Colliers EMEA Hotel Investment Market (2013 Q3)

Research & Forecast Report

EMEA | Hotels 2013

EMEA – Hotel Investment Investment Market Update

 Appetite for hotel real estate in the EMEA region continues to strengthen Increasing interest is particularly noted in the cities of Munich Munich,, Frankfurt and Vienna and in Poland as a whole. Te strong hotel investment trends in Paris and London are also forecast to continue

Investor expectations for the forthcoming year are positive Our sentiment survey showed positive expectations despite challenging times currently leading to difficulties in obtaining financing

More joint ventures in Africa are expected  With informal institutions institutions being predominant predominant in Africa Africa it expected that foreign investors are most likely to continue to seek joint ventures to enter and expand their portfolios. Sub-Saharan countries countries are of particular interest

Middle East investors continue their interest in cross-border investments rophy assets remain highly desirable

Transaction volume is increasing  otal transaction volume for 2013 is expected to exceed 2012. Institutiona Institutionall investment is set to represent the the majority of transactional volume in the near future

Contents  Appetite for Hotel Hotel Real Estate Estate in the EMEA Region

3

Hotel Markets across the EMEA region

5

 Western  W estern Europe

5

Middle East and Africa

6

Movements in the Hotel Market

Investment Volume

2

EMEA – Hotel Investment Market Update | 2013 | Colliers International

7 7

Appetite for Hotel Real Estate in the EMEA Region In the past 3-4 years hotel real estate has been attracting increasing interest from investors in the EMEA EME A region, as illustrated by the increasing investment volumes and the high number of cross border investors in this segment. In cooperation with the MBA program of Les Roches Internatio International nal School of Hotel Management, Colliers International has conducted a survey among leading investors across the region to gauge the sentiment in the hotel investment market. ogether with data and market interviews the latest trends and sentiments on the hotel market have been analysed in this report.

GDP growth

 With almost €8 billion in hotel transactional activity activity across the EMEA region for the first three quarters of 2013, total transactional activity in the region is expected to exceed the €8.3 billion transacted in 2012 before the end of the calendar  year.. In general, investor sentiment is positive for the next  year 12 months. Te majority of investors in hotels are actively looking to expand their portfolio in EMEA, with a focus on developments. Recycling of capital is the main reason that investors are considering selling hotel properties. Most investors believe capitalisation rates will remain the same over the next 12 months while only a few think there will be an improvement. With the operating component of hotels requiring knowledge and understanding of the link between hotel performance and their investment, hotels are considered riskier than the straightforward nature of other commercial real estate. Additionally, the type of lenders in this sector are tied to market conditions, resulting in shifts in the debt sources ultimately impacting the activity and the profile of investors. Most investors expect that debt will be less expensive in the next year in the region, with the exemption of the regions of Southern Europe and Africa.  As investor sentiment and rising transaction transaction volume show positive momentum in the short term, this does not mean that worries for the Eurozone are over. Te macro-economic environment has only recently shown recovery with a growth of GDP in Q2 2013 of 0.3%, Germany G ermany being its main driver. Te national debt in the Eurozone area is still rising fast and countries in Southern Europe face high unemployment rates and austerity measures. measures. In Northern Europe we have have seen economic recovery, but also these countries have taken austerity measures to comply with European demands. Economic growth forecasts by the IMF for the aforementioned regions are as follows: FORECAST

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EMEA – Hotel Investment Market Update | 2013 | Colliers International

Hotel markets across the EMEA differ and are highly dependent on macro-economic prosperity and, at a local level, on tourism arrivals. Eurostat - yearly recording the number of overnight stays – saw arrival numbers between 2007 and 2009 fall by an average of 2.2% in the European Union. Although there  were countries that saw increases increases in hotel tourism, this was dominated in the nights spent by domestic visitors, reflecting the substitution of trips abroad for holidays in their own country. Between 2009 and 2011 there was an overall increase of 4.0% of hotel nights per year with Eastern Europe regions showing the greatest increases. Colliers International forecasts this trend of increasing hotel nights t o continue across Europe due to the growth of world tourism as international tourist arrivals are expected to increase by more than 50% until 2030 (UNWO, 2013). Middle East and Africa are are expected to double their arrivals by 2030. Following the World ourism Organisation, arrivals in emerging countries in the EMEA region are forecast to grow 4.4% a year until 2030. Tis is double the pace predicted for advanced economy destinations. Investors in hotels are advised to also focus on these regions as arrivals are expected to exceed those in advanced economies by as soon as 2015. In 2030, 57% (compared to 30% in 1980) of international arrivals are expected to be in emerging economy destinations.

