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Hospitality Briefing Emea Hotel Investment Market HOSPITALITY BRIEFING EMEA HOTEL INVESTMENT MARKET Q1 2010 1 Market Summary • UK GPD decline of 0.2% in Q3 2009 – out of the gloom in 2010? 1 UK Economic Outlook • First signs of recovery for London hotels after 15 months of 2 UK Hotel Performances consecutive RevPAR decline 3 EMEA Hotel Investment Market • Sun shines brighter in the North – Glasgow and 5 UK Hotel Investment Market Edinburgh more resilient to the 8 Hotel Transactions Highlights market downturn in 2009 • EMEA hotel investment volume reaches € 3.2 billion in 2009 – UK market still leading with € 935 million invested 336-337 Strand, London • Largest London Hotel Transaction was the Strand Hotel project (picture above) – Largest European Hotel Transaction was the Cushman & Wakefield Hospitality Radisson Blu in Hamburg European Headquarters 43/45 Portman Square • Increased distressed asset sales in Q4 2009 – Trend to grow London, UK W1A 3BG www.cushmanwakefieldhospitality.com further in 2010 UK ECONOMIC OUTLOOK As the UK economy hopes to exit the recession in 2010, speculation is now turning to other issues: notably the strength of the recovery, the outlook for inflation and unemployment and the implications of the public sector deficit. Despite Q3’s 0.2% fall in quarterly GDP, there has been a firmer upturn in industrial sector indicators and general business sentiment and most forecasters have now raised their projections for 2010, with the general consensus pointing to a still weak recovery albeit a stronger one than previously thought. An end to de-stocking and a positive contribution from net trade should be sufficient to lift the economy but while this growth may be a welcome change after the recession, it clearly stands some way below past estimates of the economy’s potential. In the absence of any new driver for growth, it seems clear that the recovery will be fragile and, as we bounce along the bottom, businesses will remain under pressure as they compete for orders and seek to keep costs under control. BUSINESS BRIEFING Q1 2010 1 EMEA HOTEL INVESTMENT MARKET – Q1 2010 A CUSHMAN & WAKEFIELD PUBLICATION Helped by the level of the Sterling, exports look a more likely area of growth than domestic demand. Over the summer, consumers did appear to defy the weak labour market, but there are still concerns for the durability of spending given rising unemployment, the return of VAT to 17.5% and the need for further de-leveraging. ECONOMIC PERFORMANCE % 2006 2007 2008 2009F 2010F GDP Growth 2.9 3.0 0.7 -4.3 1.1 CPI Inflation 2.3 2.6 3.6 1.9 1.8 Consumer Spending 1.9 3.0 1.4 -2.8 0.2 Corporate Investment 7.6 6.2 -3.1 -13.9 -2.7 Manufacturing Output 1.5 0.6 -2.6 -10.0 1.8 Interest rates - 3-month 5.3 6.0 5.5 1.2 0.6 Interest rates - 10-year 4.7 4.6 4.6 3.6 4.1 Source: Consensus Economic Forecasts & Cushman & Wakefield European Research Group Expectations for unemployment have softened somewhat as the recovery has started to emerge and commentators have reassessed the flexibility offered by the UK labour market to adjust costs at a lesser cost to total employment than in past downturns. Even though unemployment is now increasing at a slower rate, it still looks likely to carry on rising through the first half of 2010. Moreover, this will have a lagged impact on wages, with pay pressures likely to be subdued or even negative in the months ahead. The latest figures for UK inflation (CPI) declined to a 7 year low of 1.1% in September, but this is higher than the Euro zone average and, moreover, is likely to increase over the coming months as the annual comparison of commodity prices becomes positive once more, as VAT increases and as higher import prices impact. UK HOTEL PERFORMANCES Encouragingly, there are signs that the UK hotel sector may be in the early stages of recovery, although there is clearly some way to go before a full-blown upswing kicks in and many challenges remain. However, along with other forms of holiday accommodation, UK hotels have benefited from the recent “staycation” trend, whereby a greater number of people in the UK have decided to spend their holidays at home rather than abroad. Data from the various firms which monitor the market show that revenue per available room (“RevPAR” ) has continued to decline year-on-year, although this is largely as a result of falling room rates, whilst the positive news is that occupancy rates have generally held up or increased slightly in some cases. According to the data provided by TRI Hospitality Consulting including all categories of hotels, the London market has confirmed the first signs of recovery with an increase of 5% in RevPAR at £ 95 from the same period last year and after 15 months of consecutive decline since September 2008. On the other hand, provincial hotels have recorded an average fall of 4% from November 2008. Nevertheless, cities such as Glasgow and Cardiff have performed much better over the last 12 months maintaining or increasing their RevPAR levels for certain months in 2009. The Scottish hotel market with Glasgow and Edinburgh in particular appears to have been the main beneficiaries of the significant increase in domestic tourism demand in 2009. 