The European hospitality market will see little or no growth in the next 12 months say 84% of respondents according to a 2012 European hotel survey from DLA Piper.
Most respondents attribute this to a combination of over-valued assets and difficulty in raising finance. Only 12% of respondents feel that the industry is well prepared in the face of another downturn and many have taken measures in the past year to protect their businesses against the threat of a future slump. Measures that well prepared businesses have taken include increased efficiency, deleveraging portfolios, hoarding cash and investment in marketing.
The current lack of development finance will impact asset-light strategies and it is expected there will be an increase of 55% in joint ventures, 29% in leasing and 44% franchising.
The most active investors in 2012 will be high net worth individuals at 26%, private equity funds at 23% and sovereign wealth funds at 19%.
Over 63% of respondents said 2012 would be a buyers’ market. Most investment is expected to come from the Middle East said 64% of respondents and the BRICS countries, which include Brazil, Russia, India, China, South Africa said 53%.
It is also thought that 2012 may usher in a new landscape for lending. With traditional debt markets freezing up, there will be an increase in mezzanine finance and it is anticipated that private equity funds will be active in buying large amounts of debt.
With the EU’s Solvency II implementation two years away, it is a surprisingly few 45% that anticipate insurers will become more active in the lending market.
Despite the eurozone crisis 40% of respondents think it is a good time to invest in the PIIGS countries of Portugal, Italy, Ireland, Greece, Spain.
However, only 8% said they would look to invest in Greece over the period. Spain came out as the most favored investment destination with 26% saying they would consider investing there.
The U.K. is still seen as a very attractive investment destination with 61% of respondents saying that they would target the UK as an area for investment outside the eurozone.
“The European hotel industry is adapting to the new economic environment and looking to grow by considering alternative structures for their deals; such as joint ventures. We are seeing a fundamental shift in the source of investment with increasing interest from the emerging markets and non-traditional sources such as insurers,” said Karen Friebe, co-chair of DLA Piper’s hospitality & leisure sector group. “While businesses are keeping a close eye on their balance sheets there is cautious optimism and a willingness to be flexible, trends we expect to see continuing beyond the next 12 months.”
The full report can be read here.