UNWTO - International Tourist Arrivals International Tourist Arrivals Received (million) ACTUAL DATA

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PROJECTIONS

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4

EMEA – Hotel Investment Market Update | 2013 | Colliers International

Hotel Markets across the EMEA region  A number of key countries countries and cities within the EMEA region are highlighted highlighted in the following section.

 Western  West ern Europe

its cultural value, the city of Paris continues to be one of the primary tourist destinations. It recorded about 32 million domestic and foreign visitors per year in 2012. Te Paris region accommodates guests in more than 110,000 rooms, a third of  which are in the 4 and 5 star category category and about a third in the 3 star category. Hotel transactions increased by €0.3 billion and resulted in €1.6 billion ytd. Tis is mainly due to the sale of the Concorde portfolio and the Mandarin oriental transaction. Germany is on the radar of international hotel investors. For the next 12 months investors’ main focus is on Frankfurt, Hamburg and Münich. Other cities that are of interest are Berlin, Düsseldorf, Cologne and Stuttgart. From these seven cities Münich is the best performer with an ADR of €123 (up 2.4% in 2012) and a RevPar of €92 (up 11.5% in 2012).

ransaction volume in Germany increased significantly over the last two years. Due to the construction of additional hotels, portfolio properties currently in the pipeline and a few larger individual deals, it is expected that transaction pace will continue. Tere is also an increasing interest on the part of German institutional investors. Tey are mainly focused on long term lease contracts, as when structuring hotel real estate funds they are restricted by law to invest in lease or hybrid contracts. Semi-institutions are allowed to sign management agreements but often restrict themselves. In Germany this is resulting in lower LVs. LVs. An example is the Hotel Real Estate Fund of Internos, with initial equity of €75 million of 4 German Institutions concentrating on hotels with stable trading in Germany and the Netherlands with a LV of 40%.

Te UK hotel market has suffered l ess from the economic climate compared to other European countries due to the London Olympics in 2012. Te prospects for growth for the next two years are positive; forecast at 1.9% in 2014 and in 2% in 2015 (IMF, (IMF, 2013). In 2012, partly due to the hosting of the 2012 Olympics, nearly 8,000 bedrooms were added and new supply was at its highest for a decade. A further 5,000 rooms are set to open by the end of this year. year. It is expected that occupancy will fall just below 80% meaning a decline for the third year. year. Although the ADR is also anticipated to decline, by approximately 1% by year-end 2013, rates averaging almost £137 (€162) are still high by any city standard. Te decline in Investors focus is also on Amsterdam, the prime market of RevPar can be explained by the steep 6.5% increase in hotel the Netherlands. Te city planned to add 9,000 rooms in the rooms in the capital in 2012 (PWC, 2013). However However,, this RevPar period of 2007 – 2015, including 1,000 rooms in the city centre. level is still 18% higher compared to 2009. Although market By December 2012 approximately 62% had been completed. performance is set to decline this year, the investment market  With the current developments, the Amsterdam Amsterdam market is still still has shown to be resilient during declines of performance in the past. Te appetite for hotel investments is projected to continue. performing well with a stable occupancy of 78% and an ADR of €124 (Hosta, 2013). France recorded an improved RevPar of approximately 7.2% In 2013 (ytd) there is quite an active transaction t ransaction market, mainly (MKG,, 2013) and total (MKG t otal hotel revenues have increased 2% t o focused on trophy assets like the NH Krasnapolsky, the Pullitzer €77 billion in 2012. With the current economic outlook, modest revenue growth is projected. However, as a consequence of and Roommate Aitana.

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EMEA – Hotel Investment Market Update | 2013 | Colliers International

