiences and demand from consumers while introducing a wave of trends that have been accelerated as hoteliers quickly shifted operations and strategy.
In particular, institutional and non-traditional investor interest in open-air hospitality sector across Europe continues to grow. Pre-pandemic changes to the dynamics of the leisure market and the rise of the “staycation” continue to drive demand for open-air hospitality.
The past year witnessed accelerated growth in this sector as venues offered easy access drive-to-destinations for European travelers. Investors now trust the resilience of the business model of holiday parks with their potential to offer higher yields than mainstream hospitality. With deals in this sector often topping $1 bn, interest is largely driven through institutional and private equity investors.
JLL also forecasts that private equity groups and high-net-worth individuals (HNWI) will continue to be active investors of hotel assets in 2021. According to the report, in 2020, $24.5 bn in capital was raised in closed-end funds targeting hotel and hospitality assets globally, matching 2016 levels.
Additionally, all regions globally are seeing a flurry of fundraising activity with opportunistic capital ready to mobilize on distressed assets, allowing non-traditonal investors to get a piece of the lodging pie at a competitive price. There is expected to be a net capital inflow to Europe in 2021, which should drive demand across depreciated hospitality assets.
The Global & EMEA Outlook
Global hotel liquidity in 2020 was down more than 60% from 2019 levels, with nearly 50% of all transactions closing within the first three months of the year. Although challenging to navigate through a zero cash-flow environment, lenders were accommodating by granting forbearance agreements where possible. This was particularly pronounced in the UK where the government announced an extension of rent protection until March 31, 2021. However, pent up demand for a return to travel should lead to a bounce back in demand once restrictions are lifted across Europe.
Private equity groups and institutional investors capitalised on assets that were made available for sale and drove liquidity in 2020 by accounting for 54% of total volume in the year.
‘It’s been a difficult year for the sector due to the pandemic and subsequent lockdowns across Europe,’ said William Duffey, head of capital markets, hotels and hospitality, Europe at JLL.
‘In order for hotel assets to make the comeback that we believe it will, they must remain agile and adopt these changes as the industry continues to be tested in ways it never has. There’s no doubt that the road to recovery will be long, but there is optimism that pent-up demand to reexperience the world will gradually boost hotel performance across European markets.’
