Investors Eye Greek Hotels | MKG Reports

A large chunk of hotels in Greece are being forced to sell, with values expected to drop drastically according to experts at the recent 13^th Greek Prodexpo conference on property held in Athens.

Banks will need to write off bad debts, freeing up hotel real estate to be purchased by foreign investors, funds and private equity firms. "The real challenge for investors will be choosing optimal opportunities, such as prime hotel assets and good value properties in high potential markets. As such, hotel valuation methods will come under scrutiny, and at the same time be the key to making the right purchase," says Senior Consultant Market Feasibility Studies and Valuations, MKG Hospitality, Colette Ambiehl who was speaking at the event.

Hotel income-based valuation methods taking into consideration business activity are fundamental in determining a hotel's value (land, building, as well as business enterprise value). This is in turn affected by market conditions, such as macro economy, transport and accessibility, current competition, relevant future developments in infrastructure and projects that will impact demand, as well as the actual product and its positioning.

At present, hotel property values in Greece are expected to drop on account of the country's investment risk and more specifically lower hotel demand. According to MKG Hospitality's market performance benchmark, hotel RevPAR continued to fall, down by almost 20% at year-to-date September 2012. This represents an 8.5 point drop in demand (occupancy rate) and just over 6% in average room prices (ADR). The all important summer period was particularly affected, with June through to September recording a decline over the corresponding period in 2011. A significant drop in demand from both domestic business and leisure markets being the main catalyst, also pushing average prices down.

"In reality, we should be looking at a case by case situation. Since the hotel industry is cyclic, we know demand will eventually return. When it is at a good enough and stable level, average room prices will then start to increase. As such, property values will also have to fluctuate upwards," continues Ambiehl. "Of course the country's economy and structural issues must continue their reform, boosting credibility and the country's attractiveness, to local and foreign based investment. Investing in hotel properties – distressed or not – that have stronger branding and market prospects is likely to generate greater returns."

According to analysts, upscale and luxury property prices should not suffer as much, as they generally have better locations and rely a lot more on foreign revenue streams, i.e. international tourism where Greece proposes much greater immediate potential. They also tend to have the added advantage of being managed or affiliated to a corporate hotel chain, boosting reputation and increasing distribution channels. "These certainly represent safer investment opportunities in a market that will ultimately benefit from its structural evolution," adds Ambiehl.

Although there is still a great deal of concern surrounding the country's investment climate, with dampening confidence regarding market values and expected returns, there is also optimism for the future, as the tourism sector drives new investment interest in the country.

"Tourism is a central pillar of the Greek economy providing revenue and jobs and supporting regional development. Although Greece is a well known touristic brand and tourism infrastructure is highly developed, there are some strategic gaps that foreign investors can fill in providing funding, know-how, expertise and access to new markets," explains CEO, Invest in Greece Agency, Stephanos Issaias

Invest in Greece Agency alone is promoting a portfolio of more than 200 privately and publicly owned tourism and real estate projects throughout the country. The portfolio consists primarily of hotels and integrated resorts, in operation or under development, that are looking for investors; land parcels suitable for development that are for sale or available for co-investment; commercial real estate suitable for development; and public real estate assets that are to be privatised through tenders or concessions.

"Moreover, Greece supports investment in the tourism sector through significant, wide ranging measures, including attractive incentives provided by the new law for holiday houses, the New Investment Incentive Law and the simplification of administrational procedures for strategic investments through the implementation of the Fast Track Law. Invest in Greece Agency welcomes the international investment community to explore this vibrant Greek market and discover our new Tourism Investment Portfolio," adds Issaias.

According to the Greek Minister of tourism, Olga Kefalogianni, the country has adopted a special plan for tourism growth and to make the industry even more competitive on the international market. Endeavours are geared towards infrastructure development, especially products adapted to the domestic market, restructuring and modernisation, branding, as well as attention to core segments in a bid to reach the top ten destinations in the world by 2020.