The transaction volume of hotels in the Europe, Middle East and Africa (EMEA) region is expected to remain flat at $11 billion (Dh19.46 billion) in 2012, on par with 2011 volumes, according to the latest study by global consulting firm Jones Lang LaSalle Hotels.
In its 2012 outlook for Hotel Investment, JLL Hotels says that as banks take a stronger stance on bringing hotels into receivership positions this year, investment activity will be driven by “debt restructuring deals” and an “influx of distressed assets” brought to the market.
Meanwhile, the hotel investment market in the region remained solid in 2011 with hotel transaction volume having reached $10.9 billion last year, a moderate increase of five per cent over the prior year. Besides, growth in international arrivals and a rebound in business travel enhanced trading performance last year as increasing liquidity accelerated hotel investment activity.
But despite a positive year, “investors have become more cautious, especially in the last quarter [of 2011], with deals generally taking longer to close than originally expected,” JLL points out.
It added that in 2011, hotel investors shifted to an acquisition strategy which is expected to continue into 2012 with the buying sentiment firmly based on an expectation that prices will fall.
“High net worth individuals and sovereign wealth funds are expected to seek trophy assets in key markets, which are regarded as a secure and long-term investment. This will result in strong competition for the few assets that match these criteria,” JLL predicts, while also warning that raising capital for acquisitions and developments will remain “very difficult until a firm recovery is established”. However, on a more positive note, JLL says that insurance companies are expected to emerge as alternative lenders.
“They are attracted by the relatively higher returns achieved in hotel investments, and will therefore become more active in lending capital to potential investors — both in senior and mezzanine loans,” JLL says.
Hotel receivership occurs when a hotel lender removes borrower control and seeks a receiver (court-appointed third party). As receivership deals increased by 26 per cent in 2011, the number of distressed assets brought to the market is, therefore, likely to increase this year, according to JLL.
It states in its report that assets with attractive yields will appeal to investors, as they are assured of vendors’ commitment to sell, coupled with the difficulty in developing new properties directly due to the limited availability of financing and high construction costs. Dubai is expected to bene-fit from being a safe haven and attract some investor interest, given that its occupancy has recovered to 2008 levels this year, the report points out.
Trading fundamentals posted solid growth rates in 2011, but the economic headwinds will dampen growth expectations for 2012, according to JLL’s outlook for the year, adding revenue per available room growth is expected for EMEA in 2012, albeit at a slower pace than in 2011.
However, growth will be mixed, with markets such as Dubai, Morocco and Qatar expected to benefit from the political unrest in Syria, Egypt, Libya and Tunisia.