By Christiane Harriehausen

In the new EU member states, investors expect hotel real estate (pictured, the “Palace” in Prague) to have a long-term and continuously positive development.
The Topic at EXPO REAL 2007 Monday, 8 October 2007 SPECIAL REAL ESTATE FORUM Hall C3; 10.00 am – 5.50 pm Hospitality Industry Dialogue For detailed information click here

The huge wave of capital into real estate has helped the hotel market remain bullish. More investors are recognising the interesting growth potentials of this segment, which can only be leveraged by professional managers. It is no wonder that with some capital investors in the past years, the hotel’s image has evolved from a high-risk operator’s real estate, and hotel investment markets around the world have developed dynamically this year as well.

In Europe, particularly in Germany, as well as in Central and Eastern Europe, investor interest in hotel real estate is large. In Germany, in the first half-year of 2007, roughly 1.4 billion Euros were invested in hotel real estate. Now, investors are more cautious in Great Britain. “In London, room prices and the average room occupancy rate remain high, but the growth has slowed down and returns are meanwhile at four percent or even below that. Therefore, the market is more for strategic buyers with a mid- to long-term perspective”, says Christoph Härle, Managing Director of the international real estate consultancy Jones Lang LaSalle Hotels (JLL). Returns have come under pressure in Germany too, but they are, with 5.25 to 6.5 percent, still above other Western European countries. That attracts buyers, of which roughly 90 percent are from outside Germany.

Also in Central and Eastern Europe, particularly in Russia, investors see opportunities. However, meanwhile there are significant differences in the markets. “In Central and Eastern Europe, returns have meanwhile stabilised around six to seven percent. In Russia, there is still a higher risk, so returns are around eight to nine percent”, reports Christoph Härle. Investors in the new EU member states, such as Poland and Czech Republic, expect stable economic and political developments and, in the long term, an overall positive development. Russia, on the other hand, attracts more risk-friendly capital investors. “However, this buyer segment usually does not buy project developments, but only existing properties, and secures their market entrance often through strategic partnerships with local real estate companies and project developers”, says Christoph Härle.

With all these differences, there is one common denominator in all European markets: supply is scarce and demand is still high. Buyers particularly favour portfolios. According to JLL, in the first six months in Europe, hotel portfolios at a total value of roughly 6.5 billion Euros changed owners. Another 2.5 million Euros were spent in individual transactions.