Hotel investor sentiment in Europe, the Middle East and Africa (EMEA) has shifted in favor of 'caution' as the full impact of the credit crisis is yet to be realized, but the 'multi-speed' nature of the region's markets offers glimmers of hope on the Continent - according to the latest "Hotel Investor Sentiment Survey" (HISS) research report by Jones Lang LaSalle Hotels.
The report's findings are that investors' trading expectations have fallen across EMEA in response to earlier turbulence in the financial markets and trading performance looks set to moderate both in the short term and the medium term compared to previous surveys. Investors have concluded that we are now in a period of declining returns from hotel real estate although the response is not uniform across the region. The most marked concern was expressed over the UK provincial market but investors have also signalled that historically strong performers such as London, Madrid and Barcelona are unlikely to escape a downturn.
There are however pockets of good news as trading growth expectations still remain high for Moscow, Istanbul and Dubai and also, interestingly, for some key European cities such as Munich, Berlin, and Rome.
There is also a consensus view that any decline in trading performance will not be short and sharp, as medium term opinion shows that most cities are likely to experience weaker performance with a couple of exceptions which included Berlin, and Copenhagen which saw an increase in trading expectations compared to the previous survey conducted in December 2007.
Mark Wynne-Smith, CEO of Jones Lang LaSalle Hotels in EMEA commented: "Our latest HISS report highlights that investors are expressing a greater degree of caution with the sentiment to 'hold' increasing by 8.5% since December 2007. The 'Buy' sentiment is stable but not surprisingly both 'sell' and 'build' are significantly down - 'sell' sentiment dropping by 4.4% and 'build' sentiment falling by 9% on December figures. The prevailing sentiment at present is therefore to buy but as the apparent appetite is not matched by a group of willing sellers, we expect the current low levels of investment activity to remain for some time.
The majority of our Western Europe based respondents are still expressing caution towards buying hotels in the Middle East and Central & Eastern Europe (CEE), perhaps due to fear of the unknown, but the UK cities of Manchester and Birmingham are not currently viewed as being exciting prospects.
In line with market conditions, both Internal Rate of Return (IRR) and yield requirements have increased in EMEA by 2.5% and 0.4% respectively to reflect the perception that risk in the hotel markets has generally increased. All markets have seen an increase in IRR and yield requirements except London, the only city to report a decrease (-1%) in IRR expectations.
Mark concluded: "Our survey findings report that the shape of the hotel real estate investment market has not changed significantly in that the highest IRR expectations continue to be for the key CEE cities of Zagreb, Moscow and Istanbul. This may reflect the fact that the markets are still unproven in the eyes of our predominantly Western Europe investor respondents. At the other end of the scale the lowest IRR expectations were reported for key European cities including Rome, Barcelona, Milan and Paris. All cities in Germany showed a desired IRR of around 14% reflecting the weight of institutional capital and the increasing appetite of the open ended funds. Furthermore, the impact of the sub prime crisis is less evident in Germany when compared to the UK. In terms of anticipated yield trend in the next six months, cities where investors felt yields were least likely to increase were Moscow, Vienna & Warsaw."