HVS London Presents

2008 European Hotel Valuation Index: European Hotel Values Fall in 2008 – But Not Everywhere 2008 European Hotel Transactions: Is the Party Over?

March 11, 2009 The London office of HVS has released two significant reports, each valuable to hospitality industry owners and developers. The annual survey and review of European hotel value trends, the Hotel Valuation Index (HVI) shows that on average hotel values across Europe, measured in euro, showed the first annual fall in value since 2003. However, hotels in five cities increased value with Geneva hotels leading the way with 17% growth. At the other end of the scale, hotels in Riga fell in value by 28%. It seems the market is returning to property investment fundamentals with location again becoming the deciding factor.

According to HVS Director and survey co-author Tim Smith, although London has lost top spot to Paris as the most expensive city in which to acquire a hotel, much of the change in value is currency driven.

“The impact of currency fluctuations has had a dramatic impact on hotels throughout the year, which shows in the end of year values. For example, 11% of the 23% fall in value in London’s hotels is due to the devaluation of sterling against the euro,” he noted. Smith also observed that many commentators would have been expecting a fall in value across the board this year, so it is re-assuring that some key markets have shown continuing growth.

“The difference between the top performing cities and the bottom has never been so dramatic and demonstrates investors returning to safe havens in times of trouble,” Smith added.

Ms. Adamantia Phoca, an associate director of HVS and fellow co-author, stated that 2008 will be remembered as the year that started strongly but slowed throughout the 12 months.

“Until Autumn 2008, hotels were trading well and values were upheld; however since then both have fallen sharply. It will be interesting to monitor both trading performance and values throughout 2009,” she noted.

The authors also commented that the availability of both debt and equity financing and realistic pricing expectations are keys to when a recovery in hotel values occurs.

“While values may continue to suffer in the first part of 2009, there are an increasing number of investors who expect to see year-on-year growth for Q4,” Smith continued. “Whether the return to a positive trading performance needs an increase in US corporate spending or a quarter of GDP growth, and when that happens, will be interesting to see.”

Phoca also noted that investors and operators now have the opportunity to evaluate the markets in which they would like to operate and potentially acquire opportunities for significantly less than they may have expected.

“Cash is very much king, but with historically low interest rates, any funding which is available is now more affordable. Assuming some owners will want or will have to sell, for those investors able to move quickly, 2009 could prove to be a very exciting year.”

Click http://www.hvs.com/Jump/?f=2817.pdf&c=3806  to download your complimentary copy of the 2008 European HVI. (You will need to have Adobe Reader installed on your PC.)

The European HVI has tracked trends in hotel values in key regional markets since 1993. The survey covers upscale hotels in 36 gateway cities across Europe. Copies of the HVI 2009 report are available free of charge from HVS, 7-10 Chandos Street, London W1G 9DQ, and its website: www.hvs.com.

Tim Smith
Tel: +44-20-7878-7729;
Mob: +44-77-2578-1043

Adamantia Phoca,
Tel: +44-20-7878-7754

Mob: +44-77-2578-1041;

The London office of HVS is also pleased to announce the release of 2008 The European Hotel Transaction Report, reflecting the single asset and portfolio hotel transactions. The huge reduction in deals compared to previous years is the most dramatic ever recorded by HVS.

According to HVS London Managing Director Russell Kett, “After the boom years of 2005, 2006 and 2007 with transaction values of €16 billion, €20 billion and €19 billion respectively, for many the party never seemed to end. However, in autumn 2008, ‘Meltdown Monday’ triggered the financial crisis that halted an already slowing transaction market in Europe, leaving people wondering if the party is now over.”

“Investor confidence suffered as debt financing remained scarce and expensive which, combined with either high yield requirements or the ‘wait and see’ approach of investors, led to a huge drop in transaction activity in 2008,” commented Report co-author Saurabh Chawla, Associate Director at HVS London.

“In 2008, transaction volume plummeted to a mere €6 billion, which represents a two-thirds drop in investment activity. Just over €3 billion worth of portfolio transactions were recorded in 2008, down three-quarters on the previous year,” he added.

The changing nature of hotel buyers in 2008 was characterized by co-author Elke Geieregger, a senior associate at HVS. “In contrast to 2007, when we saw an increase in large-scale investment made by private equity funds, as hotel operators moved away from asset ownership, 2008 witnessed the return of small and budget hotel operators as buyers, as well as an increase in activity from institutional investors and real estate investors.”

Charles Human, managing director of HVS Hodges Ward Elliott, added that, towards the end of 2009 and into 2010, HVS expects to see an upturn in activity as operating markets stabilize, increased liquidity returns and prices reduce either as a consequence of owners needing to sell or banks foreclosing.

“We anticipate that when activity does return, it will be strongest in the core European markets, such as the UK, France and Germany,” Human continued. “There will be a flight to quality and generally less appetite for emerging markets, where risk premiums have become inadequate relative to higher yields which are now becoming available in Europe’s established markets.”

** A complimentary copy of the 2008 European Hotel Transactions Report can be downloaded at http://www.hvs.com/Jump/?f=2818.pdf&c=3807. (Note that you will need to have Adobe Reader installed on your PC.)

The 2008 European Hotel Transactions Report provides an ongoing history of hotel sales from 2000, discusses the largest portfolio transactions in 2008, identifies the year’s top buyers and sellers and provides a listing of sales that occurred in 2008. Copies are available free of charge at www.hvs.com.

Saurabh Chawla
Tel: +44-20-7878-7708

Mob: +44-77-2578-1038

Elke Geieregger
Tel: +44-20-7878-7747
Mob: +44-79-1224-0964

Russell Kett
Tel: +44-20-7878-7701
Mob: +44-78-0241-1142

About HVS: Founded in 1980, HVS is a full service hospitality consultancy providing specialist industry skill and knowledge from 26 offices worldwide, including market and financial feasibility studies, valuations, strategic analyses, development planning, and litigation support. Additionally, HVS specialist divisions focus on executive search, investment banking, brokerage, asset management, management contracts, environmental sustainability, timeshare consulting, food and beverage operations and restaurant valuation, interior design, gaming, operational management, convention facilities consulting, marketing communications and investment consulting. Principals and associates of the firm have written textbooks and thousands of articles regarding all aspects of the hospitality industry