Asian capital is alive to hospitality opportunities in Europe, as the asset class beats out once mighty rivals such as office real estate. “Factors such as price elasticity and significant returns have made up for the risks, the shortage of debt and high interest rates,” says Camil Yazbeck, chief development office, premium midscale & economy at Accor Management. He adds: “We can see a lot of institutional capital, but also private equity and family offices really focusing on Europe. And I believe 2024 will be a great year for Europe’s bounce back.”
The Accor executive notes that while asset classes such as offices suffered a 60 percent fall in deal volumes during 2023, hospitality deals only declined by 18 percent. “As an asset class, hotels are absolutely brilliant at delivering returns to the investor.”
European window
For investors like David Ling, global head of hospitality investments, City Developments Limited (CDL), European deals have been on the table for a while. “We started investing in the hospitality sector around 30 years ago, including Europe. Today I would say we are 40 percent in Asia, 30 percent in Europe and 30 percent in the US.”
Yet he describes the current set of circumstances as a particular “window of opportunity”, comparable to the years after the Global Financial Crisis. “Just as in 2013, 2014, we see this as a time when we can come in and acquire and be a bit more proactive,” he confirms. “We do like to be first movers if we can, but we can never get it right completely.”
However, the firm recently closed on a deal for the Hilton Paris Opera which Ling calls “an example of where we were maybe not the earliest, but we felt that the market was right”. He notes that CDL’s Asian peers are also active in Europe, “from Archer Capital to GIC, with some deals of note”.
Deals increasing
Sabine Schaffer, co-founder & CEO Europe, Pro-invest Group, puts the current increase in dealmaking down to a number of factors. “We are seeing a few more transactions now is because compared to last year, the huge spread between bid and ask is starting to narrow, and become more realistic in Europe from a price expectation perspective.
“As a result, without taking on awful lot of risk you can easily make core plus returns without over-leveraging either.”
Yazbeck suggests that European hotel occupancies have not yet reached their peak, with a couple of major traveller groups not completely “back”. “I believe that the performance of the hotels will become much better, especially when the Asian and US travellers fully return. Are we ready for the Chinese travellers? Not really, but we know we need them and we know we want them. Take Singapore – there are so many Chinese going there and the average rates have gone up like there’s no tomorrow.” He notes that the imminent Olympics Games in Paris is likely to represent another touchstone for France’s “great relationship with China”.
He adds that the dynamics are not confined to Europe alone, with Asia displaying comparable fundamentals. “Last year, we had one of the best years ever in Asia in terms of signings, openings and development. Our brands chime with the Asian community and have a significant legacy appeal, from Pullman all the way to Novotel.”
Beyond hotels
For Ling, too, global growth is the way to go, noting that the “Korean market is also waking up”. He adds that CDL is taking a slightly broader approach to beds as well, looking beyond just acquiring hotels for its current strategy. “Europe wise, we are not just investing hospitality, we're also going into student housing and build to rent. We are actually constructing big projects in Liverpool, Manchester and Birmingham as well.”
It's an area of interest for Schaffer, too. “There's a bit of a blurred line between hospitality and living now,” she says. “So for us as well, we are making a number of products in the kind of core living space which is close to the extended stay model, but also helps solve a residential issue that’s present in a number of countries – the fact that there's just not a lot of residential stock out there.”