Investment in European hotels increased by 5.3% to €24.3 bn in the 12 months to Q2 2019, bucking the trend for the overall commercial real estate market which saw deal volumes decline 7.8% over the same period, according to new research from CBRE.
The rise of hotel investment reflects stronger demand for operational and alternative property types, which besides hotels includes segments such as healthcare facilities, senior living, student accommodation, data centres and pubs. The expectation that these alternative asset classes will continue to provide sustained income growth is underpinning demand, CBRE said.
‘European hotel investment volumes have remained strong despite the slowdown in wider commercial real estate,’ commented Miguel Casas, head of investment properties for Continental Europe at CBRE.
‘Operational and alternative property types remain in high demand, and there is expectation that this trend will continue due to sustained income growth. Investors have notably become more active in secondary locations when availability of large asset deals and portfolio deals have been scarce, and single asset sales have especially been a driver in this successful quarter for the hotel market,’ he said.
All major markets saw an increase in transaction volumes with the exception of the UK, Germany and Benelux. Investment volumes in the UK were down 26% over the year, yet it remained the largest hotel investment market in Europe, capturing 26% of capital deployed. Single-asset sales soared by 44.5% but portfolio sales saw a volume decline of 53%.
Paul Collins, head of Hotel Investment Properties UK & Ireland at CBRE commented: 'While UK hotel transaction volumes are down for the twelve-month period to Q2 2019, the appetite amongst investors remains strong. This is particularly the case from overseas buyers who want to take advantage of the current weakness in sterling.
‘However, the lack of activity is largely down to the shortage of stock on the market and this situation is unlikely to change in the run up to the Brexit deadline of 31st October.’
Spain and Italy
Spain remained the second largest hotel investment market in Europe, with deals totalling €4.3 bn, up 67.2% on the same period last year. Madrid and Barcelona remained stable, accounting for 4.5% and 4.6% of activity respectively. Investment in provincial Spain increased by 75.5% on the previous year, mainly on the back of transactions in leisure and resort markets.
Italy saw volumes surge 133.2% to €3.1 bn over the 12-month period, elevating it to Europe’s fourth largest hotel investment market. Single-asset sales typically dominate Italian investment activity; however, the sale of the Belmond portfolio in Q2 was a notable exception.
Germany has experienced supply constraints in portfolio deals and large asset deals, resulting in volumes across the ‘big five’ cities falling 68% to 46.3% from the previous year.
This suggests that investors are turning to secondary locations and regional cities for opportunities, CBRE said.