European hotel investment volume bucks the trend
- Total hotel investment in Europe up 5.3% in the twelve months to Q2 2019
- Increase in investor demand for operational and alternative property types
- Italy becomes fourth largest market in Europe with 133.2% increase in hotel investment year-on-year
Despite the total commercial real estate investment in Europe declining 7.8% year-on-year in the twelve months to Q2 2019, hotel investment saw an increase of 5.3% over the same period, totaling €24.3bn, according to the latest data from global real estate advisor, CBRE.
The rise of hotel investment is a result of the increase in demand for operational and alternative property types, given the expectation of continued growth in this area. In Europe, all major markets saw an increase in transaction volumes except the UK, Germany and Benelux.
Investment volumes in the UK in the twelve months to Q2 2019 were down 26% on the same period of the previous year, yet it remained the largest hotel investment market in the region, capturing 26% of capital deployed. Single asset sales soared by 44.5% but portfolio sales saw a volume decline of 53%.
Spain remained the second largest hotel investment market in Europe. In the twelve months to Q2 2019, deals amounted to €4.3bn, up 67.2% on the same period last year, with Madrid and Barcelona remaining stable and accounting for 4.5% and 4.6% of activity respectively. Investment in provincial Spain increased by 75.5% on the previous year, mainly resulting from transactions in leisure and resort markets.
Another key market that saw a substantial increase was Italy, with the volume up 133.2% year-on-year in the twelve months to Q2 2019. Hotel investment totaled €3.1bn, elevating Italy to Europe’s fourth largest hotel investment market. Single asset sales typically dominate Italian investment activity; however, the sale of the Belmond portfolio in Q2 was a notable exception.
Germany has experienced supply constraints in portfolio deals and large asset deals, resulting in a reduction in volumes. Deal volumes across the ‘big five’ cities were down from 68% to 46.3% from the previous year. This suggests that investors are turning to secondary locations and regional cities for opportunities.
In Q2 2019, strengthening investor demand in Italy resulted in a fall in hotel yields in Milan and Rome. However, hotel yields across all other key European markets remained stable compared to the previous quarter amid sustained investor demand.
European hotel investment volumes have remained strong despite the slowdown in wider commercial real estate. Operational and alternative property types remain in high demand, and there is expectation that this trend will continue due to sustained income growth. Investors have notably become more active in secondary locations when availability of large asset deals and portfolio deals have been scarce, and single asset sales have especially been a driver in this successful quarter for the hotel market.
While UK hotel transaction volumes are down for the twelve-month period to Q2 2019, the appetite amongst investors remains strong. This is particularly the case from overseas buyers who want to take advantage of the current weakness in sterling. However, the lack of activity is largely down to the shortage of stock on the market and this situation is unlikely to change in the run up to the Brexit deadline of 31st October.