Southern Europe, particularly Italy, is attracting significant interest from investors and according to experts, this interest is only set to grow moving forward as more destinations in the country continue attract international attention.
Speaking exclusively with Hospitality Investor, stakeholders across the sector paint a bright picture of the future of hotel investment into the country ahead of the Italian Hospitality Investment Conference (ITHIC) 2024.
Annual transactions growth
Marco Comensoli head of Hotels & Leisure at Colliers Italia notes that while annual investment into Italy’s hotel sector has been at around the €1.5 billion mark over the past few years, this is set to grow, predicting that investments will surpass €2.5 billion annually from 2025.
“Italy is transforming itself into a more quality driven destination and investment will grow rather quickly as people get more familiar with the local market and all the administrative processes. Using Rome as an example, we’re seeing some activity with international brands, local players, and modernization of the product – Rome is a good example of what Italy will be in the next five years as a lot of new destinations are developed,” he explains.
Budget hotels
Eric Besancon, global head of M&A at B&B Hotels agrees that a lot more investors are starting to get more interested in the hospitality segment, adding that budget hotels are set to grow due to the resilience of the segment especially in difficult periods where budget constraints mean travellers need to trade down from 5-star or 4-star hotels.
“Many investors, including those who were more office-focused, are now getting more interested in hotels as an asset class,” he says.
This comes following recent reports that private equity companies including KKR, CVC and PAI Partners have tabled offers to buy B&B from Goldman Sachs which bought the hotel chain for €1.9 billion in 2019 and earlier this year, started seeking to sell it for €3.5 billion.
Luxury
But the budget segment is only a small part of the story as the luxury segment is one that has seen, and continues to enjoy growing investor interest. The segment is currently living “la dolce vita”, with Gruppo Statuto, Extendam, Coima – which is exploring the creation of an Italian luxury hotel operator - and Oaktree just a few names in the list of those making moves.
And they’re not the only ones. Carlos Ortega, senior director, head of corporate global development at Palladium Hotel Group says Palladium and ECE Real Estate Partners are actively pursuing other capital cities in Europe, especially Italy following their signing of a 20-year contract for the operation of the Bonvecchiati Hotel in Venice by Palladium’s boutique lifestyle brand Only YOU Hotels.
“We have a strong growth plan for Italy and expect to be expanding in the next two to three years”, noting that the company is also open to partnerships with other investors,” Ortega says.
He adds: “We see potential in Rome, Florence, Sicily, Sardinia and Puglia as well which is very interesting especially for the luxury market. We’d like to be in Milan. Even smaller islands like Ischia could be interesting for us.”
This growing interest in smaller/emerging destinations is echoed by Comensoli. “Puglia is a good example of a destination which is growing and getting more international attention in terms of resorts. Other destinations include Costa Esmeralda, Taormina and Sardinia.”
He notes that investors are currently exploring luxury deals in destinations such as Lake Garda, the Alps and the Dolomites, adding that Ostuni is one of the most sought-after locations at the moment.
“Luxury is very popular and I see good luxury lifestyle positioning becoming more popular in several destinations,” Comensoli says.
Positively, he adds: “Generally, hotel stock in Italy is quite old so introducing a new product in any destination means that straightaway you have a competitive advantage compared to the others. I think that is another great opportunity.”
ESG
But a big challenge for interested investors in the Italian market remains the complexity of entry due to many hotels being privately-owned and passed down through generations.
However, Besancon says the growing focus on ESG in hospitality real estate could help drive consolidation in the sector, noting that smaller independents many find it financially challenging to fund improvements and meet ESG regulations.
Comensoli agrees, stressing that all stakeholders – operators, investors, guests - are getting more and more keen on ESG not just around the building but also around the operation of the hotel. “It’s becoming more and more relevant.”
And this may aid consolidation in the Italian market. “ESG will drive some of the smaller independents to sell to bigger chains. The vast majority of hotels are still independent hotels so there are a lot of hotels which we can take over and renovate,” Besancon says.
He adds B&B is also considering expanding in the extended stay segment, with the aim to grow initially in France and potentially expand into other EU countries.
“We have a few extended stay properties in France and if it goes well, we could explore extended stay in other countries in the EU. Investors are telling us that they would like to go into extended stay with us and we’re seriously considering it.”
With growth expected across budget and luxury developments – and everything in between – as well as a keen focus on ESG, it seems Italian real estate is poised for a renaissance.