More than a third of investors intend to buy more hotels across Europe, according to one of the findings of a survey by international real estate consultancy firm Cushman & Wakefield (C&W) of more than 50 senior representatives of major private equity firms, funds, REITs and other institutional investors active in the European hotel real estate market.
Despite the impact of the pandemic on the travel and tourism sector, only 21% of investors intend to reduce their hotel acquisition activities and only 10% have put their acquisition plans on hold for the time being. The companies surveyed invested a total of more than 26 billion euros between 2016 and 2020, acquiring 664 hotels with 127,642 rooms and thus accounted for around a quarter of the total hotel transaction volume in Europe.
Holiday hotels in the focus of investors
Resorts have gained the most attractiveness among investors. Despite the complexity of their operation and seasonality, the majority of survey participants (70%) consider them more attractive now than pre- pandemic. This is due to the expected faster recovery and long-term growth prospects of leisure travel.
Serviced apartments have also become more attractive to 60 % of the investors surveyed. Undoubtedly, their resilience during the pandemic, high profitability, low cost base and flexibility to shift into the medium or long-term commercial rental sector play an important role in this.
On the other hand, the losers are hotels that focus on hosting meetings, incentives, conferences and events (MICE hotels). In addition those properties, which are located at airports, are also significantly less of an investment focus for most investors than previously.
However, C&W predicts a return of business travel and events as structured meetings and face-to-face events become more important again after a long period without physical gatherings. Also, 21% of respondents said their interest in acquiring MICE hotels has not been changed by Covid-19.
Germany ranked second in popularity after UK & Ireland region
When asked about geographical locations, the UK and Ireland are the top target regions for investors, partly because investors here expect greater price discounts. Germany, the Iberian Peninsula, France and the Benelux countries rank closely behind. At city level, Barcelona drew the greatest interest ranking among hotel investors, followed by London, Paris, Amsterdam, Munich and Berlin - Hamburg was also named as a particularly interesting market by investors.
"The results once again underline investors’ confidence in the European hotel market and its medium-to-long-term prospects. It is particularly interesting that the respondents want to continue to push ahead with hotel acquisitions regardless of investment strategy and cost of capital. Germany remains a popular investment destination and safe haven, especially due to the large number of strong secondary markets, so that demand already exceeds the supply of investment product," comments Stefan Giesemann, Head of Hospitality Germany & Austria at Cushman & Wakefield.
Broken down by market type, leisure destinations are expected to recover faster. 85% of respondents expect performance to fully return to 2019 levels by 2023 (RevPAR).
Regional cities are expected to follow, with 77% of survey respondents expecting a recovery between 2023 and 2024. A slower recovery is expected for major cities, which are often more dependent on international and business travel. Nevertheless, 75% of investors surveyed expect recovery between 2023 and 2024 and 21% by 2025, a more optimistic view than the recovery following the 2008/2009 global financial crisis, when it took an average of 5.6 years for hotel RevPAR in major European cities to return to pre-crisis levels.
Moderate price reductions expected
Hotel disposals at reduced price levels due to the pandemic were a frequently-cited reason for real estate investors to raise capital to invest in hospitality properties. However, the survey found that the majority of them (59%) only expect buying opportunities at a modest discount of 15% or less, relative to 2019 levels. Only 12 % of respondents are hoping for a discount of at least 25 %.