The hotel branch in Europe is booming. Photo: Rommel Canlas / Shutterstock. The hotel branch in Europe is booming. Photo: Rommel Canlas / Shutterstock.

Hotel Investments – They Don’t Always Have to Be on the Boardwalk

Stephanie von Keudell
Stephanie von Keudell
independent journalist

Europe’s hotel market is booming – at every level: both the figures for overnight stays and the popularity among private and institutional investors are showing stable upward trends.

 

Room occupancy rate and revenue are rising – Eastern Europe profits particularly

Mounting risks elsewhere around the globe are prompting demand for inner-European destinations to grow – the experts at Engel & Völkers Hotel Consulting GmbH found that in 2017 the number of travelers in Europe rose by 8% over the previous year to 671 million. Worldwide demand grew by only 2% last year.

This boom in the tourism sector has yielded a nice improvement in the hotel industry’s key figures: according to Engel & Völkers the average occupancy rate in Europe’s hotels increased to 72%, while the average room rate rose to € 111. The strongest gains were seen in the revenue per available room (RevPAR) in Eastern Europe, with an increase by 10.8%, while that in Europe overall was 5.6%.

 

Scarcity in supply fosters investments into B and C locations

Such fine prospects attract investors and are consequently prompting a rise in hotel property prices. A phenomenon that has been observable for years with regard to residential properties is now evident in the hotel market as well: real-estate services provider Christie + Co. has observed that hotel operators and investors are resorting to class B and in some cases even class C locations. “Hotel properties have established themselves as an asset class and due to their persistently higher yields have currently become investors’ favorites.” Andreas Ewald, managing partner of Engel & Völkers Hotel Consulting GmbH, explains, “In addition to the rising yield compression, the increasing scarcity of supply in the core markets is causing the focus to shift increasingly to class B locations. The crucial aspect is to analyze the macro- and micro-locations precisely, right down to the individual street level, in order to survive weaker phases.” This applies all the more to investments in class B locations, but here, too, professionals generally prefer a class A site in a class B location to a class B site in a class A location. Naturally, the hotel’s concept has to be suited to both the site and the location: the palace hotel on Mediterranean Avenue is hardly going to make your dreams of great profits come true; in that case, all you can do is hope for a “Bank error in your favor”.

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