Range of new financing choices help revive Europe's hotel industry

The outlook appears rosier for the market this year as almost unanimous positive forecasts suggest the recent gloomy times are in the past

PUBLISHED : Wednesday, 12 March, 2014, 5:03am
UPDATED : Wednesday, 12 March, 2014, 5:03am

Europe's hotel sector is finding its financing options are the best in years as investors seek better returns in a low-interest-rate environment and economies emerge from bruising recessions, fanning optimism for the rest of the year.

Industry executives say lenders and investors now understand the sector better, seeing it more as a business investment than a property play.

"It's the first time in five years that we've been able to say people are confident about deal flow and the availability of finance," said Karen Friebe of law firm BLP, which released a study showing 97 per cent of hotel industry professionals expected revenue per available room to rise this year.

Hotel and leisure industry consultancy HVS London said total hotel transactions across Europe reached €7.7 billion (HK$82.9 billion) last year, a 39 per cent jump from 2012 but still well below the €18.8 billion seen in 2007.

HVS said investor appetite was strong in the first few weeks of the year.

Jones Lang LaSalle expects global deal volume in the hotel industry of US$50 billion this year, up 10 per cent from last year.

"I'm hoping there'll be some interesting portfolio deals this year with medium-sized deals, up to 15 hotels," Friebe said at the IHIF hotels conference in Berlin.

Research by adviser Grant Thornton suggests about one in five hotel businesses planned to invest in new buildings this year.

While half of the experts it interviewed expected banks to be the principal lenders for such projects, a third thought insurance funds and private equity would be the main participants. In the past, retail banks and high-net-worth individuals have dominated the sector.

InterContinental Hotels Group's Europe head Angela Brav said the fact that deals were not being lost because of a lack of access to capital made for a refreshing change.

"We're also seeing people that were doing more in residential and offices now dabbling in hotels," she said.

Intercontinental vies with the likes of France's Accor, and United States firms Marriott, Hilton and Starwood to get travellers into its European rooms.

Starwood Hotels signed 152 deals last year for franchised or managed hotels, a record for the group, thanks to the return of capital to the sector.

"The trends and tail winds are such that we have every hope that it will be as strong as last year or even stronger," Simon Turner, the company's president of development said.

Simon Vincent, of Hilton Worldwide, said there was appetite for risk and new lending, adding that even regional banks had opened up.

The London hotels team at Lloyds Bank wrote about £250 million (HK$3.23 billion) in new loans last year and could be interested in doing a similar amount this year.

"If the right deals are there, the bank would have the appetite to try to replicate last year's performance," Tony Burnell from the Lloyds team said.

But he said there were a lot more people looking at the same market, reducing the chances of finding the right deal.

BLP's experts recommended investors look more at hotels that had been under-invested in recent years and said Britain's regional market, outside of the London and the top cities, was of interest.

"Especially with prices in London, those looking for percentage return targets have to go elsewhere, so that's why we're seeing more interest in the regional market," Nick Skea-Strachan of BLP said.

Hotel company managers were encouraged by signs of growth in many of the key European economies and said business at regional hotels had picked up, increasing their attractiveness.

"We're all optimistic. Finally we're starting to get back on track," said Amy McPherson, Europe head of Marriott International.