The latest Digest research reveals that hotel investment activity across continental Europe in the first half of 2002 has been subdued in comparison with the first half of 2001.
Many potential sellers appear to have chosen to keep their transaction plans on hold until the trading outlook improves. According to the Digest the situation is similar in the UK hotel investment market, although interest remains strong. The research suggests that this situation will continue in the short term, although there are signs that more assets are being brought to the market.
This latest Digest research has revealed that despite the depressed economy, real estate has remained a solid investment, with hotel investment increasingly being accepted alongside other, more traditional forms of real estate. "Many investors see opportunity in the current environment but are understandably very thorough in underwriting deals", says Nick Marsh, Executive Vice President, Jones Lang LaSalle Hotels.
Activity in the London market in the first half of the year was restrained. The only significant single-asset transactions were the sale of 47 Park Street by the Accor/Blackstone/Colony Capital consortium, and the sale of a stake in the freehold interest in the London Hilton on Park Lane. More single-asset sales may take place towards the end of 2002 as owners rationalise their portfolios after the spate of corporate deals that took place in the second half of 2001. "Gaining or strengthening representation in the strategic London market continues to be vital for many operators", adds Nick Marsh.
The regional UK market has also been illiquid, with the only significant transaction over (Ł10m) to date being the transfer of ownership to Six Continents of the turnkey Crowne Plaza project in Birmingham. A number of smaller transactions, involving mainly private purchasers took place during the year as operators such as Corus, Regal and Six Continents have rationalised their portfolios after the events of 2001. "Trading in regional UK markets has remained largely stable, with operators concentrating on increasing distribution in key markets", states Nick Marsh.
In 2002 the sale-and-leaseback structure has been more widely adopted, not only in the UK, but increasingly also across Europe. Investors have recognised the potential benefits of investing in the hotel industry through these innovative structures. "The pressure for operators to deliver maximum value to shareholders and to free up capital for growth has fuelled this trend and, while this pressure exists sale-and-leaseback structures will continue to grow in popularity", continues Nick Marsh. Consequently, a number of operators have found themselves with significant war chests of available capital. They will use this capital to reduce borrowings, make strategic acquisitions or return cash to investors.
If trading stabilises in 2003 and pricing begins to converge with investor expectations, investment activity in Europe may also begin to gain momentum. Property remains an attractive asset class compared to shares and gilts, and cash inflows to German funds and Private Equity should remain high. Private Equity firms, for example are currently leading the bidding on Travelodge. Banks are currently willing to lend to established buyers, albeit retaining an air of caution, and interest rates look set to remain at historically low levels. In the coming months buyers will look to invest in markets that have been identified as being at the low point in the present cycle. |
