Hospitality’s compelling fundamentals are expanding the investment horizon for the asset class, with increasing numbers of investors shifting allocations towards hotels in Europe.
Speaking at this year’s Expo Real, Chris Brett, managing director, capital markets, EMEA at CBRE said that hotels’ “durable income” was convincing ever more funds, while the resulting liquidity from deal flows would further help institutionalise the asset class. “Historically, the most traded part of the hospitality sector was the five star, high end luxury segment. But now investors are looking at all the niches, even assets like motels, which were somewhat unfashionable.
“The durable income profile of hotels means that a Premier Inn can be as compelling as a Four Seasons today.” He added that budget hotels, often representing a simpler formula that could be scaled, has also opened investor eyes to the sector’s potential.
Brett added that travel and tourism volumes meant that hospitality could only grow further. “The desire to stay in hotels is far greater in the world today than it has been historically,” he noted. “People used to look forward to their two weeks of summer holiday annually – now they’re planning five or six breaks throughout the year.” He added: “The subsequent expansion in hotel supply is what attracts the growth in capital looking at the sector, and in turn creates a diversity of capital.”
Diversification play
Swedish real estate company Nrep recently inked a major hospitality deal in a sign that a broader swathe of investors is eyeing the asset class. Carl-Adam von Schéele, head of Sweden at Nrep, said: “Nrep’s core focus remains on the logistics and residential sectors but we continuously explore compelling investment opportunities across other asset classes that capitalise on emerging trends, regional dynamics, and supportive market movements.”
The deal for the Clarion Hotel Stockholm, one of the city’s largest hotels, was made via NSF V, Nrep’s €3.65 billion value-add fund. The property has 532 rooms spread over 23,700 square metres of lettable area, and includes bars, restaurants, a spa and gym, as well as meeting and conference rooms.
Von Schéele added: “The Stockholm hotel market has seen limited new development in recent years, making established properties highly sought-after. This acquisition was driven by the hotel’s prime location, substantial size, strong tenant demand and untapped potential.”
The property is leased long-term to the Nordic region’s second largest hotel operator, Strawberry, which von Schéele said aligned with Nrep’s vision for the property’s future. “The hotel already offers an attractive immediate return, being income-producing from day one.
“On a broader scale, the outlook for the Nordic hotel market is very positive. Room rates have returned to pre-pandemic levels, supported by an inflationary price uplift and rising leisure and foreign demand.” He added that room rates were lagging behind European capital cities and would provide further upside potential for the Nordics.
Bid-ask spread issues
Joaquin Castellvi, head of European acquisitions and founding partner of Geneva-headquartered real estate firm Stoneweg said that hospitality remained very much on the firm’s radar, while it continued to pursue expansion in living and logistics. Earlier this year, Stoneweg inked a deal to acquire the European fund management platform of APAC-headquartered investor Cromwell, with a view to diversifying geographically and in terms of asset classes. Cromwell’s focus on logistics and offices, mostly in northern Europe, would complement Stoneweg’s southern European and Swiss strengths, Castellvi said. Yet “a belief in hospitality remains”, he said. “We are heavily working on sourcing deals, if not off-market, then at least in a more creative way. Southern Europe has been a bit overheated post Covid, and we still see a gap between what we are willing to pay and what sellers are asking for.” Earlier this year, the firm saw an opportunity to sell a hotel in Barcelona, but has plans to be accretive in the near future.
Furthermore, a strategic leisure focus was also crystalising, Castellvi said. “We closed on wave parks in Madrid and Birmingham, and are just waiting on a license for the latter. We are currently analysing three different plots to enlarge that strategy, to create a portfolio of four to five wave parks across Europe.” He added: “We have seen encouraging signs around this strategy. There is an acceleration of everything connected to experience and lifestyle. Investors are ready to allocate capital to these themes.” He also said that “infrasports”, unique builds dedicated to leisure, was an interesting area which Stoneweg hoped to explore beyond wave parks.
Looking beyond Germany
Henning Koch, CEO of Commerz Real, the asset management arm of Germany’s Commerzbank, said that hospitality remained an enduring theme in the current, complex investment environment. He said that “around 10 percent of Hausinvest” - the manager’s huge open-ended fund comprising nearly €17 billion of properties - “is exposed to hospitality”.
For Koch, the current macro environment has created pessimism around the German market, “which is no longer seen as a safe haven for international investors”, although opportunities remain. In terms of hotel investments, Commerz Real has two institutional funds focusing purely on hotels; one has a global remit and is invested in Europe and Australia, while another Europe-focused fund is backed by Deutsche Hospitality, the parent company of Steigenberger Hotels & Resorts.
“We love hotels – it’s a really important component in our portfolio,” Koch underlined. “We have a really great team of experts to manage this area.” Beyond hospitality, Koch said that Commerz Real was aiming to “stick to what we have done in the past and stick to our expertise”. He added: “The US is seeing plenty of challenges, particularly around the office sector. Germany and Europe remain our home market, where we want to focus on the major gateway cities.” He added that today’s macroeconomic environment represented “a new normal. The years 2018 and 2019 were anomalous really. Now, capital is available, liquidity is there, and it’s just a matter of matching funds to the right assets.”