Hotel transactions across Europe failed to show the recovery expected during 2022 as confidence was hit by the Russian invasion of Ukraine which fuelled huge increases in energy and food costs, a rise in overall inflation and higher interest rates.

According to the annual HVS European Hotel Transactions report, transactions for the year totalled €13.3 billion, an 18% fall on the previous year, although the average achieved price per room rose 13% to €235,000 on the back of price rises in portfolio transactions.

‘The year started strongly with initial activity outpacing Q1 2021, but the economic implications of Russia’s invasion of Ukraine put a significant dampener on investment activity for the rest of the year. Deal flow was further hindered by substantial interest rate rises and reduced lender activity, while rising operating costs, brought on by double-digit inflation and staffing shortages, impacted profit forecasts,’ commented report co-author Shaffer Patrick, senior associate at HVS Hodges Ward Elliott, the hotel brokerage and investment banking division of HVS.

‘The bid-ask gap widened significantly throughout the year, with most buyers hunting for distress deals which were hard to find as sellers were reluctant to sell at low prices and were not under pressure from lenders to sell. By the second half of 2022, many investors had put new acquisitions on hold while they reassessed values and waited to see how high interest rates were set to reach, and if major economies were likely to enter recession in 2023,’ added report co-author Matthias Hecht, senior associate at HVS Hodges Ward Elliott.

Single asset transactions totalled €8.8 billion for the year, a drop of 14% from 2021. The UK was again the most liquid market during 2022, with Spain retaining second position and with France replacing Germany as the third-most-active investment location. European buyers accounted for more than 76% of all single asset transactions, with net acquisitions of €1.1 billion.

The year’s biggest single asset transactions included the sale of the 253-room Reykjavik EDITION in Iceland to ADQ for €230 million and the sale by Covivio of the 420-room Club Med Grand Massif in Samoëns, France for €128 million.

Portfolio sales declined 25% during 2022 with total volume at €4.5 billion, although the average price per room was 42% higher. While the year started relatively strongly for portfolio deals, activity declined in Q2 and Q3, largely on account of the difficult debt market.

Total UK portfolio volume was €1.6 billion for the year, with London again seeing more activity than any other European city, contributing €560 million (£468 million) towards portfolio transactions, although this was 53% less than in 2021. London accounted for 35% of UK portfolio transactions, compared to 62% in 2021.

Real estate investment companies were the most active buyers and sellers by total volume in 2022, while institutional investors were the largest net buyers, acquiring €2 billion more assets than they sold.

‘Looking ahead, the outlook is improving and hotel trading fundamentals remain solid across many markets. As inflation reduces, pricing expectations will change, reducing some of the bid-ask spread in the market,’ concluded Matthias Hecht. ‘While access to financing through high-street lenders remains subdued, alternative financing options are on the rise, servicing some of the demand in the sector.’

A copy of the 2022 European Hotel Transactions report by Shaffer Patrick, Matthias Hecht and Serena Yang can be downloaded here.