Inward investment into the European hotel investment market

Abstract

This paper looks at the patterns of inward investment into the heavily-fragmented European hotel sector. It notes that there have been relatively fewer transactions than one might expect, given the globalisation of the industry. This is largely because overseas buyers are also small companies, often split (eg in the US markets) between real estate owners and management companies. They are often discouraged from corporate acquisitions by the complexity of doing deals in Europe's often impenetrable markets and the heavy property portfolios of most European players. Moreover, at the luxury/upscale ends of the market there are few independent players left to acquire. In terms of single-asset acquisitions, there has been a diversity of buyers, largely driven by capital availability in their home markets — Middle Eastern money in the 1970s, Japanese in the 1980s and US and South-East Asian in the 1990s. As with corporate deals, low yields and complexity have deterred many investors, especially those from the USA who are used to dealing in only one jurisdiction. In the future, the only certainty is change. New buyers are perhaps most likely to come from the emerging economies — China, India and Russia — while new ownership structures such as the spread of European REITs may attract larger numbers of institutional buyers. This in turn may produce a greater standardisation of brands and products, as these investors seek greater certainty, leading to a more predictable investment market — but probably also a more boring hotel experience for guests.