EMEA Hotel Investment, Q1 2015

Hotel Investment Growth Outpaces Other Asset Classes

 

​​Highlights

  • ​ Quantitative easing and a low interest rate environment are resulting in increased appetite to invest in consumer-driven real estate asset classes. The two asset classes to see the largest total European Q1 Y-o-Y growth in investment volumes are retail (+39%) and hotels (+116%).

  • UK – Strong trading growth (TrevPAR  Q1 Y-o-Y London +1.1%,  UK Regions + 5.3%) is expected to continue on the back of forecasted economic growth and a limited supply risk. The result is high market liquidity and a continuation of mounting transaction volumes.

  • Germany – Low government bond yields have increased the interest of institutional investors to purchase fixed-income, core hotel assets. German hotels are predominantly encumbered by operational fixed-lease terms and the market is therefore benefitting from this trend. Trading performance in the market remains strong (RevPAR Q1 Y-o-Y Berlin +8.8%, Frankfurt +4.5%) and anticipated economic growth enhances the market’s attraction further.

  • France – Investor demand for Paris in particular, remains very strong from local and foreign players. City-wide gross operating profit  is the highest in Europe on a per available room basis and TrevPAR has grown +2.6% in Q1 Y-o-Y. Due to a shortage of available quality assets in Paris the transaction volume remains constrained and this is also commanding downward pressure on yields. The sale of the InterContinental Paris – Le Grand reflects a large portion of the Q1 deal volume (€330m). The sale of the Louvre Hotel Group (€1.3bn) is not included in the French transaction volume as the transaction included  a corporate deal. 

 
 

  • ​ Southern Europe – A substantial uptick in volume across the region can be mostly attributed to a notable increase in Spanish hotel transactions (Q1 Y-o-Y +238%). A recovering Spanish economy and momentous increase in hotel profitability (GOPPAR  Q1 Y-o-Y Madrid +24.4%,  Barcelona +16.9%)  is attracting interest largely from private equity funds seeking value-add opportunities with strong growth potential. 

  • CEE & Austria – A large percentage increase in the CEE & Austria hotel transaction volume is coming from a particularly low base. However, institutional funds have made recent purchases in Vienna, Prague and Tallinn reflecting confidence in the region’s key cities and the availability of core hotel stock. The market is benefitting from a spill-over of capital previously looking at assets in Western Europe, based on attractive yields and healthy performance data. 

  • Yields – Growing institutional demand for fixed-income, operational-lease encumbered assets has resulted in lease yields sharpening across most European markets in the last 12 months. Significant yield sharpening is also apparent for unencumbered assets (vacant possession), as opportunistic investors are keen to take full control of hotel operations and aggressively asset manage to realise maximum returns under improving trading conditions and reduced pressure on operating costs.

  • CBRE anticipate further growth in demand for European hotel investment given a shortage of investible stock in other asset classes, the increasing interest of Asian investors, a widely positive trading performance outlook, lower-for-longer interest rates and a recovering debt market.

Note:

1) Hotel yields based on high-end properties. 

2) Operational lease term - Respective local lease terms apply. German leases based on double net term.

3) Management contract terms - Encumbered with a Hotel Management agreement, operated and managed by an internationally renowned brand.  Non- guaranteed, variable income stream.

4) Vacant Possession - Unencumbered asset. Operated independently or under a franchise agreement. Non-guaranteed, variable income stream.