“When taking stock of hotel investments in Europe a year ago, we feared that the ‘party was over’”, according to co-author Elke Geieregger, a Senior Associate at HVS London. “There were record investment volumes of £18 - £20 billion in 2006 and 2007, but only £6 billion in 2008. Owing to deepening economic recession, falling RevPAR and a freeze on lending by commercial banks, 2009 took the hotel investment community into an ‘age of austerity’.” European hotel investment activity in 2009 fell still further, by around 50%, to just over £3 billion: a drop of more than 85% on the volumes of 2007.
Geieregger continues, “Inactivity in the transaction market over the past 12 months has largely been the consequence of four factors. These are the wide bid-ask pricing spread between buyers and sellers, the lack of distressed selling, the difficulties in obtaining new financing for purchases, and the continued decline in the trading environment”. With values still at a low point in the cycle and owners unwilling to sell, HVS still expects a large portion of sales to be expected to be bank-driven. They point out that many of the hotels which were sold in the transaction peak of 2006-07 are expected to come up for refinancing in 2010.
“This, combined with banks’ wait-and-see approach towards underperforming assets so far, should give rise to distressed assets particularly in the UK and Spain, but far from the flood that most investors have been predicting and eagerly awaiting,” commented Saurabh Chawla, Associate Director at HVS.
“In general, the European transaction market is expected to remain under immense pressure for another 12 months or so, until confidence in hotel trading performance is restored, sellers start pricing their assets in line with market value, and banks send sustained signals of support for the hotel sector,” Chawla continues. “Our expectation is that hotel investments in 2010 will, at the very least, fare better than they did in 2009, with a more meaningful upturn occurring in 2011.”
About HVS | HVS is the world’s leading consulting and services organization focused on the hotel, restaurant, shared ownership, gaming, and leisure industries. Established in 1980, the company performs more than 2,000 assignments per year for virtually every major industry participant. HVS principals are regarded as the leading professionals in their respective regions of the globe. We are client driven, entrepreneurial, and dedicated to providing the best advice and services in a timely and cost-efficient manner. Through a worldwide network of 30 offices staffed by 400 seasoned industry professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. For further information regarding our expertise and specifics about our services, please visit
www.hvs.com
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