The last half a decade has been relatively quiet on the European investment scene, but BHN’s January 2014 survey of the hotel investment community suggests that the music that began to play more loudly in 2013 will likely get a bit noisier in 2014! Finally, it appears that one of the largest and most important hotel markets in the world – Europe – is getting some respect again.
Hotel Deal Activity
BHN posed the question about the expected overall level of deal activity in 2014 when compared to 2013, with the choices of more, the same, or less. Nearly 75 percent of respondents expect deal activity levels to be greater in Europe in 2014, while a miniscule 3 percent expect deal activity levels to decrease.
BHN recently asked the same question in surveys focused on the Asian and U.S. hotel investment communities. When comparing the survey results, it showed that the expectation for increased deal activity in the coming year was actually stronger in Europe than in the U.S., or anywhere BHN measured within Asia. The number of respondents who expected deal activity to grow in the U.S. and Southeast Asia was 65 percent and 62 percent respectively, with the rest of Asia at 50 percent or lower. In fairness, each of these markets has different ownership and investment dynamics – but the key take-away from these surveys is that investor confidence in Europe is coming back.
We talked with a member of the Hot.E (Hotel Investment Conference Europe) planning committee, Jon Hubbard from JLL’s Hotels & Hospitality Group in London, and he concurs with the direction of the survey results. Hubbard said, “I expect 2014 to build on the growth in the EMEA hotel transaction market seen in 2013, when volumes rose some 16% to $13 billion. In 2014, JLL predicts volumes will grow by a further 23% to around $16 billion, driven by a continued recovery in the trading fundamentals and strong investor demand across the region, extending beyond the core cities and core assets into more secondary locations, which can provide higher yields to return driven investors.”
Part of the improved outlook for deal activity is likely due to the expectation that hotel lending in Europe should finally start to increase. Lending community activity had been largely non-existent due to the recession, economic instability, the recent memory of deals gone south, and the tough European regulatory climate.
When we posed the question to the survey respondents about their confidence in an increase in bank lending activity in Europe by September 2014, almost 90 percent were somewhat or very confident that lending volumes would increase. This is huge change from the answer to the same question we received a year ago, when approximately 50 percent of respondents were somewhat or very confident they would see an increase in bank lending by September 2013.
The growth in investor optimism is in sync with the expectation of improved industry fundamentals. We asked about the outlook for RevPAR growth in 2014 in Europe. The same question was also posed in January of the two prior years, and the resulting expectations show a steady and solid improvement. This most recent survey indicates that 89 percent of the survey respondents expect RevPAR growth in Europe in 2014. This compares to 68 percent who expected growth in 2013, and 54 percent who expected growth in 2012.
Similar RevPAR expectation surveys were conducted in Asia and the U.S. at the same time earlier this year. These surveys show more cooling in India and China, with less than 50 percent of respondents expecting to see growth in RevPAR in these countries, and almost 75 percent of respondents expecting growth in RevPAR in Southeast Asia in 2014. It has been a long time since the outlook for RevPAR growth in Europe was stronger than in Asia.
Where is the volume the loudest – in the U.S. where 100% (yes 100%) of survey respondents indicated that they expect RevPAR growth in the country in 2014. The very low growth in new supply the past several years, coupled with the steadily improving economy have pushed expectations to be optimistic in the U.S. for the coming year.
Hotel Investment – Where In Europe?
We asked a question about from where you expect your new business will come in 2014. The top five destinations were UK/Ireland and Germany tied for the top spot, followed by the Iberian Peninsula, Russia, and Turkey. The same top five were reported last year, but Germany and the Iberian Peninsula each moved up three notches in terms of expectations of where business will be generated.
Lastly, in terms of “hot spot” cities for hotel investment, the top three were London, Barcelona, and Istanbul. London has sat on top of this survey for three straight years, while Barcelona has knocked Paris out of the top three.