Robust growth in investor confidence boosts hotel market recovery in the EMEA region

At least, that is the obvious conclusion that can be drawn from the upbeat results of a study of investor sentiments in the EMEA regional hospitality sector released recently by Jones Lang LaSalle (JLL) Hotels, the London-based hotel investment subsidiary of JLL, which specializes in the provision of financial and professional services in the global hotel real estate market segment. “The hotel market in EMEA stands firmly on a sure path to recovery,” the authors of the JLL Hotels’ Hotel Investor Sentiment Survey unequivocally declared in their report findings from their company’s Moscow office and London-based headquarters. “Improved market conditions have prompted investors to increasingly explore the new opportunities for hotel investments in the EMEA region, especially in Western Europe.” 

However, the outlook for the whole is not uniformly rosy. Middle East and North African (MENA) countries, being currently torn apart by the ongoing so-called ‘Arab Spring uprising’ and its related socio-political difficulties, have spoilt the overall upbeat picture in the EMEA region, due to the negative short-term expectations in these countries, according to the excerpts from the report.

“Improved market conditions have prompted investors to increasingly explore for new investment opportunities in the hotel sectors of economies of countries in the EMEA region.”

Commenting on his company’s Hotel Investor Sentiment Survey results, Mark Wynne-Smith, CEO of Jones Lang LaSalle Hotels in the EMEA region, noted that trading performance across the hotel markets in the region has strengthened substantially over the past six months. “Germany has taken the lead in the EMEA region on medium-term performance expectations, with Munich and Hamburg recording the strongest expectations,” he added. “In the United Kingdom, the majority of growth is being driven by London, while the expectations for most other UK cities are currently subdued. However, investors expect a more pronounced improvement over the next two years, with the top performer expected to be Edinburgh.”

Similar market trends in the Russian industry equally promising

According to the Hotel Investor Sentiment Survey report, only a few cities in Europe, mostly in the eastern part of the continent, are anticipated to face further hardship. However, Istanbul, Moscow and Warsaw are not among the pack of ‘threatened cities’ in Eastern Europe, as their overall trading performance expectations has improved notably compared to the results of a similar survey conducted in October 2010. “Tourism in Istanbul, Moscow and Warsaw has expanded rapidly in recent years, encouraging international branded operators and investors to find a foothold on the market to benefit from the market’s growth potential,” Wynne-Smith added. “On a city level, the strongest growth in the medium term is anticipated for London, Paris, Istanbul, Rome and Munich.”

Commenting on the significance of the study’s results for the CIS countries’ hospitality markets, Alex Slesar — the head of investment department at JLL Hotels in Russia and CIS countries, who also doubles as the company’s executive vice president — noted that Russian and regional investors have continued to remain the most active players on the domestic market, while international investors have only just begun to show increasing interest on the market, targeting mainly high-quality facilities. “The Russian hotel market continues to recover at a good pace, a trend that is particularly true of hotels sited on vantage locations and have international brands,” he added. “We expect investment activity to intensify, a trend that will lead to an increase in the volume of transactions on the hotel markets in Moscow and St. Petersburg as well as other Russia’s major regional cities by the end of the year.”

From her part, Marina Smirnova, JLL Hotels’ senior vice president for Russia and CIS, pointed out that rising growth in revenue per available room caused by the increase in average daily rate on the background of significantly strengthened demand for hotels in Moscow, has become a steady positive market trend in this industry since the beginning of the year. “The St. Petersburg hotel market also demonstrated significant growth in revenue per room. However, this trend, in contrast to the development on the Moscow market, is driven mainly by growth of occupancy.”

The overall positive tune of the Hotel Investor Sentiment Survey report for the EMEA region was significantly diluted by the current downturn in the EMEA states. It, therefore, did come as a surprise that the study results for the MENA markets were more diverse, as some cities across the region are currently suffering from the ongoing political unrest without end in sight, while the others continue to struggle with oversupply in a weak, albeit steadily recovering, tourism market. “The key gateway cities remain consistently resilient, and investors’ yield requirements have hardened further by 40 basis points over the past six months as investors remain confident that these markets will continue to generate robust income growth,” Wynne-Smith noted. “While a level of cautiousness remains, buy intentions have once again become the key sentiment in investors’ minds and this reflects the strong investment appetite during the Q1 2011 with the volume of investments going into the EMEA region increasing by 160% compared to Q1 2010.”

Brighter future awaits investors in the EMEA hotel market

Key markets that will continue to be targeted by investors, according to the report’s findings, include Madrid, Rome, London and Paris, with Stockholm and Copenhagen set to benefit from rising corporate spending. Asset preference on these markets is focused on the upscale and mid-scale hotels, while luxury assets will be the favorite in MENA and Eastern European countries. 

By and large, the authors of the report are more than convinced that a rosy future awaits prudent investors on the EMEA regional hospitality industry. Specially, they noted that improving market conditions and growing investor confidence have resulted in a more favorable position for sellers on the Western European market. 

“The survey has shown that there is a significantly higher number of buyers to each seller for markets such as London and Paris, but this trend does weaken markedly for the so-called ‘second-tier’ cities,” Wynne Smith added. During the remainder of 2011, as investor confidence continues to rebound, JLL Hotels expects to see a move towards secondary locations or venues outside Western Europe in search of improved total returns. “All these are signs that investors will be seeing more hotels being offered for sale in the second half of this year as sellers will try to take maximum advantage of the improved market conditions.”

Narine Adamova took part in proofing of this text.