Investment into European hotels totalled €3.7bn, representing the second largest deal volume recorded in any first quarter in the last decade, despite transaction volumes reducing by 30% compared to Q1 2015, according to CBRE Hotels.
During a record year for hotel investment in 2015, the asset class grew its share of total European real estate investment to 8%, cementing itself as a mainstream sector. Q1 2016 figures show that hotels have retained the 8% share and levels of liquidity relative to other sectors has not abated.
Germany is fast becoming the most attractive market in Europe offering consistently high levels of liquidity. Achieving double digit growth (+17%) in Q1 2016 with transactions totalling €750m means the market could take the long-standing mantle from the UK which has dominated the investment volumes in the last decade.
The UK’s hotel transaction turnover declined by 58% in Q1 y-o-y, as Brexit’s impact on the UK hotel investment market has left some investors waiting to see the outcome of the impending referendum. Despite this, many players have remained active and have attempted to capitalise on potentially less competitive sales process. A shortage of stock is also having an impact on the level of hotel investment in the UK considering the numerous of bulky portfolios brought to the market in 2015 which are unlikely to trade again in the coming months. International visitation is expected to surge by 3% y-o-y, however with a 2016 confirmed room supply increase of 5%, some of the city submarkets will undoubtedly come under pressure to sustain 2015 levels of performance.
Italy saw a significant uptick in Q1 2016 investment performance with deal volumes rising 131% y-o-y. While a state of fragility lingers around the country’s economy, hotel performance has built up a head of steam across most key markets, coupled with a steady contraction of yields and thus recovery of capital values. On this basis, it is likely that more products (particularly distressed) will be readied for sale in 2016 and whilst some of the outlined challenges will remain, strong return prospects undoubtedly exist for well-advised investors.
France saw a Q1 decline in hotel transaction volumes of -43% y-o-y to €206m which can be partially attributed to attacks that shook Paris in November 2015. While sentiment suggests that buyer appetite has not subsided, owners are reluctant to sell based on present values reflecting the associated dip in operating performance. Data shows a slowing of declining room revenues in Paris only four months post the November attacks, highlighting Paris’ strength and resilience as a destination.
The Belgian hotel market achieved impressive transaction volume growth for Q1 2016 (+80%), however the March terror attacks hampered growth as initial figures show a -17% y-o-y market decline in total room revenue for the one month alone. Brussels’ relatively high business mix, in terms of demand make-up, may help the recovery of the market given that corporate travellers generally exhibit less sensitivity to such atrocities compared to the leisure sector.
Joe Stather, information and intelligence manager EMEA, CBRE Hotels said: “Whilst hotel yields in markets such as London, Paris, regional UK and the top five German cities are low and stable relative to other key European markets, hotel profitability principally continues to track a trajectory of growth, highlighting scope for the continued increase of capital values on operational investments. Notably, Germany has the highest ratio of hotel stock encumbered by an operational lease; some of which will likely satisfy the escalating quantum of institutional capital targeting core real estate and therefore add further to the country’s 2016 transaction volume.”
