HVS’s London office has today released the latest edition of its annual review of European hotel value trends, the Hotel Valuation Index (HVI). The European HVI has tracked trends in upscale hotel values in 36 key European markets since 1993.
This current survey shows that on average hotel values across Europe, measured in euro, showed a fall in value of 13%, the second year in succession the index has shown a decrease in value. On average over the past two years hotel values across Europe have fallen by close to 25%. However, London has bucked the trend and HVS reports a significant growth year on year of 14% in sterling terms (whilst in Euro terms hotels in London showed a growth of only 1%). This follows an 11% fall in value of London hotels in sterling terms last year.
Commenting on the results, survey co-author Tim Smith, a director of HVS, noted that although Paris remains in top spot with hotel values at £547,000, the increase in value in London hotels to £484,000 (£431,000) is welcome. Three German cities, Berlin, Frankfurt and Hamburg, succeeded in containing the second year of decline with falls in value below 2.5%. “Occupancy in central London has increased in 2009, with corporate business largely replaced by leisure visitors. Provided hoteliers can manage the transition back to a more balanced revenue stream they should be well placed to enjoy RevPAR and value growth in 2010,” he noted. “Part of the popularity of the UK, and London in particular, is down to the exchange rate with the Euro, but a significant issue has been the flight to less volatile markets by international investors,” he added.
He also observed that the fall in European hotel values has very much been along geographical lines as much as business reasoning. Those markets which enjoyed dramatic growth in the last few years are the ones which have been suffering the most, as investor sentiment returns to the less volatile and more established markets.
“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,” he added. This is confirmed by marked regional differences, with Western Europe hotels recording an average 8% fall versus Eastern Europe experiencing a 23% decline in hotel values.
Survey co-author Pierre Ricord, also of HVS, commented that operators took the opportunity to review their operational structures, reducing costs to help minimise the impact of reductions in revenue.
“As the year progressed operators reduced not only their variable costs, but also their fixed costs, with nothing off limits. By managing the business expenses the significant falls in RevPAR experienced by most European hotels has not been replicated in a similarly dramatic fall in profitability or value,” he noted.
The authors commented that, whilst further falls in room rates may be suffered in the first part of the year, by the end of 2010 they expect a majority of hotels to have stabilised their operations with several enjoying growth in profit and therefore value.
They also observed that, in 2009, Europe undoubtedly recorded an historical low in volumes of transactions, as prospective buyers were expecting more distressed sales, while owners would not sell at this level. This dilemma was also caused by a credit-dry environment thus increasing the cost of any investment. In 2010, however, provided that debt financing loosens up, it is likely that transactions volumes will pick up and allow investors to seize opportunities at significantly reduced prices and enjoy growth thereafter, they concluded.
The European Hotel Valuation Index 2010 is priced at £250. For a free download click here.
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HVS is the world’s leading consulting and services organization focused on the hotel, restaurant, shared ownership, gaming, and leisure industries. Established in 1980, the company performs more than 2,000 assignments per year for virtually every major industry participant. HVS principals are regarded as the leading professionals in their respective regions of the globe. We are client driven, entrepreneurial, and dedicated to providing the best advice and services in a timely and cost-efficient manner. Through a worldwide network of 30 offices staffed by 400 seasoned industry professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. For further information regarding our expertise and specifics about our services, please visit www.hvs.com
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