ASIAN CAPITAL INTO EUROPEAN HOTELS INCREASES BY 393% SINCE 2007 MARKET PEAK
Increased liquidity and a low cost of capital has resulted in record levels of Asian investment into the European Hotels sector in 2015. €1.6 billion of Asian capital has flooded the hotels sector this year, representing 21% of the European hotel stock traded, which is the highest share of Asian investment across any of the mainstream asset classes (Office, 17%, Retail, 9%, Industrial, 5%) and a 393% increase from peak of the last cycle in 2007, reports CBRE Hotels’ new ‘Check In’ series on European hotel investment.
High-profile, up-market hotel assets in established capital/tourist cities have remained attractive; however Asian investors are also increasingly active in the mid-market space owing to stronger capital growth prospects and burgeoning self-confidence in their operational capabilities.
Asian regions have seen rapid accumulation of wealth. In order to prevent real estate bubbles in local markets there has been a structural shift towards investing internationally, while at the same time diversifying across a broader selection of asset classes.
Asian interest in European hotel space is also due to emerging travel trends and the relatively low cost of capital.
Asian investors have an intimate appreciation of their home markets’ growing appetite for international travel, as economies across the region – driven by China – are led away from manufacturing for export towards a more consumer-driven model of spending and mobility. This gives them the confidence to downplay risks and underwrite strong pricing.
"The cost of borrowing for Asian groups has been favourable with interest/lending rates ranging from 2.5% to 4%. Those with an existing track record and excellent credit ratings are obviously able to achieve more favourable rates than new entrants. It is more important to take into consideration currency fluctuations; those who need to borrow typically expect a buffer of 200 to 300 basis points above cost of borrowing to make international investment worthwhile.”
In terms of the overall level of investment into European hotels, CBRE Hotels expects transaction volumes to surpass €20bn when the 2015 ledger closes – this will be a record breaking year. The increased quantum of capital into the sector has been driven partly by the growing Asian appetite; however, it is expected that investment volumes in 2016 will repeat rather than exceed 2015 because of the long-term holding strategies expressed by Asian investors and the subsequent impact this will have on the availability of stock.
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