The EMEA hotel property investment market slowed in the second and third quarters of 2011 but the majority of cities can still expect to see some trading performance growth in the next six months, according to the latest Hotel Investor Sentiment Survey from Jones Lang LaSalle.
Of the 37 cities tracked, some 54% are expected to show growth in the short term, a figure which increases to 81% when medium term performance over the next two years is considered.
London, Istanbul, Munich and Paris are likely to be the focus of investor activity in 2012, although medium term trading expectations are also anticipated to be positive in Stockholm and Copenhagen.
"Market movements in the last six months have proven to be a series of contrasts. While the year started off with evidence of economic recovery across the region and strengthening investor confidence, the second and third quarters experienced increased uncertainty and the increasing risk of a widespread economic slowdown. This has had a negative impact on investors’ expectations for the hotel market," said Mark Wynne-Smith, chief executive officer of Jones Lang LaSalle Hotels in EMEA.
Investors have more confidence in the ability of Western European cities to outperform their Eastern European neighbours, though Moscow and Warsaw were highlighted as cities that will experience substantial growth both in the short and medium term. The hotel market in these cities is still in the development stage, which was temporarily put on hold due to the economic downturn. With great potential to expand visitation and still limited graded hotel supply, investors are rightly assuming substantial performance growth potential for the future.
Within the UK, the slow rate of economic recovery and high inflation continue to impact on short and medium term trading performance expectations as UK corporates keep tight control over their travel budgets. Whilst London continues to perform well due to its unique position, performance in the regional cities has weakened.
In terms of investor intentions, buy intentions have undoubtedly strengthened and now clearly dominate investor sentiment at a weighting of 41.8% which gives a clear indication that pricing is becoming more realistic.
Hold intentions weakened in the current survey to 28.2%, a reduction of 680 basis points compared to April 2011. Build and sell sentiment were positioned in third and fourth place at a weighting of 16.2% and 13.8% respectively, indicating that those who don't have to sell are unlikely to do so as more stressed stock is offered for sale.
Looking towards cities in MENA, the ‘Arab spring’ and political upheaval have continued to impact on investor confidence. However yields have remained largely stable at approximately 8.9% and trading expectations are anticipated to improve over the medium term. Doha, in particular, is likely to see strong growth potential.
"Yield requirements are expected to weaken across the region but the core markets such as London and Paris are less likely to suffer due to the number of investors seeking to acquire prime and secondary assets in these cities," said Wynne-Smith.
"Yield prospects for secondary cities and assets appear to be worse, reflecting the uncertainty around the pace of future growth and difficult lending market. However, the return of buy intentions on the top of investors’ strategy lists indicates a potential turning point for the hotel investment market as it coincides with a marked increase of the number of hotels available for sale," he added.
