Hotel developent in London shifts east, but values there, and in Paris, remain highest in Europe4 Mar, 2013 By: David Eisen
The International Hotel Investment Forum (IHIF) kicked off today in Berlin, and the topic of one of Europe's most prominent hotel markets was on display. According to a new report from commercial property consultant GVA, London property prices are getting so high that developers have had to move eastward to build new hotels.
That's the gist of the report, entitled "The Changing Outlook for Hotel in London," which says that London's future hotel supply has moved to the City, Canary Wharf and Stratford from the traditional central hotspots of the West End.
The reason? Increased land values in Mayfair, Knightsbridge, Kensington, Chelsea and Bayswater, which has persuaded many operators in the mid-range and budget sectors to look elsewhere to develop new hotels, the report stated.
In fact, more than 25 percent of London’s future supply of 26,200 rooms with planning permission or under construction is in Tower Hamlets, Newham and the City.
Ian Thompson, director of valuation at GVA, said that he expects that the hotel growth in the merging London markets will be driven by UK investors, while overseas investment will continue to be concentrated in the area between Kensington and Canary Wharf. "Overseas investors are likely to be the follow-on purchaser, such as the recent acquisition of hotels at Westfield’s Stratford shopping centre by an overseas buyer," he said.
London, Paris Lead...Others Follow
Meanwhile, a new report by HVS London states that while London and Paris keep chugging along, other European city hotel values are lagging due to investor caution and restraint.
Investors in Europe's hotel market are still being cautious over purchases keeping the value of hotels across the sector virtually unchanged on 2011 levels, said the 2013 European Hotel Valuation Index (HVI), published last week by HVS London. It shows that hotels in Paris still top the valuation chart with an average price of €660,000 per room, followed by hotels in London (€625,000 per room), Zürich (€492,000), Geneva (€451,000) and Rome (€353,000).
The average value of a hotel room across Europe is €240,000, unchanged on 2011 levels but up from €215,000 in 2010.
The undex surveys 2012 hotel values across 32 markets. Room values in the Estonian capital Tallinn remain the lowest at an average value of €98,000. Also bottom of this year’s chart are the Bulgarian city of Sofia (€100,000), Athens (€104,000), Bratislava (€111,000) and Bucharest (€111,000).
The report's author Sophie Perret, director, HVS London, said that while the valuations across the board had remained static year-on-year, several cities stood out as being good performers.
London’s hotel market remained strong throughout 2012, with an impressive value growth of 6.6 percent, taking the average value of hotel rooms in the city to €625,000, up from €587,000 in 2011. Likewise, values in Paris rose from €630,000 in 2011 to €660,000 in 2012.
"It is difficult to imagine that investor appetite for London and Paris can ever fade. Not only are they important business and financial centres, but their cultural and historic attractions make sure that both cities can keep attracting leisure visitors," said Perret.
Other top performers in the index include Munich, with about 1,700 new rooms coming into the market in 2011. Poland is also performing well, based partly on the fact it co-hosted the European Football Championship in 2012, which speeded up investment in infrastructure. Warsaw, in particular, achieved a RevPAR rise of about 10 percent in 2011 followed by further double-digit growth in 2012. HVS expects Warsaw’s hotel values to grow to a value of about €225,000 per room by 2017.
There was also movement in Dublin’s hotel market, which recorded double-figure RevPAR growth in 2012 improving investor interest and boosting the city’s value per room to €168,000.
Cities experiencing the biggest value falls year-on-year were: Athens, with a 24-percent drop in average values per room; Lisbon, with a decline of around 10 percent; Madrid, with a 6.8-percent decline; Milan, which saw a 4.1-percent decline; and Zurich and Geneva, with a 2-percent and 4-percent fall, respectively.
Looking into the future, said Perret: "At a time when an increasing number of investors are purchasing hotels with a long-term view aimed at capital protection rather than short- to medium-term returns, the art and science of valuation is ever more challenged by changing investment paradigms. For experienced investors, the acquisition of the right asset and then strategic repositioning or rebranding will continue to yield attractive returns in the near future. Identifying the right deal, however, remains more critical than ever before."
HVS said it does not expect 2013 to be the year when investors start to turn to secondary markets and more risky propositions. Appetite for cities such as Paris and London will remain as healthy as ever.
"As bank lending parameters further hardened in 2012, we expect the main investments to continue to come from cash-rich real estate investment trusts, institutional investors and high-net-worth individuals. This is likely to continue to fuel the acquisition of key assets in gateway cities, similar to 2012," said Perret.
External Source : Caterer and Hotelkeeper, Property Magazine International