There is a significant amount of capital targeting European hotels, looking for the right opportunities, which is largely maintaining current pricing across prime markets, according to a report by property specialist Savills.
The international real estate advisor expects to see some of this capital deployed from the second half of the year onwards, in line with a closer alignment between buyer and seller expectations. Mature markets and key gateway cities are likely to support capital preservation, while operationally, the recovery will be driven by the degree of flexibility around international travel.
Overall, European hotel investment figures reached €2.16 billion in the first quarter. At €746.5 million, the UK remains the most liquid European hotel market, accounting for a 34.6% share of transaction volumes, says Savills.
The maturity of the hotel sector across both the UK and Germany, coupled with strong domestic travel profiles, has supported ongoing investor demand, with volumes reaching €241.1 million in Germany in Q1 2021. While domestic coast and country markets continue to dominate in terms of deal count across each market, total investment volumes have been led by prime city centre assets.
At €400 million, Spain has overtaken Germany to become the second most liquid market in Q1 2021, accounting for an 18.6% share of transaction volumes. According to Savills, this is due to investors’ belief that the country will be a key tourist destination for pent-up international travel demand.
Richard Dawes, Director in Savills Hotel Capital Markets, says: “The emphasis on prime assets is evidenced across key Q1 2021 deals. For example, the Zetter Group, comprising three prime London assets, was acquired by Orca Holdings in March, with the brand looking to expand further into key European gateway markets such as Paris, Madrid and Amsterdam.
“Prime yields for leased hotels in Paris (3.5%), Amsterdam, Berlin, London and Munich (all 3.75%) remain sharpest, in line with strong levels of investor demand driven by long term fundamentals. The non-prime segment is likely to experience further outward yield pressure, driven more directly by tough micro market conditions, and assets’ ESG credentials and financial challenges.”
Josh Arnold, Associate, Savills Research, comments: “2021 will mark the early beginnings of recovery for many hotels, with the longer-term outlook remaining promising. The vaccine rollout in Europe suggests any current lockdowns will be the last, and that demand pick up is imminent. As countries begin easing restrictions, we can expect the staycation market to benefit in the first instance, followed by recovery across short-haul international leisure destinations.”