Foreign Investors Drive European Hotel Deal Frenzy

Hotel investment levels in Europe reached £21.6 billion in 2006 exceeding all expectations; 37.9 percent up on 2005 and more than doubling the deal volume of 2004.

Despite this steep increase, the number of rooms which changed ownership grew at a slower pace, reflecting a significant growth in average price per room across Europe, says a report by Jones Lang LaSalle Hotels.

Last year the debt markets remained competitive, allowing investors to negotiate attractive loans thus driving hotel real estate prices upwards.

Strong international demand combined with a shortage of stock in prime locations resulted in decreasing yields and started to force investors towards secondary locations in search of more attractive investment deals with lower income growth potential.

Across Europe, private equity houses have continued to hold the lion’s share of total hotel investment in 2006 representing 43 percent, while high net-worth individuals represented 13 percent, property companies 11 percent and institutional investors 5 percent. Hotel groups made up half of all the vendors.