European hotel real estate investment volumes reached €22.9bn in the year to Q3 2018, representing a 3% increase year-on-year, according to the latest data from global real estate advisor CBRE. The total real estate investment volumes for all sectors in Europe was flat compared to the same period last year.
Q3 2018 European hotel investment activity was driven by continued growth particularly in the UK, Spain, and Benelux. UK hotel investment volumes reached €6.8bn in the 12 months to Q3 2018, reflecting a 15% year-on-year increase, and accounting for 30% of all capital invested into European hotels. Transaction volumes in Spain also remained robust, registering the second highest hotel investment volume in Q3 and recorded an increase of 57% year-on-year. Similarly, Benelux posted strong performance, with an 8% year-on-year increase in the 12-months to Q3, which has largely been driven by activity in the Netherlands.
Colin Low, Head of Hotel Investment Properties, EMEA, CBRE Hotels, commented: “The growth in key European markets such as the UK and Spain has been fueled by private equity and institutional investors who had experienced yield compression in the maturing hotel markets. With the heightened investment interest and the threat of constrained supply, investors are starting to look beyond the core hotel markets for opportunities, with Central Eastern Europe (CEE) taking centre stage. In Q3, we saw a visible tightening of yields in key CEE cities where we anticipate further investment deals, both single asset and portfolio investment deals.”
Germany remains the third largest European hotel investment market with hotel deals totalling €4.09bn in the year to Q3, despite a 20% decline year-on-year. However, yields for hotels in the big five German cities, operated under a management contract or subject to vacant possession saw a decline of -25bps quarter-on-quarter, implying the fall in investment volumes is due to a shortage of stock rather than a lack of demand. There was also notable yield compression in Portugal.
Martin Thom, Senior Director, CBRE Hotels Germany and CEE, said: “The CEE markets continue to enjoy a period of growth in both business and leisure tourism. The positive outlook is not without some element of risk. In some CEE markets, we are seeing a marked increase in the hotel development pipeline. Whilst we expect this pipeline to be absorbed by growing demand driven by further economic development, there could be some slowdown in KPI growth in the short term”.
