JLL Hotels: Hotel investment market EMEA experiences weak Q1 2009 (EMEA)

The EMEA hotel investment market experienced a weak first quarter of the year with investment levels reaching only €700 million. This represents a decrease of 81% compared to Q1 2008, although notably levels this time last year were still quite strong despite the low full year volumes.

Mark Wynne-Smith, CEO of Jones Lang LaSalle Hotels, Europe, Middle-East and Africa, said: "We have been predicting that the first half of this year would be very quiet and the volumes are low but within the range."

Looking at the source of investment in the first quarter of the year, domestic capital remained the dominant source, representing over 50% of the volume transacted. The strong activity of Middle Eastern capital (26.7% in 2008) did not continue in the first quarter of 2009 - no hotel transactions have been funded by this source of capital yet. Wynne-Smith continued: "Middle Eastern investors generally seek to acquire trophy assets which have not been offered in the market. Their current focus generally remains on distressed assets and we expect that whilst more distressed assets will come to the market in the second half of 2009, there will be very few cheap trophies."

Also in line with the predicted trend, hotels with the benefit of a lease contract were in favor again. "Investors are looking for security and are sensibly not willing to buy a property where the income is expected to fall. We also saw vacant possession deals as hotel operators are the only groups who really need the properties in order for their business models to thrive."

In terms of Russia & CIS investment sentiment, Marina Usenko, Executive Vice President, Jones Lang LaSalle Hotels, added: "With only a limited amount of stock currently in the market and developments likely to be stalled or cancelled in the short to medium term, 2009 is expected to demonstrate further weakening of investment sentiment across all CIS markets, supported by continued softening of yields. Investment in Russia in recent years has to a large extent been driven by Western investors who are now returning home, to markets they know and which are perceived less risky."

Clearly, the overall hotel investment volume will remain subdued in 2009 and is expected to end well below volumes achieved in 2008. "We have to accept that we are starting a new cycle. Peak years like 2007 - where we registered a volume of €8.6 billion in the first quarter alone – are in the past," concluded Wynne-Smith.

Source: Jones Lang LaSalle Hotels

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