High levels of cross-border investment from the Middle East into the European hotel market to continue in 2019, says JLL
International Portfolio diversification and the hotel sector’s attractive yields are contributing to increasing capital flows form the Middle East to Europe
the world’s leading real estate advisory firm, projects that the Middle East will continue to lead investments into Europe’s hotel sector in 2019 and beyond – growing from the $3.2bn of capital flows recorded in 2018.
JLL’s Hotel Investment Outlook 2019 reports that Europe’s hotel sector received the largest amount of cross border investments globally in 2018 and that the Middle East and Asia were the most significant contributors. International portfolio diversification and hotels’ attractive yield profile, compared to other sectors of the real estate market, are expected to continue driving capital flows from the region.
“Although the global economic and real estate markets are expected to move towards slower growth in 2019, the travel and tourism sector is slated for another record year in 2019 as traveller volumes continue to grow,” said Amr El Nady, Executive Vice President, JLL Global Hotel Desk based in Dubai.
According to the report Europe’s solid business and tourism foundations supported by strong infrastructure developments continue to attract investors towards strong assets and new opportunities, despite the political uncertainties in the region.
“Global hotel investment volumes are expected to remain steady in 2019 with consistent investment appetite levels from the Middle East in particular. We do expect cross border investors to increasingly focus on high yielding single assets, including acquisitions in ‘secondary’ European markets.
“In addition to the usual request for select opportunities in London, Paris and Rome, the appetite is growing towards other regions in the UK and markets like Germany, Italy, coastal Spanish cities, Portugal and key Eastern European cities. Diversification in target geographies is also accompanied by a change in the hotels’ sought after operating structure, whereby fixed leases and franchises are becoming increasingly more popular,” he continued.
Key findings of the global report include:
- Hotels entering flexible workspace market. The flexible office space market is booming across Europe, and hotel operators are already capitalising on it. Transforming hotel lobbies into communal workspaces is an innovative way for hotel brands to maximise the earning potential of real estate assets, in turn strengthening their brand amongst guests and the wider community.
- Experience economy reaches the luxury sector. Strong investors’ hoteliers’ focus on the luxury travel sector with companies whose previous focus lay outside the travel sector paying close attention to luxury hotel brands. Hotel markets are seeing strong demand for high end experiential luxury travel which is presenting new development and renovation opportunities to investors.
- New investors emerging. Diverse sources of core and core-plus capital are increasingly considering investment in the hotel market. Private equity groups and other yield-driven investors face more competition from investors with a lower cost of capital and are expected to continue to move into secondary markets.
JLL predicts robust levels of fundraising activity for hotel investments globally. Close-ended private funds will pursue more large-scale investments to efficiently deploy capital and shift strategies toward private debt fundraising. International capital forms a key part of the hotel investment market, and this is forecast to increase in 2019 as investors look beyond their home countries for investment diversification. JLL expects investors will to continue to seek entry into the hotels market given its attractive yield profile.