Hotel valuations fall across Europe

Amsterdam

Hotels across Europe saw average declines of between 5 and 15% in 2020 compared with the previous year, according to new research by HVS.

The Covid-19 pandemic put an end to a decade of price rises across the continent but there were identifiable trends in terms of market performance.

Hotels located in gateway cities suffered less of a decline. HVS put this down to a number of factors including political and economic stability, high barriers to entry, well-diversified demand bases and substantial government support schemes. Markets in northern and western Europe are tipped as those capable of capitalising on these strengths.

On the flipside less central markets such as those in Eastern Europe, or those affected by more political or economic instability such as Russia and Turkey, might remain less attractive in the short- to medium-term.

Given the rolling lockdown restrictions in place across the region for much of the year fall in values is not a surprise, after all revenue per available room (RevPAR) dropped by around 70% compared to 2019.

“The impact of the pandemic on cash flows and profits has been dramatic, although government support and payroll subsidies helped to soften the blow. All tiers of hotel have been affected, but particularly the upscale and luxury properties as they tend to be more exposed to group and convention demand as well as international visitors,” report co-author Mattia Cavenati, associate at HVS London, said.

Investment Landscape

Declining valuations were accompanied by lower investment across Europe. Transactional activity totalled less than €10 billion, according to a separate report by HVS.

But this figure was actually well up on the comparative number in the aftermath of the global financial crisis as 2009 saw only €3.1 billion in asset sales.

This highlights the differing nature of the two crises with plenty of liquidity in the current circumstances.

‘While full recovery is expected in the sector, newly found operational efficiencies such as more agile workforces, greater use of technology and the repurposing of space will enhance operating leverage as demand and revenues recover. Values will be enhanced by yield-hungry funds lining up capital, which will create competition and help sustain selling prices,’ report co-author Simon Hulten, senior associate with HVS London, said.

Key Markets

As previously mentioned the least worst performers were in gateway cities, with Amsterdam (-10.3%) Paris (-11.7%) and Berlin (-11.8%) topping the table. The biggest drops were in Sofia (-21.8%), St. Petersburg (-22.1%) and Istanbul (-23.5%). The figures for this were based on change in hotel values based on euro calculations.

“Hotels with weak business propositions will likely have to be re-purposed or re-invented but strong investor interest and weight of capital continue to chase assets with good potential and in strong locations, driving demand for deals that are realistically priced and limiting the degree of price discounting,” Sophie Perret, senior director of HVS London, said.

Insight Comment
Of course 2020 was a terrible year for hotel valuations, that shouldn’t come as much of a surprise. What is interesting is where the bounce back is going to come. Some locations, typically those in gateway cities in northern and western Europe, have faired better and you would imagine those hotels will be targeted by hungry investors.