Middle East and Africa Te regions in the Middle East and Africa have historically experienced a diverse range of economic development. Many nations from the Middle East and Northern Africa are still going through political and economic transitions that followe d the Arab Spring in 2011. Despite this change the Middle East and Northern  Africa still recorded an economic growth of about 4.7% in 2012. It must be noted that economic performance was mixed throughout the region with oil-exporting countries having a larger economic growth than non-oil countries and countries with political instability. In line with the economic growth, Africa’s hotel performance is also scattered. Te most interesting places are the sub-Saharan  African countries that have have seen economic growth of over 5% (like Ghana and Nigeria). Also tourism infrastructure is developing at a fast pace. On O n top of this investors have shown increasing interest in Morocco and Mauritius. In Western Africa, Ghana has seen a rise in the demand for quality hotel rooms, given the rapid expansion of the Ghanaian economy bolstered by oil and gold resources. Another city that has caught the interest of investors in  West Africa is Lagos. In general, Chinese investors investors are highly active in real estate and infrastructure investments in the African regions.  Although hotel owners from Middle Eastern Eastern countries are also  visible in Africa, domestic investors investors are still dominant. Te main main reason is that a local network and knowledge of the specific markets is key. As informal institutions w ill be predominant, foreign investors are most likely to seek joint ventures to enter and expand their portfolios. ypically luxury hotel investments are most popular. However factors like political problems and inadequate infrastructure have held back growth in some African regions. An example of a national investor profile profile is the West  African conglomerate ‘eyliom ‘eyliom International’. Tey founded ‘Inaugure Hospitality’ in order to invest €315 million, spread between 15 properties in 13 African countries constructing more than 2,200 rooms. Generally said, Collie rs International expects that for the above mentioned regions growth will continue at the same pace as already experience earlier in 2013. Like Africa, we have seen a relatively good performance in 2013 in the Middle East. Although the performance in the main cities like Dubai, Qatar, Jeddah and Doha is dispersed, region-wide occupancy rates are close to 70%, resulting in an increase in RevPar of 9.5%. Te active hotel development pipeline is estimated to be almost 500 hotels which are mainly classified in t he UpperUpscale segment (30.8%). Tere is little – or no – confirmed forthcoming supply in the branded economy hotel segment, which suggests an opportunity for development in the future. High Net  Worth Individuals from from the Middle East are not solely focused on their own region and are mainly considering cross-border investment in the stable prime markets of Europe with a focus on trophy assets.

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EMEA – Hotel Investment Market Update | 2013 | Colliers International

Movements in the Hotel Market It must not come as a surprise that obtaining finance for hotel real estate investments was easier pre-crisis and the scarcity and cost of debt has been slowing down the number of hotel transactions since then. Along with the introduction of Basel III and the lack l ack of economic growth within Europe, financing has become more difficult, often not recording LVs LVs higher than 60% for hotel real estate. With these changes in the supply of debt, the investors profile has been changing as well. In the EMEA we have seen a shift towards more investments by institutional investors. Most investors are focusing on prime markets in the relatively stable economies in the Western part of Europe. Capital cities such as London and Paris are traditionally considered to be the top prime markets. markets. Amsterdam is also in demand; three hotel transactions have already made it into the top 10 biggest real estate investments for 2013 of the Netherlands. Investor sentiment has proven that the European cities of Frankfurt, Munich and Vienna are also of particular of interest. For investors, Poland is one of the most promising countries in Eastern Europe. Tis is in high contrast to other Eastern European countries, as investors perceive them as a high risk due to economic instability. Tis risk is also perceived for the Southern Europe region. Te investment market for hotels was booming in the pre-crisis  years. In 2007 the transaction transaction volume in hotels amounted to €23 billion in the EMEA region. Since then such levels have not been reached as the investment volumes fell to levels around or below €10 billion. An exception is the year of 2009, when the financial crisis hit the real estate sector hard. Hotel investment  volume only totalled €4.4 billion in 2009. Te year 2012 had a  volume of €8.3 billion. 2013 has started positively as in the first nine months more than €7 billion worth of hotel real estate  was transacted. As an investment investment volume of €1.3 billion was recorded in Q3 of 2013, total year end transactional volume will most likely outperform 2012.

markets such as in the Netherlands (approx. €500 million), Italy (approx.€405 million), Spain (approx. €400 million) and Sweden (approx. €312 million) activity was also recorded in 2013 so far. In Central and Eastern Europe transaction volumes  were lower lower although although there there was activity activity in countries countries like like Russia Russia (€164 million) and Ukraine (€129 million). In the Middle East and  Africa there have only been been a handful handful of deals in 2013 to date. Te graphic below reflects that institutional investors have been more active in the region in 2013 compared to the average of the last five years, taking up the part of the private investors.

