Europe’s hotel market is set for another bumper year in 2018 as investors compete for the best assets.
Hotels are in vogue for being niche income-generating assets just like so many other types of investments – from utilities and infrastructure to senior living and student housing. That’s been the case for a few years now, but it’s getting more pronounced as the asset class gains wider acceptance among institutional investors. Perhaps this trend is most pronounced in the UK, where records are being broken despite Brexit.
Savills says the UK hotel investment market hit £5.4 bn (€6.1 bn) last year, driven by a high level of deals stemming from the break-up of larger portfolios acquired in 2014 and 2015. Volumes in the UK were up by 32% on 2016 and international buyers accounted for 44% of those.
Competition for assets
As 2018 unfolds, foreign capital continues to jockey alongside domestic money for good hotel assets as and when they come up for sale. For example, The Waldorf Astoria Edinburgh – otherwise known as the Caledonian – has just been sold for £85 mln to Twenty14 Holdings, the hospitality investment arm of Lulu Group International of the Middle East. Operating under Hilton management, the hotel is over 100 years old and has 241 rooms. The plan is to upgrade the property.
Trophy hotel assets will always find a buyer, especially when there is value creation to be had, so not much has changed in that respect. However, data reveals how some markets such as the UK are more active than others.
Boom in Spain
Another that has risen exponentially is Spain, where all records have been shattered. Volumes reached €3.9 bn in 2017, up 79% according to real estate and hotel advisor Irea. ‘As in 2017, this year has started with a considerable number of deals in the latter stages of negotiation which, if completed, could produce €600 mln of investment in the first quarter of 2018,’ said Miguel Vázquez, partner at Irea’s hotels division. Tourism is behind this boom, as Spain saw more than 82 million visitors from abroad last year, up almost 10% on 2016. Combined with its robust economic growth, no wonder the hotel market is on fire.
Meanwhile, the hotel sector is driving real estate interest in Greece, according to participants at PropertyEU’s Southern Europe, SEE and Greece Investment Briefing held last September. ‘Hospitality is the darling of the market,’ said Tassos Kotzanastassis of 8G Capital Partners. ‘Everyone wants a slice of that pie.’ Germany also remains a hotspot. But the array of buyers and sellers thrown up by PropertyEU’s hotel transaction data for 2017 makes generalisations hard to make.
Though hotel experts say finding value has become increasingly tricky, it is clear many different deal types have been occurring, from single asset trades to portfolios and entire hotel companies. The largest transaction last year was Lone Star’s €910 mln sale of 37 Jurys Inn hotels to Swedish hotel investor Pandox.
Europe’s hotel market will never match the US where hundreds of assets are traded each year without fail. Nevertheless, it is active.
Dual branding
Developments to watch include dual branding, where effectively two different brands are offered at one site, and extended stay hotels, which at the moment only account for 2% of the European market compared with 10% in the US.
Waldorf Astoria Edinburgh - The Caledonian Hotel (pictured) was bought by Middle Eastern group Twenty14 Holdings in January to kickstart the 2018 hotel investment market.
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PropertyEU Magazine
This is the introduction to the hotel report that appears in the January/February of PropertyEU
Magazine.
The section includes:
* An interview with Ramsey Mankarious, founder of Cedar Capital Partners,who talks about his career in hotels, including working for Prince Alwaleed Bin Talal
and setting up his own firm
* an analysis of Henderson Park’s €550 mln purchase of the iconic Westin Paris-Vendôme Hotel from Singapore’s GIC
* data on the larger European hotel investment deals of 2017 and hotel funds raising capital
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