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Signs of optimism in hotel investment market

New European hotel transaction data from Cushman & Wakefield reveals that the first half of 2020 saw a marked increase in investors retreating to their home regions amid Covid-19 related uncertainty.

Some 78 per cent of the recorded €5.7 billion in transactions (a year-on-year fall of 55 per cent) originating from within Europe.

Data from the new Marketbeat: Europe Hospitality Half One 2020 shows that some 79 per cent of the deal volume was agreed before the Covid-19 outbreak.

There were, however, still several notable deals agreed after the pandemic outbreak, totalling €1.2 billion, confirming that there are investors confident about the long-term prospects of the hotel sector.

Examples of key transactions, with the final price agreed post-Covid-19 lockdown, include acquisition of the 136-key Ritz London by a Qatari investor, and the purchase of 304-room nhow hotel in Berlin by Swiss-listed Eastern Property Holdings.

The most active buyers during the last six months were institutional investors (48 per cent of total volume transacted), a group that typically has better access to capital, strong financial capability to withstand temporary challenges and frequently a longer-term investment strategy.

The average price per room has increased by approximately 26 per cent to €239,000 compared to €189,000 per room in 2019.

This can largely be attributed to the changing nature of hotels sold in early 2020, which has focused on prime assets in core locations (including the Ritz) and where there is less concern about the impact of Covid-19 on long term real estate values; rather than a suggestion of reduced yields.

Despite a notable decline, the UK remained the highest volume market for hotel investment in the first six months of the year (€1.8 billion) by virtue of the sale of the Ritz which represented nearly half of total deal volume.

Germany recorded the second highest transaction volume (€0.9 billion) and was also the most active market with the highest number of properties and rooms sold.

Spain, taking third place, was one the few countries to record investment volume growth, up by 52 per cent.

This can be largely attributed to the notable acquisition of the Madrid Edition hotel for €220 million by Archer Hotel Capital, from KKH Property Investors.

Jonathan Hubbard, head of hospitality EMEA at Cushman & Wakefield, commented: “The hotel sector across Europe has been hit hard by Covid-19 lockdowns, which have understandably resulted in a sharp drop in investment volumes as investors take stock and await signs of a trading recovery.

“However, investor sentiment for the sector remains positive for the medium term and the transactions that have occurred demonstrate this confidence.

“Nonetheless, with a very uncertain trading outlook in the short term, many well capitalised investors are holding out for pricing adjustments or some distressed sellers to unlock more upside in their acquisitions and this is likely to be a feature of the market in half one of 2020.”