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Liquidity in hotel real estate market despite economic downturn
Investment in European hotels has grown at a rate of nearly 30 per cent per annum since 1994, says Jones Lang LaSalle Hotels.
Hotel property portfolio deals (as opposed to operating company purchases) tracked by Jones Lang LaSalle in Europe totalled some £3.6bn in 2002 against £1.6bn for single assets: "The total was down on 2001 but still a strong performance considering the weak trading position of the hotel industry generally."
According to the company’s report, the volume of hotels traded in Europe in 2002 equated to around 2 per cent of the total supply in European gateway cities. "If portfolio deals are included, the total traded reaches almost 5per cent.
"It is generally thought that the investment volume would have been higher if more properties had been made available to purchase. Shortage of available product has been a characteristic of the last two years in the hotel investment markets, and it has resulted in the significant drop in both the number and value of single asset transactions completed in that time."
Mark Wynne Smith, managing director of Jones Lang LaSalle Hotels, says that despite frustrations with the lack of available product, hotel property has become more widely accepted as a worthwhile investment target by a muchbroader cross-section of investors.
Is the market going to become more competitive? "Unlikely," says Wynne Smith: "Other than for trophy assets, where yields do appear to have moveddownwards, yields for branded, well-located hotels seem to have remained constant.
"The current perception is that we are at a good contra-cyclical entry point. This suggests that although 2004 may not be much better, it is unlikely to be a lot worse than 2003 – barring further demand shocks.
"Investors are looking to operators to provide an early upturn in performance from their hotels, which traditionally happens well in advance of any upturn in other forms of investment property." Details: www.joneslanglasalle.co.uk