30 Warwick Street London W1B 5NH www.jll.com/hospitality EMEA Quarterly Newsletter – Q2 2014 Industry Trends • According to the World Travel & Tourism Council (WTTC), demand for international tourism remained strong in the first four months of 2014. International tourism arrivals grew 5%, the same rate as full year 2013. Prospects for the current peak tourism season remain very positive with over 450 million tourists expected to travel abroad in the May-August 2014 period. • Destinations worldwide received 317 million international overnight visitors between January and April 2014, 14 million more than in the same period of 2013. This 5% growth consolidates the strong increase registered for 2013 and is well above the long-term trend projected by the UNWTO for the period of 2010-2020 (3.8%). • The strongest growth was seen in Asia and the Pacific and the Americas (both up 6%), followed closely by Europe and Africa (up 5%). By sub-region, Northern Europe, South and Mediterranean Europe, North Africa and South Asia (all up 8%) were the star performers. • In terms of tourism expenditure, growth continues to be strong from emerging markets, in particular China, the Russian Federation, Saudi Arabia and India. Furthermore, demand from advanced economies is strengthening as the global economic situation gradually improves, with encouraging growth posted for Italy, Australia, the Republic of Korea, the Netherlands, Norway and Sweden. • According to the UNWTO confidence index, prospects remain very positive for the period May- August 2014. Confidence has picked up, particularly among the private sector, and improved further in Europe, the Americas, Asia and the Pacific and the Middle East. • Data from business intelligence tool ForwardKeys indicates international air travel reservations for May-August are up 8%, with interregional and intraregional travel equally strong. The highest growth in bookings was recorded in international flight reservations from Asian source markets, followed by the Americas. • For the full year 2014, international tourist arrivals are expected to increase 4% to 4.5%, slightly above the UNWTO’s long-term forecast of 3.8% per year for the period 2010 to 2020. • According to Benchmark Hospitality International’s “Top Ten Travel Trends for 2014”, nearly 75% of growth in travel is leisure related, with half of this growth coming from the luxury segment. In addition, complimentary Wi-Fi is the most important amenity sought after by hotel guests after location. • According to the Global Business Tourism Association (GBTA), business travel spending will reach a record US $1.18 trillion in 2014, a growth of 6.9% on last year. Asia Pacific owns the largest share of the business travel spend market with 38%, followed by Western Europe (24%) and North America (21%). • The GBTA expects that by 2018, Asia Pacific will have gained another 5% market share, while the US and Western Europe will lose 3% and 2%, respectively. 1 30 Warwick Street London W1B 5NH www.jll.com/hospitality Regional Performance Europe • During the first six months months of 2014, the European hotel industry experienced moderate growth rates when compared to the same period in 2013. Data published by STR Global (measured in Euros) reveal that for June 2014 YTD, Average Daily Rate (ADR) grew 2.4% while occupancy increased 2.1%. • Following a trend from the previous quarter, Northern Europe reported the best results, posting RevPAR growth of 10.4% driven by a 7% rise in ADR and a 3.2% increase in occupancy. Ireland was one of the best performing markets in Northern Europe, with RevPAR up 12.6% due to strong growth in both occupancy (+4.6%) and ADR (7.6%). Strong RevPAR growth was also seen in the United Kingdom (+12%). Performance was driven by a notable increase in ADR (+8.8%) while occupancy saw modest growth (+2.9%). • Performance in Southern Europe has continued to strengthen, with the region posting the second highest RevPAR growth (+5.3%). Performance was buoyed by occupancy (+3.7%) while ADR increased a moderate 1.5%. Greece has seen a surge in performance with RevPAR up 26.2% on the back of exceptional occupancy performance (+20%). The country has seen resurgence in international tourist arrivals after taking a hard hit during the economic crisis. Other top performers in Southern Europe were Malta (+16.9%) and Portugal (+9%). Notably, Israel has seen a return to growth (+9.7%) after posting poor first quarter performance. Nonetheless, we expect performance in the third quarter to be heavily affected by the ongoing Gaza crisis, resulting in yet another slump in growth. Hotels in Turkey continue to suffer amidst economic and political turmoil and posted a RevPAR decrease of 14%. • Hotels in Western Europe posted mostly positive results at June 2014 YTD, with moderate RevPAR growth overall (+1.4%). The Netherlands was amongst the best performing markets in the