The rising appeal of hotels

With fixed leases becoming less common, investment strategies for annuity funds are evolving to adapt to a shifting landscape. Institutional capital is navigating this change by embracing dynamic leasing models and exploring alternative investment avenues, significantly impacting operators and the broader investment environment.

A sunny outlook for the hotel sector

The hotel sector is set for a positive year in 2024. CBRE forecasts that revenue per available room (RevPAR) will grow in the latter half of the year, reflecting a strong post-pandemic recovery. Investors are increasingly confident in the resilience of hotels as a robust asset class.

Andreas Löcher, head of investment management operational at Union Investment Real Estate GmbH, notes that hotels have demonstrated their resilience and remain a prime focus for future investments. Elsa Tobelem of Hova Hospitality adds that the RevPAR increase since 2019 has outpaced European inflation, with hotels effectively managing costs through price adjustments.

More than half of hotel investors surveyed by CBRE Hotels Research plan to increase their investments in 2024, a sentiment echoed by Savills, which predicts significant growth in European hotel investment volumes. Deka Immobilien, for instance, has grown its hotel portfolio to approximately 90 properties, now comprising 10% of its assets under management. Frank Hildwein, head of hotel acquisitions and sales at Deka, anticipates this proportion will continue to rise, emphasizing hotels' sustainability and crisis resistance.

Louise Burney from Legal & General Investment Management (LGIM) has observed accelerated demand for operational real estate. She identifies hotels as particularly attractive due to the maturity of management agreements, with LGIM planning to increase its investment in operational real estate by £150-300 million over the next few years.

Stimulating Investment

Investment approaches have evolved post-pandemic, with increased operational scrutiny and a shift toward lease structures that share risks and rewards with operators, such as turnover or profit-based leases. Transparency in operational numbers, including EBITDA, is now a critical requirement for investors.

Current market conditions, including interest rates and stock availability, remain challenging. Investors are waiting for interest rates to fall or yields to rise to stimulate investment. Conversion opportunities are becoming more attractive, although new developments are still viable under the right conditions.

Environmental standards are also a key consideration, with investors seeking assets that enhance their carbon footprint profiles. Hildwein emphasizes that any new acquisitions must surpass existing environmental performance standards.

These insights were shared by industry experts at the International Hospitality Investment Forum EMEA, highlighting the evolving investment strategies and the rising appeal of hotels in 2024.

Written by Nadia Elise Khamis - Commercial Manager, RG Hospitality Management.

(Key sources: https://www.hospitalityinvestor.com/investment/why-hotels-are-more-popular-ever-investors-2024)