London – March 28, 2022 – Europe’s hotels saw a recovery in values in 2021 buoyed by cost efficiencies, strong demand in the second half of the year and continued investment interest, according to the annual European Hotel Valuation Index published this week by global hotel consultancy HVS.
The report indicates a 5% average improvement on values compared with 2020. The fact investors maintained their interest in hotels during the pandemic has held values fairly steady, particularly in properties with good potential and in strong locations driving demand for deals that are realistically priced. There was no real volume of distressed sales coming to the market and, as trading prospects improved, this was reflected in the value recovery across all markets.
In valuations of 130 hotels across 33 European cities, the HVS research reveals that around 60% saw a value decline of between 5% and 15% in 2020. In 2021 more than three-quarters of these properties saw values increase, with the ones that didn’t mostly being those undergoing refurbishments involving periods of closure.
“Markets that saw stronger value recoveries in our research were gateway cities, which experienced increased demand from the summer of 2021 onwards, or those that were well placed to benefit from domestic leisure demand,” commented report co-author Mathilde De Bona, an analyst with HVS London. “Strong investor appetite for the hotel sector remains, as the amount of unallocated capital is still at record levels and interest rates are relatively low,” she added.
“Hotel performance in the first half of 2021 was hammered by the pandemic but, from the summer onwards the relaxation of travel restrictions gave way to a remarkable pick-up in demand in a number of markets up to the arrival of the Omicron variant in November.”
The fact operators have learnt to adjust their operations and improve efficiencies, coupled with an improvement in RevPAR in 2021, prompted a return to profitability for many hotels, albeit modest. However, inflationary pressures, rising energy costs and the scarcity of talent began to impact performance in the second half of the year.
This year’s HVI highlights the adoption of an appropriate ESG (environmental, social and governance) policy as vital for hotel operators and owners, which is now increasingly central to every financial transaction. Adapting to the scarcity of labour is another key challenge with hoteliers urged to become more creative at enticing talent through tailored training, offering an improved work-life balance for staff and more diverse career prospects.
“A fundamental change in image, a more flexible approach to work and the increased use of technology will be needed to bridge current staffing gaps in the sector. This will have the benefit of improving RevPAR, profitability and ultimately helping to maintain values,” added De Bona.
“Given the right circumstances demand bounced back after the lockdowns and severe travel restrictions at a faster pace than even the most optimistic of use would have imagined,” concluded report co-author Nikola Miljković, an associate with HVS London. “The case for hotel investing remains as strong as ever and while new challenges have emerged, such as the Covid variant Omicron and now the war in Ukraine, it is comforting to see the hotel sector’s resilience in the face of these multiple obstacles.”
A copy of the full Hotel Valuation Index by Mathilde De Bona and Nikola Miljković can be downloaded here http://www.hvs.com/
