After two challenging years in the hotel real estate segment, the road to recovery started this spring, bringing up the positive sentiment in the hotel investment market at the same time. Various factors such as the removal of travel restrictions and the pent-up demand for travel among the population are accelerating the recovery of the hotel market and thus strengthening investor confidence. This is particularly countered by the current economic and political developments.
TRAVEL HABITS
Business-Travel
During the Covid-19 pandemic, the travel and communication behaviour of the business world has undergone a transformation. Virtual call platform providers such as Zoom, Teams and Webex have taken centre stage, offering alternatives for hourly meetings to full-scale conventions. Nevertheless, the desire for face-to-face appointments remains palpable, currently bringing trade fairs and congresses rapidly back to the cities. Thus, business travel will continue to play an essential role in the occupancy of city, conference and business hotels; nevertheless, shorter business trips are expected to be limited in their number.
Leisure-Travel
Travelling is considered a basic need of today’s generation. Restrictions on the (international) freedom to travel have led to a focus on “travelling in one’s own country” or in the domestic area and therefor, have driven the demand of local holiday destinations, especially in the DACH region. At the same time, the market is being pushed by the steadily growing willingness to invest in a high-quality holiday. However, expectations for the upcoming summer season are ambivalent: The pressure of demand in the domestic hotel industry is easing as travelling to (almost) all countries worldwide is possible again. On the other hand, rising costs are prompting many travellers to put on cost brakes. Also, the situation on airports (chaos, long waiting lines, etc.) is decreasing the interest of traveling by plane.
EFFECTS ON THE INVESTOR LANDSCAPE
So far, state aid and the suspension of the obligation to file for insolvency have been able to prevent fire sales. Real estate bargains are still rare on the European hotel market – the divergence between purchase and sales price expectations remains high. Since many disbursements of Corona aid were granted in the form of loans to be repaid, experts see a danger of insolvencies being dragged out – nothing is abandoned, only post postponed.
Currently, the market is characterised by product scarcity and high investment pressure in the ranks of institutional investors. While the pandemic has attracted dynamic market participants from the private equity and family office sectors with higher return expectations, institutional investors are suffering from a lack of products, or rather from a lack of qualified operators that can validly secure fixed lease contracts.
Change in investor focus on the holiday hotel industry
The lack of availability of investment opportunities and the persistently high yield pressure in urban and metropolitan regions are increasingly pushing the investor focus towards holiday destinations. Yield opportunities are at a higher level than in city centre locations and therefor offer good investment prospects to interested investors.
Operator Landscape
Currently, operators are dealing with pandemic-related challenges such as rising costs, inflation, staff shortages and increased guest demands. In addition, the operators are currently burdened by the repayment of government aid loans and accumulated liabilities in an ongoing weak market environment.
Today, the few operators who are able to guarantee fixed rents that are demanded by institutional investors are in an advantageous position.
Hotel real estate
Decreases in value of hotel properties are only to be expected in isolated cases. Prime locations will not lose importance, investor interest is unbroken. The reduced supply of new developments of hotel properties is contributing to stable, or rather rising prices of hotel properties on sale. Serviced flats and long-stay concepts, many of which are run by start-up, known as “rising stars” on the operator scene, are contributing to portfolio diversification.
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