The first half of the year has seen over 51.000 rooms already change ownership, totalling an investment volume of €6.4bn.  The activity was mainly driven by public hotel operators disposing of assets for strategy reasons such as the disposal of non-core assets or the return of capital to shareholders.

Mark Wynne-Smith, European CEO, Jones Lang LaSalle Hotels said: "Over the past two years, investors have shown an increased interest in hotel assets, leading to record transaction volumes.  Much of this interest has been driven by yield compression in the mainstream commercial property market." With the recovery of the majority of European hotel markets, capital continues to flow into the sector.  The liquidity of the hotel investment market is facilitated by increased interest from lending institutions in the sector.  Single assets remain more liquid and competitive than portfolios.

Mark Wynne-Smith continued: "Considering the strong first quarter of 2005 in Europe, the weight of capital in the market, the continued availability of debt and the number of assets in the market, we anticipate an increase of at least 10% in portfolio transaction volume and a more moderate 5% on the single asset side owing to the number of trophy assets in the market with a higher lot size."

Around Europe – the months ahead
The UK is once again the most liquid European hotel market, representing 58% of year-to-date single asset transaction volumes and 75% of the portfolio transactions - there is strong investor interest going forward.

The recent investment activity in Spain is expected to continue, fuelled by hotel operators offloading assets from their balance sheets.  Mid-market operators may contribute to increased investment activity through sale and lease back structures, as lenders have become increasingly cautious about the hotel market.

France is expected to continue a similar level of activity with strong interest in Paris fuelled by the sale of trophy assets like the Paris InterContinental.  New investment opportunities are expected in other cities like Lille, Lyon, Toulouse and Bordeaux.

In Germany, again similar levels of investor interest expected, but due to the limited liquidity of open-ended funds, this investor type will not be dominating the German hotel investment market as before, and will be shifting their focus to neighbouring countries.

Italy, which is still perceived to be opaque by most investors, will continue to attract interest from an ever-expanding pool – not only due to the increased availability of debt and equity, but also the attractiveness of the returns offered by hotels compared to offices.

The Benelux countries are likely to enjoy good investor interest as there are a number of assets that could change hands in the next 18 months.  Brussels shows signs of recovery presenting good contra-cyclical investment opportunities.  Amsterdam remains of interest to investors owing to restricted development opportunities within the city centre.

With further economic growth predicted for this year, Sweden, like the UK and Spain offers a promising combination of risk and return; growth and income; and pricing and liquidity.

Central and Eastern Europe are expected to see continued investor interest by opportunistic buyers particularly in Budapest where the trading cycle offers contra-cyclical entry opportunities or where economic growth is expected to drive the local hotel market, like in Prague.

Russia is an emerging market but hotel activity is strong with many hotel and mixed-use schemes planned.  The recent announcement of the first Russian open-market hotel sale – Orient-Express bought a 93.5% stake of the Grand Hotel Europe in a €98 million deal, with an option to acquire the remaining share from the city at a later stage - signals a strong interest from the international players in the Russian hotel market.

Contact: Laura Pitt
Email:  laura.pitt@eu.jll.com
Web: www.joneslanglasallehotels.com