Jones Lang LaSalle Hotels

The 2008 pan EMEA hotel transaction volume for deals above €10 million finished at €7.8bn, a notable decrease of 64% compared to 2007.

The reduction in hotel investment activity was largely the result of fewer portfolios transacting during 2008. In particular, large corporate transactions which became frequent in recent years disappeared from the market. Overall portfolio activity fell back by around 71%, whereas single asset investment volume decreased by 49%. The slowdown became most pronounced in the last quarter of the year, when hotel investment volume fell by almost 90% compared to the same quarter in 2007.

Mark Wynne-Smith, CEO, Jones Lang LaSalle Hotels, Europe, Middle-East and Africa said: “We do expect the 2009 volume across the region to fall to around €5bn – approaching a 10 year low - led by a significant drop in portfolio sales and further deterioration in single-asset volume. Activity will remain subdued in the first half of the year, followed by more activity in the fourth quarter.

“Interestingly, our research shows that hotel operators became the major buyers in 2008 as they started to realise that buying hotel properties is a good strategy by which to achieve growth in the current market conditions. This could mean the start of a complete turnaround from the debt fuelled selling trend of the last few years”, comments Mark. “If prices end up where we think they will, asset purchases do represent a fair return on capital for both public and private hotel operators”.

Those investors still active continue to focus on major cities across EMEA, most notably London and Paris, which are best positioned to weather the economic downturn, could recover more quickly and have had low growth in supply in recent years. Both markets have shown remarkable resilience in attracting international and domestic visitors and are likely to maintain occupancies of around 75% to 80%. Even in the face of significantly less demand, hotels in these cities continue to be the most sought-after by investors and look capable of holding their values in comparison to other cities.

2008 also saw most investors shy away from management contracts, which had been very popular in recent years - mostly as a result of the lack of debt which has driven much of the recent acitivity in this segment. Vacant possession and lease deals were the dominant transaction structures.

Mark concludes “In 2009, we expect evidence of distressed assets to become clearest in Ireland, Spain and the UK. But given the diversified nature of the European community, each country will experience varying degrees of distress. In general, as with other regions around the globe, owners and their lenders will remain reluctant to sell in a troubled economic environment, unless forced by the need to refinance or for other economic reasons.”

Fiona Smith
+44 0 20 7399 5469
JLL