Berlin — Moribund investment volumes continue to make hotel pricing difficult to assess, while maturing debt could bring more product to market next year, attendees at the International Hospitality Investment Forum (IHIF) in Berlin heard.
Christie & Co managing director of hotels, Carine Bonnejean, warned that sluggish transactional volumes in the latter part of 2022 had seeped into 2023, with only about 100 hotels have changed hands.
“The vast majority of those were individual assets because of a shortage of finance, though there is no shortage of investment looking at the sector,” she said.
Unlocking the market
In fact, Bonnejean pointed to hotel performance that had improved faster than expected but said that the global economic and political situation mean that transactions were down around 12 per cent in Europe last year, especially in the UK.
“The is a disconnect between top-line pricing and debt, if you take Paris [the Dubai Holding acquisition of Westin from Henderson Park in February 2023] out the volume so far in 2023 is down 6 per cent. The bid spread between buyer and seller is the issue,” she added.
Cross border, European capital remains the principal buyer in Europe, but more recently there has been more US activity, while Middle Eastern investment has increased, though mostly through the single deal for Paris.
However, Bonnejean predicted that maturing debt could finally unlock the market.
“Lenders have been very supportive and extended debt facilities. But that might change, and the situation could get worse before it gets better. Lenders have been lenient, but in the next 12-18 months that may be a bit different as much of the debt will need to be refinanced and relationships between lenders and hotel owners have deteriorated,” she said.
Real recovery
STR managing director Robin Rossmann said that overall metrics for Q1 were ahead of 2019, but in a massively inflationary period so in real terms that mean that they had “almost recovered”.But he said that projections for the April to June period indicated a “real improvement”, with occupancy and room rates growth recovering and hotels as an asset class more positive than offices and retail, with industrial softening.
Southern Europe is doing especially well, notably Italy in part thanks to its luxury sector and the influx of American travellers, while Ireland is also performing well. The Benelux and Germany are lagging, he warned, partly because of the lack of luxury options.
Rossmann said that in the last month RevPAR has been recovering even in Germany, with a similar story in gateway cities, which had also been laggards but were now matching regional cities and in many cases overtaking them. The only outlier currently is Berlin.
If 2021 was the year of the staycation, and 2022 of coastal resorts, for 2023 there has been no pullback on resort travel, but that has not been to the detriment of staycations, he said.
“Secondary cities and regional markets had been best performing over first 18 months because they are less reliant on international travel but are now in line with gateway cities and likely to be overtaken,” Rossmann said.
Luxury pricing is currently up by about 45%, in line with luxury pricing across all sectors, but may have peaked, he speculated, while he predicted the office to hotel conversions were up and that improving China numbers, group travel and growing business travel mean that the remainder “should be at least as good as last year”.
Operationally, Hotstats COO Michael Grove warned that performance had been “dragged down a little” by F&B and said that profitability had been improving but saw a January and February drop off at a time of rising costs.“That might be a glimpse into the future of any tail off. Operational costs are back up. And Europe is still paying far more for booking costs, while labour has started to stabilise along with energy costs.
“UK performance has been a challenge over the last few years, with a 9% fall in F&B profits compared with 2019. Spain has seen significant revenue growth but labour challenges meant very little on the bottom line, while German revenues had been behind although in April and May were ahead again.
Staff retention
Colliers hotels director Jan Hein Simons also focused on labour shortages and said that companies had been turning down revenue because of a lack of staff.
“The race for talent is on,” he said.
Those with recruiting and retention plans and incentives are doing better than those that do not, while the costs of acquiring staff, maintenance and operations are on the rise he added, predicting that staffing will remain a challenge for at least 18-24 months.
On the financial situation, he expected there to be more movement as debt became a greater issue.
“There are plenty of finance options, but many are very costly,” Simons said. “It’s the perennial problem, value and yield. Hoteliers have [been] very late to adjust pricing compared with offices or retail, where yields softened and prices corrected about a year ago. Lack of transactions is having a pricing impact. We might need to wait a bit longer for the trading curve to start accelerating.
“Many hotels are refinancing at much higher margins and will have no option but to sell as they breach covenants. A lot of opportunistic capital is waiting for the bid ask spread to finally adjust, cash buyers especially.”