Global institutions have discovered the beauty of hotels and they are investing more and more in the sector, with a particular focus on European cities, experts agreed at the PropertyEU Hotels Investment Briefing, which was held in London on Thursday at Paul Hastings’ City headquarters.
‘All our investors compare Europe to the US and Asia and they see more value in Europe,’ said Patrick Saade, co-head, Hotels & Hospitality Group, JLL. ‘From a fight to safety point of view, the European cities will continue being attractive.’
Investments into London, which is the top city in Europe, have grown 30% in the last ten years, but other cities are catching up fast, with Paris recording 77% growth, Amsterdam 100%, Prague 273% and Madrid 314%. In many cases, further growth has only been hindered by lack of stock, as supply has been stable in Europe while demand has increased.
Instititutions’ awakening has been crucial to the growth in demand. Investments from banks and institutions into hotels more than doubled from 8% in 2015 to 17% in 2016, according to JLL research, and the percentage is set to rise further this year.
‘The big theme in the market is that European investors, especially institutions, are growing their presence in the hotel sector and will continue doing so,’ said Saade. ‘There is equity in the market and there is debt in the market, so it is a great combination to get deals done.’
Big names active in hotel investment
European institutions, from Deka to Aviva, from Union to Swiss Life, are extremely active in the hotel sector. ‘Even French institutional investors are now becoming interested in the hotels for the first time,’ said Asli Kutlucan, chief development officer, Cycas Hospitality.
Some focus on their own markets, but some opt for a pan-European strategy. Domestic investment still accounts for 56% of total transactions, followed by European buyers and then Asian investors, according to JLL.
Non-European investors tend to favour cross-border deals. ‘Our clients see the Eurozone as one country, they opt for a Pan-European strategy,’ said Saade.
Mainland Chinese investors are thin on the ground, as they are waiting for clearer directions from Bejing on foreign investments, but Asian money keeps pouring into European hotels. ‘Thai, Singaporean and Hong Kong investors have all increased their allocation to Europe, each with a different strategy, and this flow of capital will not stop over the next twelve months,’ said Saade.
Sometimes Asian investors’ impact on the market is not entirely positive, said Kutlucan: ‘South Koreans are paying silly money and really damaging the market, leaving sensible investors completely powerless.’
Institutions are not only investing more, but they are also taking a more hands-on approach, said Saade: ‘What is really refreshing is that institutions are becoming extremely creative. Five years ago it would have been no lease, no thanks but now they are going for management agreements and really thinking outside the box.’
In the months and years ahead there will be more consolidation in the sector. Hotel brands are evolving and becoming integrated accommodation providers, he said, while ‘the prevalence of specialist hotel investors will decrease, and they will position themselves as operating partners.’
