According to Jones Lang LaSalle Hotels the hotel investment volume in Europe, Middle East and Africa (EMEA) fell to 2.9 billion in 2009, reflecting the lowest volume of transactions since the late 1990s and a drop of 63% compared to 2008.
While 2010 is expected to remain challenging, by the year-end investment volumes could increase by almost 40% on the 2009 volume and reach 4.1 billion, driven by improving economic conditions, gradually strengthening investor confidence and an increase in stock on the market
Mark Wynne-Smith, CEO, Jones Lang LaSalle Hotels, EMEA, said: "The EMEA hotel market will continue to be difficult in 2010, albeit with some important signs of improvement. Transaction activity will be characterised by two types of investors, opportunistic buyers and secure income buyers. The former will be most apparent in the markets most severely impacted during 2009, including the UK, Spain and Ireland. The latter group will mainly constitute institutional investors, searching for properties with a solid income and sound covenants."
The majority of hotel investment activity during 2009 was recorded on Continental Europe, with France taking the lead. The strongest demand was apparent for key gateway cities such as London and Paris. The UK, normally the leading market in terms of volume, was ranked in second place as investment activity in the regions came to a virtual standstill and was followed closely by Germany and Spain. However, during 2010 the UK is expected to once again become the leading country in terms of volume, moving back towards a 30-40% share of investment into EMEA.
As lending capacity reached record lows in 2009, single asset transactions became the prominent type of deal in the hotel market accounting for 72% of total volumes, and portfolio activity falling by almost 80% compared to 2008. Wynne-Smith continued: "This trend is not forecast to change in the near future. Portfolio activity will remain limited as deals continue to require a high level of equity. The growing importance of single asset transactions severely impacted the average deal size - 81% of hotel property transactions recorded a sale price lower than 50 million."
The number of distressed hotel assets on the market is expected to slightly increase in 2010. Although many owners have faced refinancing challenges in 2009, distressed hotel sales have not been widespread. Distress was only slightly visible in the UK, as financial institutions generally decided to work with owners to avoid selling in the current market. During 2010 investment activity will be driven by the banks and their willingness to lend. Focus will remain on smaller deals and risk adversity. Moreover, the banking industry will be one of the main providers of stock in the market, in particular in the UK as banks increasingly focus on clearing their balance sheets and bring more distressed assets to the market.
Wynne-Smith concluded: "The hotel buyer base is expected to widen a little in 2010 attracted by stabilising trading conditions and opportunistic deals. We will see strengthening interest from high net worth individuals, such as Asian investors and sovereign wealth funds. The institutional market is also experiencing an inflow of funds. Generally speaking, buyers will remain risk adverse and focus on investing in prime assets in a good location at a distressed or discounted price with a view on capital appreciation in the coming years. Investment activity will continue to be concentrated in the western European markets, where buyers feel more comfortable investing their money."
Source: JLL
