Economy matters more than politics for European investment, insiders say at IHIF

The Investors Panel at IHIF Berlin. Photo credit: Katherine Doggrell (IHIF Investors Panel)

BERLIN, Germany — The wall of money targeting the hospitality sector has continued to build, with existing investors remaining hopeful that they may see capital growth this year.

At the first day of the International Hotel Investment Forum, here at the InterContinental Berlin, insiders identified the resort sector as having potential for good returns, with investors focused on the wider economic environment (rather than political) uncertainties around the globe when deploying cash.

“There’s an absolute wall of money looking at the hotel sector at the moment,” Keith Lindsay, managing director, EMEA, CBRE Hotels, said. “2017 was a bit of a frenzy and with all the capital formation happening at the moment, 2018 is likely to see more of that.” 

According to a survey undertaken by CBRE Hotels for the event, 37 percent of investors were looking for capital growth in 2018, up from 24 percent last year. “Did they not get the email? It’s getting expensive,” Lindsay quipped.

HVS' 2018 European Hotel Valuation Index, published during the event, reported that hotel values across Europe grew 3.9 percent in 2017. The study forecasted that hotel investment would continue unabated in most cities, as strong underlying principles drove value growth, especially for those markets in Eastern and Southern Europe that had not yet returned to pre-crisis value levels.

The Value of Resorts

The resort market has been a target of Blackstone Group's investment in recent years. “There seems to be an imbalance between the demand and supply side,” Abhishek Agarwal, Blackstone's managing director of real estate, told attendees. Consider Spain, which last year saw 82 million international overnight visitors. "It was the second-most visited country globally behind France. That’s huge. That’s good for leisure business," Agarwal continued.

“If you look at European airline capacity and their order books—if you see where they’re allocating in the future—Spain is growing by about 11 percent. If you look at secular demand-drivers, like people preferring experiences rather than goods, that’s all driving demand. But if you look at supply, there is little. There is limited coastline in which to grow. The sector has not been invested in as much as other areas have been. You have an opportunity to get the yield investing in underinvested businesses.”

“The challenge of resort locations is finding, sourcing and executing,” Desmond Taljaard, managing director, hotels, London & Regional, cautioned. “It’s a far more sophisticated market.”

Politics vs. Economy

While markets including Spain were attracting investors looking for opportunity, political issues, such as the impeding Brexit in the UK, were not acting as a deterrent.

“You can only assess political risk in a rear-view mirror,” Taljaard said. “There has been a hysteria caused by the massive sea change in political influences and aspirations. No one would have thought there was the possibility of a Trotsky government in the UK.

“I care less about Brexit than people talking about it all the time. I would rather panic about who is driving the economy. There are bigger macro-concerns than [just the] political. In the 1960s and 70s, you had career politicians in a way that you never did before. You now have policy wonks and social media that tell you your response in a way we haven’t seen before, but the fundamentals are still relevant. People still want to travel. It’s about the macro-pound in the pocket. The problem is that a lot of people may be enfranchised who aren’t really too aware of what they are voting for.”

“We are focused on macro rather than political events,” Agarwal added. “As we look at the macro-drivers, we feel positive about the future.”

The theme was one that looked set to dominate the conference. Later in the day, Cody Bradshaw, managing director, head of European hotels, Starwood Capital Group, issued an ultimatum to the crowd: “You have to invest or die. When we invest in hotels, we don’t look to make macro bets. For us, it’s about looking at where there are opportunities to gain market share as well as right-side the operators to cut cost. That, for us, is a comfortable scenario.”

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.