Hotel investments to fall to 10-year low in 2009 - JLL

Investment in hotels across Europe, the Middle East and Africa (EMEA) will fall to around EUR 5 bn in 2009 from EUR 7.8 bn in 2008, thereby approaching a 10-year low, according to research from Jones Lang LaSalle.

The decline will be led by a significant drop in portfolio sales and further deterioration in single-asset volume, JLL predicted. 'Activity will remain subdued in the first half of the year, followed by more activity in the fourth quarter,' said Mark Wynne-Smith, CEO of Jones Lang LaSalle Hotels EMEA.

The volume figure of EUR 7.8 bn for 2008 represented a 64% decline on the previous year, which was largely the result of fewer portfolios transacting during the year, JLL said. In particular, large corporate transactions which had became frequent in recent years disappeared from the market.

Overall portfolio activity fell back by around 71%, whereas single asset investment volume decreased by 49%. The slowdown was most pronounced in the last quarter of the year, when hotel investment volume slumped by almost 90% compared to the same quarter in 2007.

'Interestingly, our research shows that hotel operators became the major buyers in 2008 as they started to realise that buying hotel properties is a good strategy by which to achieve growth in the current market conditions,' Wynne-Smith said. 'This could mean the start of a complete turnaround from the debt-fuelled selling trend of the last few years,' he noted.

In terms of which EMEA markets are holding up best in the current downturn, JLL singles out London and Paris in particular. Both markets have shown remarkable resilience in attracting international and domestic visitors and are likely to maintain occupancies of around 75% to 80%, the adviser said. 'Even in the face of significantly less demand, hotels in these cities continue to be the most sought-after by investors and look capable of holding their values in comparison to other cities.'

Distressed assets will be most abundant in Ireland, Spain and the UK, according to JLL. But given the diversified nature of the European community, each country will experience varying degrees of distress. 'In general, as with other regions around the globe, owners and their lenders will remain reluctant to sell in a troubled economic environment, unless forced by the need to refinance or for other economic reasons.'