Hotel sector restructuring to benefit property investors

The European hotel sector has seen strong investment activity in 2006, with a number of corporate initiatives coming from the sector leaders, the real estate investment bank Eurohypo said in a new report. The lender estimates the global transaction volume in 2006 will amount to EUR 60 bn, after EUR 45 bn in 2005.

The European hotel sector has seen strong investment activity in 2006, with a number of corporate initiatives coming from the sector leaders, the real estate investment bank Eurohypo said in a new report. The lender estimates the global transaction volume in 2006 will amount to EUR 60 bn, after EUR 45 bn in 2005.

In Europe, the transaction volume comes to EUR 16 bn, an all time record with a 42% increase on a one-year rolling bases. London is leading the European positive trend for number and size of single asset transactions. On the other side, France's transactions slipped from EUR 3.7 bn in 2005 to EUR 2 bn in 2006.

The chain hotel sector is highly concentrated in Europe, where half of the supply is divided between Intercontinental, Louvre, and Accor, with the latest entering a restructuring process involving its real estate. However, the two- and three-star categories are mainly in the hands of the independent segment. Chain penetration is highly variable, accounting for an average rate of 22% ranging from 6% in Italy and 50% in the UK.

Consolidation of the hotel industry on a large scale is still to come in Europe, the world's biggest hotel market, and it will involve global property investors. Hotel chains are expected to sell assets to finance highly capital intensive growth, whilst independents are likely to join chains.

US history shows that property oriented investors can play a major role in the restructuring of the sector. In Europe, this will probably be achieved through strong partnerships with the managing entities, Eurohypo said. The Europe-focused lender envisages that, despite the strong investment activity and the rising prices, valuations are still realistic, with the hotel property still standing at the upper part of the yield scale. This means that there is still room for further compression.

Global investors are now focusing in Europe, because of the opportunities coming from the industry reshaping and the recent integration of the Eastern countries, all of them with strong tourist and business potentials. The most recent acquisitions have been made by private equity funds (25%), high net-worth individuals (20%) and hotel groups (15%).

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