EUROPE The first half of 2010 has demonstrated that the hotel investment market in Europe, the Middle East and Africa is starting to pick up, with growth expected to accelerate in the second half of 2010, according to Jones Lang LaSalle Hotels.
Transaction volume rose marginally to €1.6 billion at the end of the first half, representing a 6% year-on-year increase. JLLH predicts that the latter part of 2010 will witness stronger investment activity, possibly even doubling the transaction volume seen in the first half of the year.
The UK has been the region’s most active market so far this year, with more than €300 million of investment transacted, representing a 19% market share, compared to 14% in 2009. Last year’s leader, France, is not far behind, with nearly €270 million invested.
Hotel operators, institutional investors, investment funds and private equity buyers continue to display a strong appetite for investment, together accounting for nearly 65% of all hotel investment in EMEA in the first half. Sophisticated investors believe it is a good time to buy and are enjoying reduced competition for assets, as many of the high-leverage buyers have fallen out of the market, JLLH says.
Domestic capital remains the dominant source of investment, accounting for 47% of total investment, with buyers still focused on familiar territory. Investment from Europe sources has risen significantly, from 18% to 34%, while investment from the United States continues to be weak.
Middle East interest remains relatively strong, with a growing market share during the first half moving to 14% from 8% in 2009; however there has been no significant investment from Asia buyers despite strong interest from this region, in particular from South Asia. These types of buyers tend to look for quality assets in London and Paris at discounted prices, which are hard to find in today’s market, as buyers outnumber sellers by a considerable margin.
“The dynamics of the market have changed and deals are taking longer to complete, with both buyer and seller approaching negotiations with caution,” says Mark Wynne Smith, CEO for Europe, Middle East and Africa at Jones Lang LaSalle Hotels. “However, we are starting to see sellers acknowledge that buyers’ pricing is acceptable given the current economic climate, which is likely to drive increased deal volume as the year progresses.”
Wynne Smith also notes the stock being marketed is of a substantial volume and that there are more deals in the pipeline than there were in the first half of last year—many of which will likely materialize over the coming months. This will be supported by improved access to credit from lenders and increased certainty about underwriting projects.
“The market conditions experienced over the first half of 2010 are reminiscent of what we saw in 2002. The second half of 2002 saw a doubling of transaction volume, and I anticipate that we will see a similar outcome over the remainder of this year,” Wynne Smith says.