2015 – A RECORD YEAR FOR EUROPEAN HOTELS SECTOR
- Sector confidence fuelled by strength of Western European markets
- The UK, Germany and France led 2015 investment
The European Hotels market has eclipsed the €20 billion threshold of investment predicted in 2015 by €2.8 billion (totalling €22.8bn), an increase of 79% Y-o-Y. A monumental fourth quarter saw 31% (€6.946bn) of capital allocated to hotels, an increase of 101% versus Q4 2014 with Western European markets leading the activity, reports CBRE Hotels.
The sector is now set to transition into mainstream property investment after the hotels share of European real estate investment has increased by 6% since the last market peak in 2007. Recent confidence has been fuelled by the strength of the sector across many of the key Western European markets, in particular, the UK with €9.3 billion of investment in 2015 (+134% Y-o-Y), Germany €4.4 billion (+47% Y-o-Y) and France €2 billion (+96% Y-o-Y).
A heightened allocation of capital into the sector has led to strong pricing and yield contraction against a backdrop of operating performance recovery. Hotel operators are finding the opportunity to drive average room rates owing to robust levels of occupancy and continued growth in demand.
In terms of flow, North American capital deployed mainly by the private equity funds represented 35% of European hotel investment during the last 12 months – typically targeting value-add opportunities. European hotel investment (18%) has included a growing amount of institutional capital and Middle Eastern (28%) investors continue to target luxury assets in capital cities for the preservation of wealth.
In 2015, Spain was of the strongest growth markets thanks to attractive currency rates, security concerns in other destinations and the wider-European economic recovery.
I am confident that these trends will continue through 2016 and that the Spanish Hotels market will also benefit from resurgence in domestic demand. Corporate confidence is beginning to return and unemployment has dropped to its pre-crisis low which has increased the opportunity in regional markets such as Valencia and Bilbao where a significant yield premium exists.
Looking forward, the outlook for operating performance in 2016 looks largely positive based on good supply, forecasted economic growth and low inflation.
Joe Stather, Information and Intelligence Manager EMEA, CBRE Hotels, commented: “Should the momentum be carried through into 2016, then transaction volumes could be set to repeat rather than exceed due to the limited availability of stock – a constraint that has been exacerbated by 2015’s successful bidders often having long-term holding requirements.