According to Jones Lang LaSalle Hotels’ latest Hotel Investor Sentiment Survey, investment sentiment for hotel assets has strengthened across EMEA with yield and IRR requirements hardening when compared to October 2011. In EMEA, yield requirements decreased by 40 basis points to 7%and leveraged IRR requirements fell by 100 basis points to 15.4%.Jon Hubbard, CEO Northern Europe Jones Lang LaSalle Hotels said: “Despite the on-going sovereign debt crisis, economic contraction in many EU countries and instability in the European banking system, recent indicators suggests that confidence in the hotel real estate sector has improved since October 2011. London, Paris, Munich and Stockholm are positioned as some of the most stable European hotel markets reflected by their low yield requirements and they continue to attract a substantial amount of investor interest.”
Of the 37 cities tracked, 17 (46%) are expected to show trading performance growth in the short term (6 months), a figure which increases to 31 cities (84%) when medium term performance over the next two years is considered. In anticipation of the upcoming Olympic Games during July and August 2012, London is the highest ranked market for short term trading. However, sentiment for medium term trading has softened as the high demand of the Olympic Games period is not expected to be sustained, while hotel supply continues to grow.
Trading expectations for Central and Eastern Europe are positive and strengthened compared to the previous survey. Warsaw posted one of the highest RevPAR growth rates in Europe in 2011 and the outlook for 2012 is promising, in light of the EURO 2012 Football Championship and another year of buoyant economic growth expected for Poland.
In terms of investor intentions, buy intentions remain strong at 42.6 percent, in line with a dynamic hotel investment market in the first quarter of 2012 and exhibit continued investor interest for prime hotel markets in EMEA. Unsurprisingly, build intentions were low throughout EMEA given that debt for new developments remains scarce, although results indicate some pockets of opportunity in CEE and the Middle East. Results were comparatively high for CEE (20.2%) with development opportunities in Warsaw (23.1%) and Zagreb (23.5%). Istanbul, at 23.8%, reported one of the highest results and underpins the development potential for this growing tourism market.
Looking towards the Middle East and Africa (MENA), investor sentiment for short term trading was negative, although expectations have improved since the last survey. Despite this, investors are confident that trading in Dubai will continue to improve in the short and medium term. The city has seen a significant growth in tourism arrivals while hotels reported strong performance results in 2011 and Q1 2012.
Overall, many markets in MENA have stabilized since the Arab Spring although the region remains volatile. In the near future, however, investors believe that conditions will improve and that hoteliers can expect to see an up lift in trading performance.
Christoph Härle, CEO Continental Europe Jones Lang LaSalle Hotels concluded: “According to investors perceptions, yield requirements are likely to increase over the next six months for EMEA markets where conditions remain difficult in light of tight debt markets and weak economic conditions. However, there are a number of key markets in Europe, such as London, Paris and Munich, where we see continued downward pressure on yields. With expectations close to the 2007 sentiment in some key hotel markets and perceived strong underlying economies, we witness a “flight to security”. However, the European debt crisis seems to be becoming of greater concern. Given the volatility of the current economic climate, we expect a widening range of yield expectations and investors interest depending on local economies and individual hotel markets.
