Hotel investors battle for yield as sector heats up

By Victoria Bryan

BERLIN (Reuters) – Traders are expected to pump more money into purchasing, converting or building hotels within 2015 than in any year since the start of the global financial crisis, with a focus on budget and ‘buzz’.

In a sector enjoying the benefits of economic recovery and growing traveller figures, yields are attractive compared to alternate real estate like office, industrial or even retail.

“It’s not really about people loving hotels, it might be about investors searching for a return on the money which they can’t get nowadays on government bonds, ” stated Nick Skea-Strachan of law firm BLP at this month’s IHIF hotels meeting in Berlin.

But investors say there are signs of overheating in some areas, making it more challenging to hit target returns that are typically close to 6. 5 to 7. 5 percent.

That is forcing them to seek out niches and jump on brand new trends like lifestyle hotels, providing a generation of travellers looking for a hip place to hang out, not just somewhere to sleep.

Typically featuring smaller rooms, local-themed design and buzzy lounges, lifestyle addresses both luxury and budget lessons and includes hotels such as Starwood’s W, IHG’s Indigo, Citizen Meters, and Moxy. Hilton, Best Western and Germany’s Steigenberger are the recently announcing new brands in this space.

Examples of the particular genre include the privately owned 25 Hours Hotel in Berlin, exactly where visitors flock to a 10th floor bar and restaurant that overlook the neighbouring zoo.

Liran Wizman, a developer and proprietor who is opening two W resorts in Amsterdam this year that will be managed by Starwood, told Reuters he had shifted his focus in the past few years from mid-scale hotels to way of living, which now makes up half their portfolio.

WATCHING EXPENSES

Prestige ‘trophy’ resorts in cities like New York, London and Paris will continue to be in demand, professionals at the Berlin conference said, as institutions or high net really worth individuals seek assets that will still be standing in 50 years’ time.

But with travellers still maintaining a eye on costs, the higher yields right now are in the budget sector. Chains such as Marriott say growth in their room numbers will be primarily at the economy end.

“There’s a shortage of good high quality economy product, I think we’ll observe more build in that sector, inch Patrick Fitzgibbon, senior vice leader development, Europe & Africa at Hilton, told Reuters.

Consultants Christie + Co suggest those seeking higher yields should think about southern Europe such as Portugal, Italy, Greece and Spain, where budget hotels can account for up to fifty eight percent of supply and exactly where assets are often in need of some work. In a report, it said excellent hotel yields can vary between fourteen and 18 percent in Greece.

Another consultancy, HVS, said high prices in metropolitan areas such as London and Paris were leading investors to look at hotels within smaller towns and cities. That is especially visible in Britain, exactly where occupancy rates and revenue for each available room in cities for example Manchester and Edinburgh have been increasing as consumers take more mini-breaks.

“ASSET-LIGHT”

The branded hotel groups happen to be moving to an ‘asset-light’ strategy recently, leaving it to others to possess the hotel real estate, while they will manage them under franchise or even lease contracts.

Property or home giant Jones Lang LaSalle forecasts $68 billion in hotel property transactions in 2015, a fifteen percent increase on 2014, as well as the best year since 2007.

Of that around $24. seven billion is expected to be committed to Europe, the Middle East and The african continent, with North American and Chinese investors set to be the major drivers.

“Yields are coming in and are also relatively low from a historical perspective, but still offer a premium to common and commercial real estate, ” Marc Socker, MD hotel fund management at Invesco Real Estate told Reuters.

Invesco has thirty-one hotel assets worth $1. 5 billion in Europe, accounting intended for 20 percent of its total Euro real estate assets under management.

Socker said the high quality could be around 100 to 150 basis points, as a result of operating agreements that allow investors to suppose different levels of risk.

According to a report by HVS, investment decision volumes in European hotel property rose 83 percent in 2014. Investors from North America, looking progressively at Europe as prices increase at home, accounted for 26 percent of the total investment on the continent, upward 13 percentage points from 2013, it said.

Also Qatar Airways is getting in within the act, announcing the purchase of the Sheraton Skyline at Heathrow airport, which it will rebrand as the Oryx, as part of the airline’s plans to increase in travel-related business.

Chief Executive Akbar Al Baker informed Reuters at the ITB travel reasonable in Berlin last week he was in talks for properties in two more locations and expected a return on investment of at least 10 %.

