HOTELS Great locations are key, but think smart not obvious

Investing in a hotel in the right city or region can make all the difference, but the smart choices are not always the obvious ones, delegates heard at a PropertyEU European Hotels Briefing which was held in London this week.

'You must start with the right location and then develop the relevant product. We are bullish on Europe in general,' said Habib Enayetullah, senior vice-president of real estate & asset management at Hilton Worldwide, which has some 720,000 rooms in 4,500 hotels in 94 countries. ‘My advice is step back from current political issues and look at the long-term demographic trends, and do not focus only on foreign tourism but also on the pent-up demand for domestic travel.’

One of the best-performing areas for Hilton is Turkey, despite the headwinds and difficult political situation: ‘We have gone from zero to 24 hotels and have more in the pipeline. Istanbul is doing phenomenally well. Another example is Russia, which despite everything is a growth story for us.’

If Eastern Europe is not performing as well as in the past, there are gems like Warsaw and Budapest which are outperforming Western cities, market experts said, and attracting interest from Asian and Middle Eastern investors. In Spain economic recovery and positive sentiment are making hotspots not just of Madrid and Barcelona but also of regional centres like Valencia, Bilbao and Seville. The Netherlands has supply-side issues in cities like Amsterdam or Rotterdam but long-term positive prospects.

Not just capitals
‘East or West, in key cities there is considerable headroom for revenue and profit growth,’ said Jonathan Langston, senior director of CBRE Hotels. ‘London, Munich, Warsaw and Madrid are all resilient markets. In Munich, in particular, hotel profitability is 17% above pre-crisis levels and there is some way ahead for growth.’

London has an exceptional 83% occupancy rate and, even though there is a lot of supply coming with new hotels opening and being built ‘there can never be oversupply, because there is no shortage of demand and the environment is benign, with the rate of closures of hotel bedrooms matching the rate of openings,’ said Langston.

In the UK it is not just the capital doing well but regional cities, experts agreed. According to Enayetullah ‘there has been an amazing turnaround in the UK regions so we are very bullish, it is a growth story.’ Places like Leeds, Newcastle and Birmingham are hitting new highs with 74% occupancy rates and, said Langston, ‘they have good profit growth prospects. There are some portfolios on the market now and it will be interesting to see who buys them.’

Some places can offer great returns but are not for the faint-hearted. ‘If you are really opportunistic you will look at Italy,’ said Enayetullah. ‘It is a challenging context but there is a great turnaround underway.’