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News Release

London

Hotel pricing to more closely reflect market conditions in 2010

According to Jones Lang LaSalle Hotels


London, 8th March 2010 – For the second year in succession, hotel transaction volumes across EMEA experienced a downward trend falling 61% to €3.1 billion in 2009 representing less than a fifth of the peak volume achieved in 2007 (€21.4 billion).  The UK, typically the leader for hotel investment across the region, was the hardest hit achieving only €391 million which was significantly down from the €2 billion invested during 2008, and the €7.6 billion peak in 2007. France witnessed the largest level of investment with €708 million, while Spain and Germany followed with €359 million and €338 million respectively.

During 2009, hotel values across major European cities expectedly fell between 20 to 50% according to Jones Lang LaSalle Hotels. However, pricing in some locations remained relatively elevated, particularly for assets in key gateway cities with strong investor demand such as London and Paris. The Stafford hotel in London, for instance, still sold for €86.8 million or almost €830,000 per room.

Mark Wynne-Smith, CEO for EMEA at Jones Lang LaSalle Hotels, said: “The main reason for the stability achieved in pricing during 2009 was a lack of stock. Only a few assets became available while some markets still experienced healthy investor demand. Even in a smaller buyer pool, investors found themselves in a competitive position when attempting to acquire an asset and this positively impacted transaction prices. Moreover, vendors continued to have relatively high price expectations. If buyers typically refused to meet these expectations, the asset was removed from the market, enabling vendors to avoid an actual realisation of the drop in capital value.”
 
Those transactions that did take place during 2009 were generally the result of a few buyers willing to meet vendor expectations creating a perception that hotel values had not fallen as significantly as had initially been expected. This characteristic was further enhanced by a lack of distressed sales in the market.
 
Looking ahead to 2010, Jones Lang LaSalle Hotels expects transacted prices to reflect market conditions more closely and realise the falls in value expected during 2009. Growing stock is expected to reach the market, including cities and regions across EMEA with established high investor demand. This dynamic, combined with an increase in the number of distressed sales, could have an adverse effect on pricing as competition for each asset weakens. 
 
Wynne-Smith concluded: “Although the actual drop in values across EMEA’s main capitals could prove not to be as severe as expected in 2009 due to improving investor confidence and starting recovery of the market, prices will more closely reflect actual market conditions. On a positive note, the growing stock will drive notable growth in the hotel investment volume which is forecast to reach €4.1 billion in EMEA in 2010. In the first two months of 2010, EMEA hotel transaction volume reached almost €700 million, already reflecting a near 25% increase on the volume achieved in the full first quarter of 2009, while the UK has rebounded and currently holds a majority share of 29%.”