(Additional reporting simply by Simon Jessop in London; Editing simply by Mark Trevelyan)


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Simply by Victoria Bryan

BERLIN (Reuters) – Investors are expected to function more money into buying, converting or even building hotels in 2015 than in any year since the start of the worldwide financial crisis, with a focus on budget plus ‘buzz’.

In a sector enjoying the benefits of economic recovery plus growing traveller numbers, yields are usually attractive compared to alternative real estate such as office, industrial or retail.

“It’s not about individuals loving hotels, it’s about investors searching for a return on their money that they can’t get these days on government bonds, ” said Nick Skea-Strachan of law firm BLP at this month’s IHIF hotels conference in Berlin.

But investors say there are signs of overheating in some areas, making it more challenging to hit target comes back that are typically around 6. 5 to 7. 5 percent.

That is forcing them to seek out niche categories and jump on new trends such as lifestyle hotels, serving a generation of travellers looking for a hip spot to hang out, not just somewhere to sleep.

Typically featuring smaller rooms, local-themed design and buzzy lounges, lifestyle covers both luxury and budget classes and contains hotels such as Starwood’s W, IHG’s Indigo, Citizen M, and Moxy. Hilton, Best Western and Germany’s Steigenberger are among those recently announcing new brands in this space.

Examples of the genre include the privately owned 25 Hours Hotel in Berlin, where visitors head to a 10th floor bar plus restaurant that overlook the neighbouring zoo.

Liran Wizman, the developer and owner who is opening two W hotels in Amsterdam this year that will be managed by Starwood, told Reuters he had shifted their focus in the past couple of years from mid-scale hotels to lifestyle, which today makes up half his portfolio.

WATCHING COSTS

Prestige ‘trophy’ hotels in metropolitan areas like New York, London and Paris, france will continue to be in demand, executives at the Berlin conference said, as institutions or even high net worth individuals look for assets that will still be standing in 50 years’ time.

Using travellers still keeping a eyesight on costs, the higher yields right now are in the budget sector. Chains for example Marriott say growth in their space numbers will be mainly at the economic climate end.

“There’s the shortage of good quality economy product, I think we’ll see more build in that sector, ” Patrick Fitzgibbon, senior vice president development, European countries & Africa at Hilton, informed Reuters.

Consultants Christie + Co suggest those searching for higher yields should consider southern European countries such as Portugal, Italy, Greece plus Spain, where budget hotels can account for up to 58 percent associated with supply and where assets are usually in need of some work. In a survey, it said prime hotel yields can vary between 14 and 18 percent in Greece.

Another consultancy, HVS, said high prices in cities such as London and Paris were leading investors to look at hotels in smaller cities and cities. That is especially noticeable in Britain, where occupancy prices and revenue per available space in cities such as Manchester plus Edinburgh have been rising as consumers take more mini-breaks.

“ASSET-LIGHT”

The top quality hotel groups have been moving to an ‘asset-light’ strategy in recent years, leaving this to others to own the hotel real estate, while they manage all of them under franchise or lease contracts.

Property giant Jones Lang LaSalle predicts $68 billion dollars in hotel real estate transactions within 2015, a 15 percent enhance on 2014, and the best season since 2007.

Of this around $24. 7 billion is certainly expected to be invested in Europe, the Middle East and Africa, with United states and Chinese investors set to function as the major drivers.

“Yields are coming in and are relatively lower from a historical perspective, but still provide a premium to general and commercial real estate, ” Marc Socker, MD hotel fund management at Invesco Real Estate told Reuters.

Invesco has 31 hotel assets worth $1. 5 billion within Europe, accounting for 20 % of its total European real estate assets under management.

Socker said the premium could be close to 100 to 150 basis factors, as a result of operating agreements that permit investors to assume different amounts of risk.

According to a written report by HVS, investment volumes within European hotel real estate rose 83 percent in 2014. Investors from North America, looking increasingly at European countries as prices rise at home, made up 26 percent of the total investment decision on the continent, up 13 percent points from 2013, it stated.

Even Qatar Air passage is getting in on the act, announcing the purchase of the Sheraton Skyline at Heathrow airport, which it is going to rebrand as the Oryx, as part of the airline’s plans to expand in travel-related business.

Chief Executive Akbar Al Baker told Reuters in the ITB travel fair in Berlin last week he was in talks intended for properties in two more locations and expected a return on investment decision of at least 10 percent.

(Additional reporting by Simon Jessop in London; Editing by Mark Trevelyan)

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