2010 proved to be a year of recovery in EMEA for both hotel operators and investors alike, with investment volumes across the region totaling 7.7 billion, compared to 3 billion in 2009, according to the Hotel Investment Highlights report by Jones Lang LaSalle Hotels.
Mark Wynne-Smith, CEO for Jones Lang LaSalle Hotels EMEA, said: "As corporate travel began to recover and investor confidence strengthened, last year marked the turning point for the EMEA hotel market. The year started off revitalized with a 36% increase in investment volumes in Q1 year-on-year and continued to accelerate throughout the course of 2010."
The report identifies five key trends that shaped 2010:
Relief for hoteliers
During 2010 the European hotel market experienced an improvement in both occupancy and average room rates. As trading fundamentals improved in most markets, room yields across Europe increased on average by nearly 10%, according to STR Global. However, despite the positive results at year end, room yields in almost all markets remained below peak levels in 2007.
Wynne-Smith commented: "Only Frankfurt, London and Munich proved to be an exception to this rule. Market conditions proved more challenging for hoteliers in regional cities, the majority of which depend on domestic tourism demand. While trading fundamentals also strengthened, the level of increase has generally been more subdued."
Portfolio activity and smaller transactions
As investor confidence intensified, portfolio activity became more pronounced during 2010 reaching 2.8 billion (37% of the total volume). Single asset activity was largely driven by several trophy assets appearing on the market and attracting strong investor interest in particular from Asian and Middle Eastern high net worth individuals.
Wynne-Smith said: "While overall investment volumes increased substantially, the level of new liquidity entering the market was limited. Many deals included a transfer of the debt already linked to the asset. 2010 saw the induction of debt transfer sales, which involved reassigning debt with limited fresh equity being invested." The lack of new financing also resulted in deal sizes remaining small; just over 70% of all transactions had a purchase price below 50 million, while only seven deals were recorded with a price tag above 200 million.
The majority of investors were firmly focused on gateway cities, with London and Paris firm favorites. Across the UK, investment volumes reached 2.4 billion, compared to only 400 million in 2009 with London accounting for over 80%.
Wynne-Smith said: "The UK capital has proved to be one of the best performing hotel markets in the recent downturn and seemed to fit the bill for investors who continued to search for some level of security in the market. A similar picture was apparent in France, with nearly 85% of investment taking place in Paris."
The availability of trophy assets in 2010 attracted a number of international buyers, eager to take advantage of 'one-off' opportunities. Although the majority of transactions were funded by European or domestic capital, Asian capital more than doubled, accounting for 12% of investment.
Wynne-Smith commented: "Outside of the 'prime buys', investors mainly concentrated on assets offering a long term fixed income or low step-in price. Approximately one quarter of all deals recorded in 2010 (based on volume) included a lease contract, while another quarter changed hands unencumbered. Only 10 of the deals recorded were subject to a management contract."
With travel patterns steadily returning to historic levels and a subdued supply pipeline, trading performance is anticipated to strengthen further in 2011 but the pace of recovery may slow down later in the year. Q1 is likely to show strong year on year growth and this will continue in to Q2 which was adversely affected by the ash cloud in 2010. Growth will, nevertheless, be driven by occupancy as travelers continue to f