EMEA hotel investment volumes total $11 billion in 2012

Europe, Middle East and Africa ("EMEA") transaction volumes reached $11 billion in 2012, according to the latest analysis from Jones Lang LaSalle Hotels & Hospitality Group. This represents a 10% year on year decline in total volumes as the market moderated in line with the economic climate, including restricted debt availability.

Middle Eastern investors were very active in 2012, investing $1.7 billion to acquire hotels representing about 15% of the EMEA total, reflecting a 9% increase on 2011 volumes. Middle Eastern capital, therefore, remained third place after domestic ($5 billion) and European investors ($1.8 billion). Notable Middle Eastern purchases included a portfolio of 6 European InterContinental hotels and other trophy assets in core markets, such as the Maritim Berlin and Le Méridien Budapest.

Hotel investment: 2012 in review

The majority of transaction activity across 2012 was focused on key European cities and markets that weathered the economic headwinds well in Western and Northern Europe. Highly diversified markets such as London, Paris, Amsterdam and key German cities retained robust trading conditions which supported prices of quality properties in prime locations.

In Central and Eastern Europe (CEE) transaction activity remained subdued due to limited debt availability, but buying interest remained strong for good products in Warsaw, reflecting the stable Polish economy.

There was limited interest in secondary assets due to investors avoiding what they perceived to be higher risk of a less liquid market. This caused pricing of regional assets to be more opportunistic, attracting a high level of interest from investment funds/private equity firms but also cash rich private individuals.

Whilst the pricing gap has narrowed as sellers expectations become more realistic reflecting the wider economic situation, in general transactions took longer to close.

Jonathan Hubbard, CEO Northern Europe, Jones Lang LaSalle's Hotels and Hospitality Group, said: "In the current market, all signs point to the next 12 months being largely a repeat of the last, although we expect lenders to increasingly take action on distressed and non-performing loans. The overall market may grow if insurers and pension funds continue to look at providing debt but on the whole we expect stability rather than growth".

2013: Middle East money to remain in the market

Looking ahead to the rest of 2013, the UK will remain the most liquid market, ahead of France whilst many investors will also be attracted by the attractive risk-adjusted returns in Germany.

Transactions are expected to be limited in Spain, as investors adopt a "wait and see" approach. However, bank deleveraging may accelerate asset sales. Italian activity will be focused on trophy assets in Rome and Milan. Limited activity is expected in CEE as it will remain hard to finance transactions.

Christoph Harle, CEO Continental Europe, Hotels & Hospitality Group said: "Despite modest revenue per available room growth in key European markets, high net worth individuals and sovereign wealth fund investors will remain drawn to the prestige and long term capital preservation of hotels. We expect increased interest in core markets from Asia, especially Singaporean and Malaysian investors. Chinese investment will also increase as more attention moves away from domestic assets."

Green shoots? Development hot spots in 2013 include the Middle East – with 150 new hotels expected in 2013, majority in Saudi Arabia and UAE. We anticipate hotel development activity to pick up in Africa in growing tourist/business destinations including Ghana, Nigeria, Tanzania and Kenya. These markets are benefiting from growing foreign investments and hotel operators will be looking at establishing a presence in these emerging markets. Financing will be backed by the recent creation of African hotel funds with capital provided by African and international investors.

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