At first glance, 2024 looks like a triumph of democracy, even hope: the year that a record 76 nations go to the polls, allowing over four billion people – well over half the world’s population – to elect their leaders of choice.
Yet for hospitality investors around the world, the picture is rather more complex. Apart from experts suggesting that around 32 of these elections will be neither free, not fair, the other issue is an age-old foible of the markets: “Investors don’t like uncertainty,” notes Robert Stapleton, head of hotel capital markets at Savills. “This many elections represent a significant potential for upset.”
Another issue in Europe is how geopolitics has impinged on daily life and market movements with more direct impact in the last two years. War in Ukraine, directly after the pandemic decimated globalisation, has stoked soaring inflation; leadership changes since have arguably spooked markets and affected investor strategies, such as the brief reign of Liz Truss in the UK or the victory of right-wing politicians such as Geert Wilders in the Netherlands.
Adds Stapleton: “Investors are chasing financial returns. As advisers, we would calibrate a country’s risk rate to reflect political risk. That becomes quite a significant factor in some European territories, but can also impact the most transparent markets.”
Confidence and strategy
“Politically influenced factors such as consumer confidence and the cost of living can all affect tourism flows,” says Marie Hickey, director of commercial research at Savills. “And while the data isn’t clear cut, in previous UK elections, we have seen a marked uptick in consumer confidence after election day, with some historic leadership changes – such as the arrival of Blair’s Labour – translating into a major confidence uplift from -2 to +5.”
She adds: “From a business travel perspective, we have seen how CFO sentiment can feed through to travel budgets for a firm. So, both consumer and business sentiment can affect hotel occupancy and therefore outlook.”
Stapleton notes that real estate investment volumes typically ebb around election day. “Looking at transaction volumes around the last six elections in the UK, there is a drop off in transactional activity in the last quarter before an election. It’s quite normal when you think that the financial markets are often waiting for a new fiscal landscape to be unveiled.”
However, elections in the UK this time round involve arguably different circumstances, and the markets may already have more clarity that in previous years. “This year could be an anomaly in terms of activity, as the markets have been expecting for a year that we may see a change in government,” Stapleton adds. “So, the market may have already priced in that change to some degree, and the likely continuation of policies in the political centre may not make for big shifts.”
Adds Hickey: “Transaction volumes were already at an all-time low last year, so the markets are likely to remain eager to trade assets, in spite of any political change.”
Other European markets may also see investment consistency despite political shocks. Portugal’s government fell in November amidst corruption allegations, with snap elections scheduled for March. However, hotel investor activity in the country seems likely to continue apace. “There has been a feeding frenzy throughout the Mediterranean for hospitality, and while tourism numbers remain so robust, that looks set to continues,” says Stapleton.
Fiscal landscape
Kersten Muller, head of real estate, Alvarez & Marsal Tax, says that investor behaviour around elections often varies depending on the investor type, with institutional investors a little more immune to change. “Family offices and high-net-worth individuals, meanwhile, may be more likely to take an election or leadership change into account, and either accelerate or delay investment, based on what tax changes they anticipate,” he says. “In the UK, although leadership change is expected, there is not a feeling that there will be big fiscal changes. The UK market tends to move quite quickly in terms of repricing so many market shifts have already taken place.” However, the prospect of the UK welcoming the first post-populist government in Europe could be compelling, and “increase the global flow of capital towards the UK”, he adds. “Germany is different, less transparent. The economy is not in a great place and its investment market is populated by a mix of local and international investors who are in wait-and-see mode.” Despite the recent retreat from extremism, with local defeats for the German far right, Kersten sees “more pain ahead” for the economy with deals remaining sluggish.
Elsewhere in Europe, political change has already influenced real estate investor strategy. Although the likelihood of Wilders becoming the Dutch Prime Minister is receding, the victory of the Party for Freedom before Christmas saw some investors in beds exit large Dutch residential portfolios. Notes Muller: “The Netherlands used to be a very open market for investment. Yet in both the UK and the Netherlands, governments have introduced more punitive fiscal measures for landlords at a time when you really need the private sector to boost housing supply.” He adds: “The health of the housing market is so tied to how the population feels, it is a hugely political topic. When house prices are rising, people feel better off, and tend to confirm the incumbent candidate in elections.”
Trump’s return
Although European voters have no say in elections across the pond, leadership change in the world’s largest economy, namely the US, can have profound global macroeconomic effects. There are also small, knock-on implications for Europe’s hospitality industry, notes Hickey. “US arrivals into the UK slowed significantly in the year after Donald Trump came into office. Several factors may have been in play, including a more inward-looking sentiment prevailing,” she adds.
With the US election currently looking like a two-horse race between Joe Biden and Trump, investor sentiment is divided. Says Muller: “While the last time Trump was in power was actually a very pro-business environment, the narrative around Trump isn’t always the most positive. When he speaks, it can be difficult to differentiate between actual policy and off-the-cuff remarks. And that can put markets on edge.”