Budget hotel sector has driven dramatic rise in leased deals

The number of investors buying into leased hotels in Europe has trebled since 2009, despite operators such as Marriott, Hilton, Intercontinental Hotels Group (IHG) and AccorHotels moving away from the contracts in the past.

According to a new report, capitalisation rates for leased contracts have reached sub-5% and are becoming increasingly attractive to institutional investors.

The HVS Hodges Ward Elliott report cites operators such as Premier Inn, Deutsche Hospitality (formerly Steigenberger), Mövenpick Hotels & Resorts and Dalata Hotel Group that are continuing to opt for lease deals. It added that they remain popular in the budget sector.

Report author Peter Szabo, associate at HVS HWE, said: "Operators such as Premier Inn in the UK or Motel One inGermany most commonly seem to sign lease contracts due to their low-risk operating model, enabling them to take on long-term, index-linked fixed leases.

He added that a number of more upscale operators â€" such as CitizenM and 25hours hotels â€" were using leases as a way to prove their concept before expanding into management contracts.

The report concludes that thanks to the current economic support for fixed-income hotel deals, there has never been a better time to invest in leased contracts.

Szabo added: “Operators’ willingness to commit to long-term indexed lease agreements and investors’ readiness to buy as well as forward-fund hotel projects has enabled the fixed-income hotel market to become far more commoditised in this cycle than ever before."

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