Hotel investors predict that Eastern European markets will give their more established peers in Western Europe a run for their money on trading performance this year says a report by Jones Lang LaSalle Hotels. The research that has surveyed 2,000 of the world's principal investors and owners of hotel and resort properties, found that the majority are keen to hold on to their European hotel assets with a third looking to buy in the short term.
"Europe's recovery is likely to be gradual but investors are still confident about the trading outlook in London, Paris, Rome and Amsterdam," says Mark Wynne-Smith, European CEO, Jones Lang LaSalle Hotels. "Supply remains an issue in Germany and Spain but counter-cyclical buying could emerge. Eastern European hotel markets, such as Prague and Moscow are tipped to rival some of the well established Western European cities for growth in 2006."
Investment Intentions
The strongest sentiment for the hotel market is Europe is to hold assets, particularly in the UK cities of Birmingham and Manchester, which are tipped for short-term growth. The biggest shift in sentiment is London where 'sell' intentions have dropped dramatically and 'build' intentions have grown by 17%, mainly due to London's winning bid to host the Olympic Games in 2012. Resorts in Spain have also seen major sentiment changes with investors switching to 'buy' and 'hold' from 'sell'. Although this market was thought to have peaked, it seems that activity may pick up pace again.
Mark Wynne-Smith comments: "Investor interest in building new hotels remains weak across Europe but Moscow has the best prospects for new supply, whereas Düsseldorf remains the worst. This is possibly because Germany, like Spain is only now resolving oversupply issues. Development land also remains scarce and expensive in major cities across Europe and construction costs are rising."
In line with trading intentions across the world, just 13% of hotel investors plan to sell their European assets in the short-term. The 'sell' intention is strongest in Spain and particularly in Germany, with Düsseldorf and Berlin seeing the highest this is likely to be driven by signs of some recovery in there as investors prefer to sell in a rising market.
Investment yields
Initial yield requirements for hotels in Europe are still tightening and investors expect the increase to slow over the next six months. The exception is in Hamburg where yield requirements have declined and recorded at one of the lowest levels across the region.
"London and Paris also have low yield requirements, indicating the strength in these markets. Investors report significant tightening in yields in London, Milan and Amsterdam reflecting strong trading expectations across these markets," says Mark Wynne-Smith.
Source: Jones Lang LaSalle Hotels
