Hotel investment outperforms other property sectors in 2012

European hotels outperforming all commercial property in 2012, with a 6.3% total return in local currency terms, according to the IPD Pan-European Hotel Performance Report, launched at Expo Real in Munich.

The report, sponsored by Invesco Real Estate, provides further evidence that the hotel sector is an attractive asset class when compared to other real estate asset classes, offering investors a relatively secure and stable income, both in the short and long-term.

'The results reflect the consistently strong performance of European hotels compared with other commercial sectors, with an overall return of 6.3% in 2012 against 4.3% for IPD pan-European commercial real estate, in local currency terms,' commented Mark Clacy-Jones, Vice President & Head of Core Research, IPD.

Comparatively, bonds returned 13.5% (JP Morgan) and equities 16.4% (MSCI), over the same 12 months to December 2012.

Within the hotel sector, mid-market and budget hotels continued to outperform luxury hotels across Europe in 2012. European budget hotels returned 6.5% in 2012, closely followed by mid-market hotels with 6.0%, compared with 4.1% for luxury establishments, expressed in local currency terms.

European hotels with variable leases also performed well in 2012, outperforming those with fixed and hybrid leases, as they had done in each of the previous three years. Variable leases allow rents to adjust to demand, and are therefore likely to outperform when market conditions are improving. Variable lease hotels returned 7.3% in 2012, as against 4.6% for fixed leases and 4.4% for hybrid leases.

By country, France was the strongest-performing European hotel market in 2012, with a total return of 14.6%, having been the second strongest performing national market in 2011 after the UK.

The IPD Pan-European Hotel Performance Report covers 505 hotels, valued at €11.4 bn in total at the end of the 2012.