Newly released data from Cushman & Wakefield’s (C&W) Europe Hospitality MarketBeat 2020 reveals that contrary to what some may have expected, hotel transaction activity in Europe did not fall off the cliff during this crisis. While investment volume for the region declined considerably, by 63% compared to 2019, there was still over EUR 10 billion* of deals closed in 2020. With major transactions still taking place and deals continuing to be agreed upon amidst these times, it seems that investors remain optimistic about the medium to long-term prospects of the industry.

*Excludes acquisition of the Dutch vacation parks firm Roompot by KKR from PAI Partners for approximately EUR 1 billion

European Hotel Investment Market overview

In 2020, the European hotel market recorded nearly 400 transactions, comprising about 48,000 rooms – of which almost 43% of deal volume was committed to after the pandemic outbreak.

Among the key deals done in 2020 include the sale of the iconic 136-key Ritz London to an unnamed Qatari investor and the acquisition of an 8-hotel portfolio across four key European countries for EUR 573 million by Covivio.

In particular, a few transaction characteristics have been observed in the last year:

  • Investor Origin: Given the uncertainty caused by the pandemic, 2020 saw a marked increase in investors retreating to more familiar ground, with European investors accounting for a large majority of transaction volume in the region (83%).

  • Investor Type: Institutional investors, who are better positioned to ride out such crises, led the transaction market with nearly half (48%) of total volume. These investors are typically better capitalised, more able to weather temporary troughs, and tend to have a longer-term investment strategy.

  • Project Stage: Over a quarter (26%) of deal volume in 2020 was in development or conversion projects as opposed to operating assets, compared to 12% in 2019. Investing in projects that do not face the risk of requiring immediate capital injections to keep operations afloat is attractive for investors looking to buy assets which will be operational when the market returns. One example was the acquisition of the EDITION Madrid by Archer Hotel Capital for over EUR 220 million, which is expected to open in 2022.

  • Location Type: Approximately 34% of transaction volume in 2020 was outside urban locations. However, when including only deals that were committed after the virus outbreak, the share of non-urban locations increased to over 41%. This may imply investors’ expectations of a quicker recovery and/or better long-term prospects for hotels driven by leisure demand that are typically located outside major cities. Unsurprisingly, there was a notable decline in acquisitions of airport hotels, down by 87%.

Rob Seabrook, Head of Hotel Transactions EMEA at C&W commented:

Despite the short-term challenges of the industry, over EUR 4.3 billion of transaction volume was committed to amid the pandemic in 2020 – this is a promising demonstration of continued investor interest in hotels. Investors who are familiar with the hotel market are especially confident in the long-term prospects for this sector, and the lower transaction activity in 2020 is in part due to the wait-and-see approach many investors have been adopting, rather than a waning of interest in hotels.

WRITTEN BY Kimberly Yoong