2 BUSINESS BRIEFING Q1 2010 Other cities such as Manchester and Birmingham have seen their RevPAR falling on average by 17% and 10% since January 2009. These markets, mainly driven by corporate demand, have not been able to take advantage of the domestic leisure market. UK HOTEL REVPAR PERFORMANCE – YTD 2009 (NOV.) YTD NOV 08 YTD NOV 09 London Paris Amsterdam Vienna Berlin Munich Barcelona Prague Budapest Warsaw € 0 € 20 € 40 € 60 € 80 € 100 € 120 € 140 Source: TRI Hospitality for Cushman & Wakefield (sample of 3-star hotels and above) Within the four and five-star hotel segments, London properties achieved a RevPAR of circa £ 124 for 2009 (YTD) representing a decrease of 5% from 2008. In terms of performance, London remains the leading market followed by Paris (£ 122), Amsterdam (£ 116) and Vienna (£ 104). EMEA HOTEL INVESTMENT MARKET After a sharp decline in 2008, the hotel investment volume pursued its fall in 2009 to reach a total amount of circa € 3.2 billion in EMEA. This result represents a decrease of more than 50% over 2008 and about 85% as compared to 2007. Whilst the UK market suffered a larger decline in 2008 compared to the rest of Europe with a fall of 80% versus 45%, the trend was homogeneous in 2009 with a fall of circa 50% for both markets with a total of € 935 million for the UK and € 2.3 billion for the Euro Zone. EMEA HOTEL INVESTMENT VS STOCK INDEX – 2004-2009 Hotel Investments UK Hotel Investments Euro Zone Dow Jones Euro Stoxx 50 14 14 12 12 ) 10 10 8 8 Billions) € 6 6 Stock Index (in '000) '000) (in Index Stock 4 4 2 2 Hotel Investments ( - - 2004 2005 2006 2007 2008 2009 BUSINESS BRIEFING Q1 2010 Source: Cushman & Wakefield Hospitality 3 EMEA HOTEL INVESTMENT MARKET – Q1 2010 A CUSHMAN & WAKEFIELD PUBLICATION Interestingly, the overall trend in investment volume has followed a similar pattern to the stock market index often referred to as a benchmark for investor confidence. The large share of domestic and public companies within the UK hotel investment market resulted in a sharp blueprint of the Dow Jones trend whilst the European investment market mirrored the Euro Stoxx 50 index to a lesser extent due to a more diversified pool of buyers’ profile and cross border investments. EMEA HOTEL INVESTMENT VOLUME BY COUNTRY – 2009 vs. 2008 2008 2009 Other UK Other 23% 27% UK 25% 29% Scandinavia Scandinavia France 14% 7% Italy 15% Spain Germany Spain France Italy Germany 5% 9% 7% 16% 5% 9% 9% Source: Cushman & Wakefield Hospitality Whilst the UK hotel investment volume has suffered the largest fall over the last three years, it remained the most active market in the EMEA region with 29% of the overall volume invested followed by France and Germany with respectively 16% and 9% of the total investments. The largest single transaction in the UK to date was the acquisition of the Aviemore Highland Resort by MacDonald Hotels on a “pre-pack” basis from the administrators PricewaterhouseCoopers for € 153 million. In London, the 5-star Stafford Hotel was sold in September by Daniel Thwaites to the RAMW Group plc for € 88 million(*) whilst a subsidiary of BBVA purchased the half completed hotel project on The Strand at the end of the year for circa € 125 million(**).The largest single deal outside the UK took place in Germany with the purchase of the 560-room Radisson Blu hotel in Hamburg by Invesco Real Estate from the Azure Group for € 155 million. Other large single asset transactions included the sale of the Radisson SAS Royal Viking in Stockholm by KLP Fastigheter AB for € 110 million, the sale & leaseback of the Melia Princesa in Madrid to BBVA Renting for € 88 million and the disposal of the Chia Laguna Resort in Sardinia to Castello Sgr for € 83 million. EMEA HOTEL INVESTMENT SINGLE VS PORTFOLIO – 2005-2009 Single Portfolio 18 16 Billions) 14 € 12 10 8 6 4 Hotel Investments ( 2 - (*)Cushman & Wakefield acting as 2005 2006 2007 2008 2009 adviser on the buyer’s side (**)Cushman & Wakefield acting as agent on the vendor’s side Source: Cushman & Wakefield Hospitality 4 BUSINESS BRIEFING Q1 2010 Further to large sale and leaseback portfolio transactions undertaken by Starwood, Hilton, Marriott and Accor from 2005 to 2007, the pace of hotel companies exiting their asset ownership have slowed down in the last two years with less opportunities available.
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