Paris has reached the top of Colliers International’s inaugural Hotel Investment Attractiveness Index, an analysis of the investment climate of 20 European cities, despite predictions that investors and tourists would lose faith in the city due to political uncertainty and the perceived threat following various national security breaches.
Paris’ lead ranking is due to its high demand growth, strong hotel performance, high investment returns and market depth from 2012-2016.
Dirk Bakker, Head of EMEA Hotels, Colliers International said: “Investors are regularly requiring the latest information on cities where they will receive high returns, which in a politically and economically uncertain world, is often difficult to predict. Our index provides us with something more than anecdotal evidence through which to advise our clients.
“According to our latest data, Paris scored highly in terms of valuation exit yields and hotel investment volume between 2007 and 2016. Paris also saw over 15 million international tourists visit the city in 2015 and witnessed average hotel occupancy levels of over 77 per cent from 2012-2016.”
The Colliers index uses twelve metric components, weighted to give each of the 20 locations a score of up to 400, including population; GDP per capital; total workforce; commuting workforce; tourist arrivals; room occupancy; Average Daily Rate (ADR); Revenue per Available Room (RevPAR); Land site prices; Building costs; Valuation exit yields and investment volumes. These scores were then consolidated into a single figure and ranked to show which markets are hot in terms of overall demand, their recent operating performance and how this ties into the attractiveness of each market with regards to the acquisition of existing hotels and for the development of new ones.
Here are some of the highlights:
• London and Barcelona came out as the second and third most interesting cities to invest in, closely followed by Amsterdam and Berlin.
• The story for the top two cities, London and Paris, is very similar, but Paris pips London to the top by virtue of having slightly lower development costs. Low development costs is one of the areas in which Barcelona excels, increasing the overall attractiveness of the city ahead of Amsterdam sitting in fourth place. In all other areas, these two cities have very similar performance ratings.
• At the other end of the scale, although the development cost component scores very highly for Bucharest, this is not enough to compensate for low demand appetite and the lack of a hotel investment market, so it has been ranked the lowest.
• Istanbul has been ranked relatively low at number 17, despite the size of the market, helping drive a good overall demand score and low development costs. However, the operational performance lags behind due to low occupancy rates, leading to lower returns on investment. The current political and economic climate is not particularly conducive to a robust investment market.
• Zürich is the most interesting city to watch out for in the future, as its operational performance has been excellent in the last few years, suggesting an under-supply of quality hotel stock. Hotel investment interest is high, and if demand for the city continues to increase, it may become one of the most popular cities for new development and investment, despite the high development costs.
• Manchester and Dublin also perform highly, where hotel performance exceeds demand. The case for an increase in business demand growth in both cities looks very strong in the coming years, which should increase their attractiveness to developers and investors alike.
Damian Harrington, Director Head of EMEA Research at Colliers International adds: “With the Hotel Investment Attractiveness Index, we were able to create a unique analysis of a very dynamic market. By combining the twelve variables, we can generate far more of an insight into the current hotel industry and even predict what could lie ahead.”