region, posting a RevPAR rise of 7.7%; evidence that the Dutch economy is in a recovery phase, while Belgium also posted good results (+4.2%). On the contrary, France has seen performance stagnate in the first half of the year (-4.2%), impacted by a lack of concerted economic reform and poor economic growth affecting domestic spending. • For the second quarter running, Eastern Europe was the only market to post negative results for the first half of 2014, with RevPAR falling 9.9% primarily as a result of reduced ADR (-6.4%) while occupancy fell 3.8%. Romania witnessed the largest RevPAR increase (+9.6%) due to strong occupancy results (+11.4%) while ADR fell 1.7%. Hungary followed, posting a RevPAR increase of 4.8%, driven equally by occupancy and ADR (both +2.4%). Unsurprisingly, Russia was the weakest performing market in Eastern Europe for the second quarter running due to the ongoing political crisis in Ukraine, posting a steep RevPAR decline of 21.4% as rates dropped 12.4% and occupancy 10.2%. • The best performing cities in Europe in terms of RevPAR growth at June 2014 YTD were Athens (+30.9%), Copenhagen (+19.8%), Manchester (+15%), Edinburgh (+11%) and Amsterdam (+9.8%). Cities reporting the largest declines include Moscow (-19.9%), Istanbul (-17.3%), Bratislava (-8.5%) and Paris (-4%). Middle East & Africa • The Middle East and Africa (MEA) region saw occupancy and ADR increase a moderate 1% and 3.5%, respectively, resulting in solid RevPAR growth of 4.5% at the end of H1 2014 (when 2 30 Warwick Street London W1B 5NH www.jll.com/hospitality measured in US Dollars). The Middle East continues to post the strongest growth, with RevPAR up 5.3% compared to 2013, while Northern Africa continues its negative trend from the last two quarters, posting a RevPAR decline of 6%. Ongoing unrest in a number of countries across the region continues to have a detrimental effect on hotel performance. South Africa also continued its negative trend, posting a RevPAR decline of 2.3% as ADR fell 1.9%. Occupancy stayed relatively flat at -0.4%. • One of the strongest performers in the Middle East was Bahrain, with RevPAR up a significant 18.4% as a result of a strong increase in occupancy (+19.9%). The country continues to recover after being effected by the Arab Spring in 2011 and its status was raised after Manama was named Arab Capital of Tourism in 2013. Jordan and Kuwait also continue to post good results, with RevPAR up 11.5% and 6.9%, respectively. Lebanon continues to be severely affected by political and sectarian tensions, together with the on-going troubles in neighbouring Syria, resulting in a significant 15% decrease in RevPAR at the end of H1 2014. • In Northern Africa, Egypt has seen a continued decline in RevPAR (-13.6%) due to sharp falls in both occupancy (-10.8%) and ADR (-3.2%). Egypt suffers from high threats of terrorism, with many countries issuing travel warnings to the country. • In Southern Africa, Kenya achieved negative results with a 3% fall in RevPAR resulting from a 2.1% decrease in occupancy and a 1% fall in ADR. Tourism in the country has been affected by travel warnings and further threats of terrorism. • In MEA, the best performing cities in H1 included Manama, with an 18.7% RevPAR growth, followed by Amman (+11.4%), Jeddah, and Muscat (both +7.9%). The weaker performing cities included Lagos (-17.1%), Beirut (-13.2%), Cairo (-13%) and Nairobi (-4.2%). Supply • According to June 2014 STR data, the European hotel development pipeline consists of 145,465 rooms across 904 hotels. Among the countries in the region, the United Kingdom reports the largest number of rooms in the ‘under construction’ or ‘planning’ stages with 41,831 rooms, followed by Russia (25,024 rooms); Germany (17,653 rooms); Turkey (12,818 rooms) and Italy (4,527 rooms). • In the Middle East and Africa, developments total 143,870 rooms across 614 hotels if all construction projects reach completion. The United Arab Emirates reports the most rooms under construction (17,137 rooms), followed by Saudi Arabia (15,415 rooms); Qatar (5,985 rooms); Jordan (3,241 rooms); and Morocco (2,466 rooms). 3 30 Warwick Street London W1B 5NH www.jll.com/hospitality Transaction Activity Q2 2014 Sale Price Hotel Location Grade Rooms Buyer Seller (€m) Top 5 Single Asset Transactions Q2 2014 Edificio España Madrid 99.5 5 Star 306 Dalian Wanda Group Santander Movenpick Jumeirah Beach Residence Dubai 96.2 5 Star 294 BankMuscat Farran LLC Heathrow Park Inn Hotel & Conference Centre 90.2 4 Star 895 AXA Zolfo Cooper Airport Union Investment Capital Hospitality Radisson Blu Amsterdam Amsterdam 90 4 Star 252 Real Estate Group Northwood Avestus Capital Four Seasons Prague Prague Confidential 5 Star 161 Hospitality Partners Source: JLL Hotels & Hospitality • EMEA hotel transactions for the first half of 2014 reached over €7bn, a 12.1% increase compared to volumes reported in 2013.