European hotel market: forecast for 2019

European-hotel-marketJLL has published its Hotel Investment Outlook 2019, projecting that the strong levels of cross-border investment into the European hotel market – which reached $4.9 billion in 2018 – will continue in 2019.

Overall investment volumes across Europe, the Middle East and Africa, are expected to soften to $21.2 billion from $22.9 billion in 2018. Despite political uncertainty, tourism and business fundamentals remain solid thanks to strong infrastructure developments in the region, which will continue to attract international investors towards strong assets and opportunities in these markets.

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The report also predicts that the hotel market will be driven mostly by single asset deals, with portfolio trades expected to reduce, given the significant volumes of transaction of this type seen over the past two years.

Key findings

  • Accelerated development activity. Germany and the UK account for nearly 60% of pipeline rooms currently under construction and are expected to absorb additional supply in the medium term due to strong tourism growth forecasts.
  • 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 such as Portugal and Italy.
  • 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.

Philip Ward, EMEA CEO, JLL Hotels & Hospitality Group, commented: “Political uncertainty and the volatility in equity markets will test investors’ sentiment throughout the year. However, we expect hotel investment volumes to hold steady on 2018 levels owing to hotels’ attractive yield profile compared to other sectors.”

Global outlook

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 continue to seek entry into the hotels market given its attractive yield profile.

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