London is leading European destination for hotel investment

12 November 2014 by
London is leading European destination for hotel investment

London is the most attractive hotel investment destination in Europe, according to a survey of senior hospitality industry figures published ahead of today's 26th Deloitte European Hotel Investment Conference.

Over half (51%) of respondents rank the UK's capital ahead of Paris (33%), followed by Barcelona (30%) and Amsterdam (23%). However, views appear mixed on value with 52% considering London to be overvalued, whilst 45% cite it as fairly valued.

Looking ahead to next year, European hotel transaction activity is expected to be dominated by international investors led by money from North America (58%), China (53%) and the Middle East (52%). Continued low interest rates will reinforce traditional bank debt as the core financing option, while alternative lenders will be active and mezzanine debt increasingly available.

Against the backdrop of a stagnant European economy, upscale hotels (33%) are the main focus for investment. However, midscale (25%) and budget (22%) are also attracting interest.

Nick van Marken, global head of hospitality at Deloitte, said: "There is significant appetite for hotels in Europe and the UK in particular. In recent months, US private equity buyers have taken advantage of low interest rates and a strong uptick in sentiment.

Buyers who took the plunge two or three years ago have been rewarded with some values nearly doubling. "It is easy to say in hindsight that these acquisitions were done at the right time, but real kudos should go to those who had the courage, got in and did deals even in the darkest days," explained van Marken. "Now, many will be rewarded if they get out at the right time. Some of those who missed the exit and held on, may also be rewarded.

"This appetite is not without its risks, however, and a lack of economic growth across the Eurozone along with global geopolitical issues and challenges are all concerns."

Outside London, respondents to the survey favoured Scottish cities as the target for investment in 2015, with Edinburgh (60%) and Aberdeen (38%) showing the greatest interest, followed by Manchester (33%) and Bath (19%).

"The regions have benefitted from a series of high-profile international events and a return of corporate and meetings demand resulting in double-digit revpar growth," said van Marken. "The strong upturn in rate is very promising albeit a return to pre-crisis profitability levels is yet to be seen."

The Deloitte survey was completed by more than 120 owners, lenders, developers and investors in the hospitality sector.

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