New hotels are not being built fast enough in Europe as a tourism boom drives up demand, experts agreed at the PropertyEU Hotels Investment Briefing, which was held at Mipim last week.
‘Tourism is growing at well over 7% a year and the trend is up, while the number of keys being built is growing at a rate of 4.4%, so that 3% gap is getting bigger,’ said Dirk Bakker, head of EMEA Hotels, Colliers International. ‘We clearly cannot build enough rooms to meet demand.’
The concentration of demand in city areas shows up in yield compression. ‘Amsterdam used to be a 6-7% market, now it is at 5% and going down, the same is happening to Paris or London and this is set to continue as supply cannot match demand,’ Bakker said.
Looking at the year ahead, ‘there is definitely a lot of money moving into the hotel and hospitality sector,’ said Damian Harrington, director, head of EMEA research, Colliers International.
‘Momentum is looking very good this year,’ said Duncan MacPherson, head of capital markets Europe, Starwood Capital Europe Advisors. ‘In Q1 the market has been very active, with lot of transactions closing.’
There is still a lot of dry powder out there, said Harrington: ‘It is mainly opportunistic, value-add and debt capital, looking for high-yielding products, which suits the hotel sector well as money starts moving more into alternatives.’
As well as private equity money and the core funds, private capital is now also targeting the hospitality sector, said Mark Rajbenbach, partner, Taylor Wessing: ‘We are seeing a lot of private money, mainly family offices, coming into the market.’
It is positive for the sector because private investors ‘are very savvy, think in a completely different way, have a specific vision and tend to have a longer term outlook,’ said MacPherson.
‘A lot of projects we look at are backed by family offices for two very good reasons,’ said Ali Imraan, director of debt & special situations, LaSalle Investment Management. ‘They have a clear vision of what they want, get the right advisors to help and take the time to see it through. Private capital is also better suited to the careful curation needed to make lifestyle hotels work.’
Casting the net wider
Investors, whether institutional or private, are also looking at a wider range of countries and options. ‘Looking at 2017 investment volumes, 58% went to the UK, Germany and France, a lower percentage than the usual 70%, which shows that money is shifting across to other countries,’ said Harrington.
As capital is being distributed differently, 28% of investments went to Spain, Italy, Sweden, Finland, the Netherlands, Switzerland and Denmark, while the remaining 12% opted for countries like Hungary, Portugal, Norway and Austria. Greece is also on the map as ‘capital is hunting for opportunities further afield,’ said Rajbenbach.
Europe’s gateway cities are getting most of the attention because that is where tourists, especially Asians who are coming in ever-greater numbers, want to go. ‘The big cities will benefit massively from increased demand,’ said MacPherson. ‘There is only one Rome or Paris, and you cannot build another Venice or Vienna.’
Other cities that want to attract visitors need to invest in infrastructure and transport links, he said: ‘We continue to look at other cities in Europe with a clear focus on infrastructure and airlift, which are really key.’
The expansion in the number of flights to and from Inverness has made a huge difference to tourist arrivals, said Kenny Macinnes, principal economy officer, The Highland Council: ‘Close to 1m passengers are now passing through the airport every year, and this has led to hotel development with new brands like Moxi coming in.’
