Hotel investment market: Expectation of stronger income growth drives improved sentiment (EMEA)
Friday 3 December 2010
Confidence in the EMEA hotel investment market continues to build with investors anticipating trading fundamentals to stabilize or improve over the next six months according to the latest Hotel Investor Sentiment Survey (HISS) by Jones Lang LaSalle Hotels.
The HISS report also highlights that good growth prospects over the next two years are expected for the majority of cities. Short term performance expectations were most positive across Western Europe, while those for Eastern Europe and MENA remained more fragile. In particular cities in Scandinavia and Germany are expected to show a substantial improvement in the short term.
Mark Wynne-Smith, CEO of Jones Lang LaSalle Hotels in EMEA, said: “This optimistic short term view has been driven by the positive occupancy results achieved across the majority of EMEA markets this year. The gradual move out of the recession and rising business confidence has also supported the return of hotel investment activity in EMEA, fuelled by motivated sellers bringing more stock to the market.
In line with the upturn in the EMEA hotel investment market, average yield requirements strengthened in the latest survey to 7.7%% from 8.0% in April 2010. Yield requirements were lowest in Western Europe, with the average yield for German cities standing at 6.8% and London realizing requirements below 7%. Yield requirements also substantially strengthened across Eastern European cities, reaching an average of 8.2%, 100 basis points down since April 2010.
Wynne-Smith continued: “Investors do not expect the hardening of yield requirements to continue over the next six months. There is the potential for a greater number of assets to be put up for sale as banks take advantage of improving market conditions which could negatively impact investor pricing, in particular for assets outside core city locations.”
Although investors are increasingly demonstrating confidence in hotel trading and investment, investment intentions remained dominated by hold sentiments, with buy intentions in second place. Sell and build sentiments continued to take the third and fourth place respectively, although the latter did grow in importance across the region.
Wynne-Smith concluded: “Core hotel product in prime locations has attracted substantial interest from cross border investors who have been keen buyers during the first three quarters of 2010. This has resulted in strong competition for key quality hotels. With the potential for more stock becoming available, market dynamics will keep buyers in a favorable position.”