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Although the pandemic has scared off many investors from hotel real estate, with underwriting hospitality assets proving challenging in an uncertain world, some market participants see this as the perfect moment for an anticyclical play in the sector. By Isobel Lee

It’s been a tough 12 months for the European hotel and hospitality industry. With occupancy figures slumping in double digit percentages throughout 2020, the year’s final months saw the effects of a second lockdown paralyse overnight stays once again after the summer respite, slashing year-on-year occupancy rates by figures of 50–80 percent right across the block, according to data from benchmarking firm STR. Unsurprisingly, these effects have hampered hotel deals. Data from Cushman & Wakefield shows that European hotel investment volumes fell 55 percent year-on-year in the first half of 2020, even though some 79 percent of the total deal flow had been agreed before Covid struck.

Yet there were still notable transactions agreed after the outbreak, suggesting that several investors remain confident about the long-term prospects of the hotel sector. The sale of the Ritz in the UK for £800m to a Qatari tycoon, two major resort transactions in Greece, plus sizeable deals in Germany and Spain kept the market ticking along – largely thanks to the liquidity of institutional investors, who were responsible for 48 percent of H1 deal volume. 

“With progress in vaccination and the intent of guests to travel again, investment markets will gradually come back during the course of this year and next. Within the real estate world, hotels are considered to have no structural weaknesses but a continuing, long-term potential, which is driving investor demand. This, combined with €250 billion of dry powder globally, most notably representing private equity and pension funds as well as institutional investors, means that a wall of money is awaiting the recovery of the hotel markets. That isn’t leaving a lot of room for meaningful and sustained price discounts,” says Andreas Löcher, Head of Investment Management Hospitality at Union Investment Real Estate.

The MICE segment within hotels has come under significant pressure from the Covid-19 impact, with conference spaces and ballrooms ripe for conversion to co-working, or other services which capture greater spending from guests.
William Duffey EMEA Head of Hotels & Hospitality Capital Markets at JLL

Clear evidence that some investors are taking an anticyclical approach

ECE Real Estate Partners is one such player which is poised to pounce. Ascan Kókai was appointed in October 2020 as Principal – Head of Hotels to implement the firm’s debut hospitality fund strategy. Meanwhile, Henrie W. Koetter, CEO of ECE Work & Live, says that his firm is picking up some hotel development projects which stalled due to financing problems during the pandemic. But the focus is also on how to run them more leanly in the future, “to break even with occupancy under 45 percent. A lot of it is about taking out everything the customer doesn’t appreciate. Business hotels don’t need a three-metre cupboard, a land line phone or an ironing board in every room,” Koetter notes.

“The MICE segment within hotels has come under significant pressure from the Covid-19 impact, with conference spaces and ballrooms ripe for conversion to co-working, or other services which capture greater spending from guests,” notes William Duffey, JLL’s EMEA Head of Hotels & Hospitality Capital Markets.

And while CEE proved an extremely subdued market in the first half of the year – there were no hotel deals in Poland, for example – Ott Ventures, the fund management platform of MaMaison Hotels & Residences’ founder Ott Properties, is now betting on this region’s recovery with its first hotel fund. The vehicle is targeting some €500 million in assets under management and will invest across Europe with a focus on the main CEE markets of Poland, Czech Republic and Hungary plus Germany and Austria.

The hotel fund’s manager, Nicolas Horky, says it plans to leverage the team’s collective experience in hotel investment and management to improve the operational profile of the properties it buys.

Waiting for a return to normality and strong occupancy

And although the outlook for 2021 still includes plenty of unknowns, “most operators have found new ways to sell rooms since the first wave,” Horky notes.

“While data suggests we won’t be back to normal until 2023, news of the vaccine could shorten the recovery time.” Duffey agrees. “Once restrictions are eased, we can expect a lot of room stock to come online within a short period of time. But realistically, it will be 2023–24 before rates are back to pre-Covid levels.

By Isobel Lee

Title image: Gregor Hofbauer / Ruby Hotels

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