Newly released data from Cushman & Wakefield reveals that, contrary to expectations, hotel transaction activity in Europe remained resilient during the global Covid-19 crisis. While total investment volumes for the region declined considerably, by 63% compared to 2019, there was still over €10bn of deals closed in 2020. Investors remain optimistic about the medium to long-term prospects of the industry, with major transactions still taking place and deals continuing to be agreed. The UK saw the highest volume of deals in 2020 at €2.3bn, albeit this was a -58% decline on 2019. This was followed by Germany at €1.8bn (-64% decline on 2019) and Spain at €1.2bn (-20% decline on 2019).
Among the least impacted major markets were Sweden, Switzerland, Greece, Portugal and Spain. Sweden in fact saw a slight increase in transaction activity, up by about 5% compared to 2019. In 2020, the European hotel market recorded nearly 400 transactions, comprising about 48,000 rooms – of which almost 43% of deal volume was committed to after the pandemic outbreak.
Jon Hubbard, Head of Hospitality EMEA at Cushman & Wakefield, commented: “The hotel sector across Europe has been hit hard by COVID-19 lockdowns, which have understandably resulted in a sharp drop in investment volumes. However, the hotel industry is unique in that, for the most part, there is not a viable virtual pivot for travel and tourism – there will always be a need for hotel accommodation. Investors recognise this, and their sentiment for the sector remains positive for the medium to long term. The continued transaction activity in 2020 and the number of deals we are seeing in the pipeline reflect this confidence.”
- Investor Origin: Given the uncertainty caused by the pandemic, 2020 saw a marked increase in investors retreating to more familiar ground, with European investors accounting for a large majority of transaction volumes, in the region of (83%).
- Investor Type: Institutional investors, who are better positioned to ride out such crises, led the transaction market with nearly half (48%) of total volume. These investors are typically better capitalised, more able to weather temporary troughs, and tend to have a longer-term investment strategy.
- Project Stage: Over a quarter (26%) of deal volume in 2020 was in development or conversion projects as opposed to operating assets, compared to 12% in 2019. Investing in projects that do not face the risk of requiring immediate capital injections to keep operations afloat is attractive for investors looking to buy assets that will be operational when the market returns. One example was the acquisition of the EDITION Madrid by Archer Hotel Capital for over €220m, which is expected to open in 2022.
- Location Type: One-third of transaction volume in 2020 was outside urban locations. However, when including only deals that were committed after the virus outbreak, the share of non-urban locations increased to over 41%. This may imply investors’ expectations of a quicker recovery and/or better long-term prospects for hotels driven by leisure demand that are typically located outside major cities. Unsurprisingly, there was a notable decline in acquisitions of airport hotels, down by 87%.
Jon Hubbard added: “As we move through 2021 and vaccination programmes start to take effect and economies reignite, travel and going on holidays, whether domestically or abroad, will be front and centre of people’s minds. We’ve recently seen this in the UK, with spikes of enquiries to holiday companies following the publication of the British Prime Minister’s roadmap out of lockdown. With cities unlocking too, more business travel is set to be on the agenda and larger-scale events like conferences will follow. As Europe slowly emerges from this crisis, the desire for more face-to-face contact and quality leisure time will provide a significant boost for the hotel sector.”