Banking on the more promising real estate values in the European continent, property investors are training their sights on available hotel structures in Europe this year, as industry experts estimated that a total of $5.5 billion would be poured on the region as investors race to capitalize on long-term gains offered by the sector.
On the other hand, Jones Lang LaSalle Hotels said that some $4.5 billion would be reserved for hotel acquisitions in the Americas as the London-based firm added that the bulk of that money, which could reach up to 90 percent, would be channeled to US hotel properties.
Analysts said that European hotels attracted more money due to the prospect of better return and value on investments made owing to the market’s steady supply, which in turn lead to higher room occupancy and better room rates as against the US market.
Tourists coming from France and Germany regularly flood the continent’s hotel offerings thanks to their proximity and the unique travel and hospitality experience they tend to offer.
Most investors are aware that US hotels can be had in a short time and even at customized packaging with relatively lower prices compared to their European counterparts.
However pricey they may be, David Mongeau of Avington Financial Ltd, stressed that European hotels have values that are more likely to withstand depreciation as replacements are hard to come by in the area.
Recent data showed that Europe currently maintains a construction pipeline of about 100,013 rooms by December 2009 while US holds a lined-up prospects of 401,090 rooms, with both markets pitting per room prices decline of 24 percent and 35 percent respectively.
On the other hand, business transactions in hotel acquisitions would be processed much easier in the US due the smaller investments earmarked on the region in 2009 though both markets saw spikes in room occupancy while Europe again edged out its counterpart in room rate pricing as it gained 1.9 percent to 97 Euros as compared to US’ retreat of two percent to $97.18.
On top of that, Host Hotels’ Gregory Larson said that European hotels retain their values much longer due to restrictions in supply growth, further jacking up the properties’ worth and giving the owners more value for future business dealings.
As a result, the scrambling for acquiring existing hotels have only heightened with Chicago-based Hyatt Hotels Corp declaring that it is focusing on purchasing properties in the continent with particular targets in Italy and Spain while Redefine International Plc revealed last month that it bought five Holiday Inn hotels in London for $167 million.
The acquisitions were characterized by Thomas Schmengler of DekaBank Deutsche Girozentrale as sound investments, pointing out that “investment opportunities in the U.S. in the past months haven’t met our demands.”
Also, aside from investment opportunities, investors also give premium to longevity and protection of their acquisitions and on that account, Arthur de Haast of Jones Lang LaSalle Hotels lauded European properties natural ability to fend off widespread financial crisis.
He noted that properties in UK, France and Germany still managed to fetch competitive prices in spite of the global contraction that hit the world’s major economies last year.
De Haast stressed that the European markets remained liquid during the height of the global crisis as against the crunch felt in the US market, adding that the solid performance can be attributed to the markets’ strong equity presence and much lower leverage.