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London is the most attractive hotel investment destination in Europe, a study out today (Wednesday) shows.
North American, Chinese and Middle Eastern investors are expected to continue to show strong interest in European hotel sector in 2015.
Upscale hotels are the most sought after sector with London considered the most attractive city for investment.
More than half (51%) of respondents rank the UK capital ahead of Paris (33%), followed by Barcelona (30%) and Amsterdam (23%). However, views appear mixed on value with 52% considering London to be overvalued, with 45% citing it as fairly valued.
Outside London, respondents favour Scottish cities as those of most interest in the UK next year. Edinburgh (60%) and Aberdeen (38%), followed by Manchester (33%) and Bath (19%), are considered most attractive, according to a survey of senior hospitality industry figures by Deloitte ahead of today’s 26th Deloitte European Hotel Investment Conference.
They anticipate a focus on the improvement of profitability (52%), rebranding or repositioning (49%), major capital expenditure programmes (44%) and expansion (33%) to be the main strategies adopted by UK hotel owners in 2015.
Improved operating fundamentals this yera and a positive outlook for 2015 is cementing evidence for a real growth story as hotels in the regions are revived by economic recovery.
Against the backdrop of a stagnant European economy, upscale hotels (33%) are the preferred product segment.
However, midscale (25%) and budget (22%) are also attracting interest. Additionally, the 120 senior hospitality respondents anticipate continued investment appetite from private equity, while trophy assets will be dominated by high net worth individuals.
Deloitte global head of hospitality Nick van Marken said: “There is significant appetite for hotels in Europe and the UK in particular. In recent months, US private equity buyers have taken advantage of low interest rates and a strong uptick in sentiment.”
He added: “After the trough of 2009, a number of deals were done, in the UK in particular, and some of these may well come back to the market. Despite both a good number of portfolios and single assets having completed, there are still opportunities to be had.
“Some valuations from two or three years ago have more or less doubled, so a number of buyers have done very well.
“It is easy to say in hindsight that these acquisitions were done at the right time, but real kudos should go to those who had the courage, got in and did deals even in the darkest days. Now, many will be rewarded if they get out at the right time. Some of those who missed the exit and held on, may also be rewarded.
“This appetite is not without its risks, however, and a lack of economic growth across the eurozone along with global geopolitical issues and challenges are all concerns. That said, we are likely to see yield compression in key European markets as a lack of product and high demand continues to underpin investment appetite.”
Looking beyond London, van Marken said: “The regions have benefitted from a series of high-profile international events and a return of corporate and meetings demand resulting in double-digit RevPAR growth. The strong upturn in rate is very promising albeit a return to pre-crisis profitability levels is yet to be seen.
“Whilst economic growth has remained significantly slower across Europe, any improvement in the economic backdrop still has the potential to rejuvenate the European hotel sector and encourage further investment in 2015.”