Amsterdam remains hot spot for European hotel investment for fourth consecutive year

• Paris overtakes London to second place, whilst Edinburgh holds on to UK top spot outside of London, according to annual Deloitte survey of hospitality industry leaders;
• 65% of investors are positive about the long-term future of the UK hotel market, despite 34% believing it will hit a downturn in the next six to 12 months;
• Hotels remain the most attractive asset class for investment in 2020, but most investors predict cost pressures could hit profitability.

The Dutch capital of Amsterdam remains the top destination for hotel investment for the fourth year running, according to Deloitte’s 2019 European Hotel Industry Survey. The findings, based on the responses of 111 senior figures in international hospitality, are revealed ahead of this week’s European Hotel Industry Conference in London.

The French connection
34% of investors ranked Amsterdam the most attractive European city for hotel investment in 2020. Whilst the survey revealed no change at the top, Paris has climbed to second place (29%), superseding London as it slips to third (28%). Lisbon (26%) and Madrid (20%) follow, respectively, collectively making the top five destinations in Europe for hotel investment.

Andreas Scriven, head of hospitality and leisure at Deloitte, comments: “Amsterdam retains its dominance as an attractive European city for investment and, for a fourth consecutive year, remains unrivalled. Increased demand and steady tourist supply, bolstered by the arrival of new, and direct, transport links from other European cities is set to see investment continue into next year.

“Investors have also taken a greater shine to the City of Light as Paris placed second in attractiveness amongst investors. As tourists continue to flock to the French capital’s cultural attractions, and the most visited museum in the world, so too will investors as demand on the city’s hotels increases.”

The countries believed to be on the greatest upturn include Greece (54%), Portugal (54%), and Spain (43%).

Scriven explains: “The Mediterranean remains highly sought after due to continued demand and rate growth. Both brands and concepts are encouraging investors to diversify into the leisure component of the hotel market. Greece, Portugal and Spain are the largest and more liquid leisure markets and we expect continued interest into 2020”.

In the UK, Edinburgh topped the list of cities most attractive to investors (41%) for the sixth year in a row. Cambridge (34%) retains its place in second, whilst Oxford (32%) replaced Manchester (24%) in third position as it slipped to fourth.

Scriven states, “Despite strong incoming supply in the Edinburgh market, investor appetite remains resilient. Whilst demand may soften in the year ahead, the city is positioned well for a rise in future visitor numbers.”

Have we reached ‘peak Brexit’?
Macroeconomic uncertainty continues as 66% of those surveyed believe the UK is either already in a downturn or expect one within the next six to 12 months.

Scriven comments: “On the face of it, that the majority believe a downturn is either here or anticipated this year could be alarming, but it could also suggest that we have reached the peak of Brexit uncertainty. Fewer expect the UK’s departure from the EU to have an impact on London hotel investment, but sentiment for the wider UK tells a different story.”

Whilst 42% believe that Brexit will not impact hotel investment in the UK’s capital, 68% feel regional cities are less attractive for investment as a result; up three percentage points from last year.

Economic headwinds to impact profitability
The findings also indicated mixed predictions between London and the regions. The majority of investors believe that revenues per available room (RevPAR) will be negative (39%) or flat (26%) in the regions over the coming year with over half (53%) expecting positive (1-3%) RevPAR growth in London.

Whist these disparities exist, both London and the regions will face the same challenges over the next year, with 47% citing a lack of economic growth as the top risk to the UK hotel industry over the next five years. Profitability is likely to take a hit with 57% anticipating gross operating profit per available room (GOPPAR) to be either flat or negative in London in 2020, a sentiment rising to 76% for Regional UK cities.

Nikola Reid, director and head of UK hospitality advisory at Deloitte comments: “It is a very mixed position across the UK and while overall performance is positive, one only has to scratch away at this surface to see a thriving capital city and a struggle in the regions. Trading performance in London remains strong despite significant additions to hotel supply and the capital continues to benefit from a broad range of demand generators and the weakening of the Pound Sterling.

“In the regions, however, there are much larger variances in performance between markets, due to the pace of growth slowing down and the changing landscape of supply in key locations suppressing rates. While a weaker pound continues to support inbound and domestic leisure travel, the same cannot be said for corporate demand. There are also clear concerns as operational cost pressures continue to chip away at profit levels at hotels.”

In terms of pricing, the survey found that 53% of investors expect multiples of 15x or above for London and 67% anticipate multiples of 12x or less for the UK regions.

Reid notes: “London is a gateway city, there is limited stock on the market and as such, yields are still tight. In the regions, some key markets will continue to attract investors though there are very few large-scale transactions available. That said, there are a number of portfolios still to transact and we expect investors to either hold and consolidate through the cycle or exit once there is further clarity around macroeconomic uncertainties.”

In terms of asset class, investors identified hotels (31%) as the most attractive asset class for investment in Europe in 2020, followed by serviced apartments (20%) and hostels (17%), respectively.

Scriven concludes “Despite concerns around the economic outlook, investors remain optimistic on hotels as an asset class, pointing to positive demand fundamentals (71%) and yield profile (46%) for the year ahead.”

End

Note to editors

About the research
Deloitte’s European Hotel Industry Survey 2019 is based on responses from 111 senior hospitality figures from across the world, including owners, lenders, developers and investors. Respondents answered a series of questions on the European hotel investment market to ascertain their views of key trends and how these will shape the industry in 2019 and beyond.

More information about the European Hotel Industry Conference can be found here.

About Deloitte
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