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Hospitality Market Trends & Data

Bořivoj Vokřínek • 22/07/2021


In the second quarter of 2021, C&W conducted a survey amongst over 50 respondents, including senior representatives of major private equity firms, funds, REITs and other institutional investors active in the European hotel real estate market.  The firms represented invested an aggregated volume of over EUR 26 billion during the last five years, accounting for about a quarter of all hotel transaction volume in Europe.  


Key findings 


Hotel investment sentiment 

  • Despite COVID-19 and its disturbing short-term impact on the hotel sector (average occupancy in European hotels is still relatively low at around 25% in May 2021), real estate investors remain optimistic about the long-term future of the sector. According to the survey, 40% of respondents intend to buy more hotel real estate, while 29% plan to continue with their investment activity as before the pandemic. Only 21% of investors plan to dial down their hotel acquisition activity.   
  • The prevailing investment strategy adopted by hotel investors in 2021 is to focus on higher-risk-and-return acquisitions, including value-add and opportunistic investments, pursued by 34% and 31% of respondents, respectively. Interestingly, 15% of investors deploy a full spectrum of strategies, seeking core, value-add and opportunistic investments.  
  • While expectations of reduced pricing for hotel assets due to the pandemic is a frequently reported reason for real estate investors to raise capital, the survey revealed that majority of investors (59%) would consider opportunities with only a moderate discount (15% or less, relative to 2019 levels). Only 12% of investors seek more distressed opportunities (25% or more price reduction).  


Real estate investment targets – hotel types and markets 

  • Despite the complexity of their operation and seasonality, resorts have gained popularity among investors, with 70% of the survey respondents now considering them to be more attractive than before COVID-19. This is likely to be driven by the expected faster recovery and long-term growth prospects of leisure travel. 
  • Serviced apartments also seem to become a more attractive asset class for investors (according to 60% of respondents), which is not surprising given their better resilience during the pandemic and flexibility to shift to the medium to long-term rental market.  
  • Hotels focusing on the meeting, incentives, conferences and events market (MICE hotels) and those located at airports have expectedly become less appealing for most investors, given the deeper impact of COVID-19 on these sub-sectors. Nevertheless, at least 24% of respondents indicated that they had not changed their interest in these hotel types, which is an encouraging sign that some investors look beyond the short-term challenges. 
  • In terms of price positioning, economy to upper-midscale classes seem to have gained most in popularity, rising for 50% and 33% of respondents respectively, while for most remaining investors, the appeal of these hotel classes has not changed. On the other hand, there seems to be some polarization amongst investors the upper-upscale and luxury classes. While these hotels recorded rising attractiveness for a notable percentage of respondents (27% and 29%, respectively), a meaningful share also indicated that these hotel classes became less attractive (20% and 29%, respectively). Nevertheless, the highest number of respondents (53% and 43%, respectively) indicated that the investment appeal of upper-upscale and luxury hotels has not changed as a result of COVID-19.   
  • With regards to geographical focus, United Kingdom & Ireland was rated as the top target region for investors, followed by Germany and Iberian Peninsula.  
  • In terms of specific major urban markets, Barcelona achieved the highest interest ranking among hotel investors, followed by London and Paris.  


Expected hotel market recovery  

  • Leisure destinations are expected to recover faster, with 85% of respondents expecting performance to fully return to 2019 levels (RevPAR) by 2023. Regional cities are expected to follow, with recovery anticipated between 2023 and 2024 by 77% of respondents.  
  • Major cities that are frequently more dependent on international travel are anticipated to recover at a slower pace. Nevertheless, 75% of surveyed investors expect recovery to lie between 2023 and 2024 and 21% in 2025. This is a more optimistic view compared to the recovery after the Global Financial Crisis in 2008/2009, when it took on average 5.6 years for hotel RevPAR in major European cities to recover to pre-crisis levels. 


Deal underwriting considerations 

  • While the survey revealed that investors are intending to buy more hotel real estate despite the pandemic, they face notable uncertainties and need to assume more conservative financing assumptions. 
  • When underwriting new deals, the biggest uncertainties among investors are related to hotel performance, followed by the financing and yields.  
  • Ambiguity regarding hotel operators or tenants is also considered relatively high by a notable share of investors (rated as critical by 13% of respondents).  
  • Expectations for a relatively quick recovery seem to be reducing concerns about the exit at the end of the holding period, with this being ranked the least challenging uncertainty, confirming the confidence in the medium- to long-term prospects of the hotel asset class.  
  • Majority of respondents (61%) are underwriting deals with moderate LTV levels, at a maximum of 55%, reflecting still somewhat constrained access to financing. About 17% of respondents, primarily core and core-plus investors, are currently assuming deal structures with 100% equity. 
  • Last but certainly not least, the survey revealed that Environmental & Social Governance is an important consideration for investors during the acquisition process, with property related aspects being ranked the highest. This is an encouraging sign to hotel owners that, while ESG is not absolute deal breaker yet (it is considered as critical by less than 30% of respondents), it is high on investors’ radar. Accordingly, investment in ESG can have a positive impact on the value of their assets and should be taken seriously.  

Contact us for further insights and analysis. 

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