Investment Volume Hotels EMEA 2007 - 2013 30

   €   n   o    i    l    l    i    b   n    i   e   m   u    l   o    V

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Investments by type of investors 1% 12%

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Investment Volume  Within the EMEA region there have have been several differences. In 2013 to date Germany has been performing very well  with a large increase of transaction volume. volume. According to figures from Real Capital Analytics a total of €773 million has been invested in hotels in Germany so far this t his year, year, this was boosted by the acquisition of the Queens Moat Portfolio by Fattal Hotel Group of €285 million. Te highest transactional  volumes this year so far have have been recorded in the United Kingdom and France totaling €2.5 billion and €1.6 billion respectively. In both the UK and France the major acquisitions  were done by the Qatar Holding, in London they bought the Park Lane Hotel (€356 million) and in Paris the Concorde Lafayette Hotel (€466 million). Other important European

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EMEA – Hotel Investment Market Update | 2013 | Colliers International

2013 YTD

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2008 – 2013 YTD

Source: RCA

Below you can find the largest single asset deals and the largest portfolio asset deals up to 2013 Q3 in the region. Tese results underline market insights, with a considerable focus on the prime asset class in the t he Western Europe region. Looking at the type of buyers of hotel investments in the past five years it becomes clear that most hotel investments in EMEA are completed by cross-border investors. In 2013 there has been a large volume of cross border activity with institutional foreign investors such as Abu Dhabi Investment Authority and the Qatar Holding buying properties. Tese and other institutional investors accounted for almost half of the transactions in 2013 so far.

 As travel and tourism will continue to increase increase over the coming 10 to 20 years, and diversification of real estate investments is getting more important, interest in hotel investments will grow further. further. In recent years, due to the global economic crisis,

 we have seen a decline in hotel investment appetite. Last Last year however we have witnessed an increase again. More funds have entered the market and also private equity has joined the game following liquid capital markets and interesting hotel investment opportunities. Te hotel business worldwide increasingly modernises and investors trust further stimulates hotel investment appetite. Due to the professionalisation in hotel operations more institutional investors are interested and the hotel investment market shows to be a good alternative to the traditional asset classes. Te e merging markets especially trigger the need for professionalisation in in the industry and stimulate brands in their expansion. Distribution becomes more and more transparent as the internet has turned out to be a game changer in this space. Colliers International expects hotel investments to break records in years to come.

Top Hotel Investment Deals 2013 Investment Room # of volume (€) Price (€) rooms

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United Kingdom

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Park Pa rk La Lane ne Ho Hote tell

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France

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Italia

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United Kingdom

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United Kingdom

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Accor Source: RCA, Colliers International

Top Hotel Portfolio Deals 2013 Country

Portfolio

United Kingdom

Marriott portfolio

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United Kingdom

Principal Hayley portfolio

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France

Club Med portfolio

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Germany

Queens Moat portfolio

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Fattal Hotels

Goldman Sachs Source: RCA, Colliers International

8

EMEA – Hotel Investment Market Update | 2013 | Colliers International

COLLABORATION Tis market report is based on Colliers Internatio International nal EMEA Hotels insights of the hotel market including an investors sentiment survey amongst hotel investors in the EMEA region. Te survey was part of the collaboration between Colliers International EMEA Hotels and the MBA Program of Les Roches, International School of Hotel Management and part of the renowned Laureate Group. We would like to thank our clients for their trust by participating in this research.

Hotel Industry Leaders | Colliers International:

Dirk Bakker [email protected] +31 20 540 5540

Marc Finney marc.fi[email protected] +44 20 7344 6601

Andreas Erben [email protected] +49 30 202 9930

Filippo Sona fi[email protected] +971 4 453 7400

9 EMEA – Hotel Investment Market Update | 2013 | Colliers International

Colliers International

482 offices in 62 countries on 6 continents United States: 140 Canada: 42 Latin America: 20 Asia Pacific: 195 EMEA: 85

€ 1.5

For more information: Kes Brattinga Head of Research [email protected] emea @colliers.com Judith Stapel Hotel Consultant [email protected] emea @colliers.com

EMEA Headquarters 50 George Street London W1U 7GA United Kingdom +44 20 7935 4499 [email protected]

billion in annual revenue

103 million square meter under management

13,500 employees

 About Colliers International International Colliers International is a global leader in commercial real estate services, with over 13,500 professionals operating out of more than 482 offices in 62 countries. A subsidiary of FirstService Corporation, Colliers International delivers a full range of services to real estate users, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. Te latest annual survey by the Lipsey Company ranked Colliers International as the second-most recognized commercial real estate firm in the world. For more information about Colliers International Hotels and th e latest news please visit our website: www.colliers.com/emea website: www.colliers.com/emea/hotels /hotels

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Copyright © 2013 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.