Hotel investment continues to lead among European property sectors for 2012
European hotel performance continued to cement itself within institutional real estate investment by outperforming commercial all property in 2012 with a 6.3 per cent total return, in local currency terms.
That is according to the IPD Pan-European Hotel Performance Report, launched by IPD at Expo Real in Munich.
The report, sponsored by Invesco Real Estate, provides further evidence that the hotel sector is an attractive asset class when compared to other real estate asset classes, offering investors a relatively secure and stable income, both in the short and long-term.
Mark Clacy-Jones, vice president and head of core research, IPD, says: “The results reflect the consistently strong performance of European hotels compared with other commercial sectors, with an overall return of 6.3 per cent in 2012 against the 4.3 per cent for IPD pan-European commercial real estate, in local currency terms. Over the past three years, hotels have returned 6.7 per cent pa while all commercial property returned 6.3 per cent pa.”
Comparatively, bonds returned 13.5 per cent (JP Morgan) and equities 16.4 per cent (MSCI), over the same 12 months to December 2012.
Within the hotel sector, mid-market and budget hotels continued to outperform luxury hotels across Europe in 2012. European budget hotels returned 6.5 per cent in 2012, closely followed by mid-market hotels with 6.0 per cent, compared with 4.1 per cent for luxury establishments, expressed in local currency terms.
European hotels with variable leases also performed well in 2012, outperforming those with fixed and hybrid leases, as they had done in each of the previous three years. Variable leases allow rents to adjust to demand, and are therefore likely to outperform when market conditions are improving. Variable lease hotels returned 7.3 per cent in 2012, as against 4.6 per cent for fixed leases and 4.4 per cent for hybrid leases.
Marc Socker, senior director, hotel fund management, Invesco Real Estate, says: “Hotels’ typical long-term lease contracts underpin income stability, while the strong partnership between owners and operators/tenants tends to secure and enhance the underlying real estate value through regular re-investment into the properties on an ongoing basis, without the loss of rental income during refurbishment periods.”
By country, France was the strongest-performing European hotel market in 2012, with a total return of 14.6 per cent, having been the second strongest performing national market in 2011 after the UK.
The IPD Pan-European Hotel Performance Report covers 505 hotels, valued at EUR11.4bn in total at the end of the 2012. This year’s report includes hotels in Switzerland and Netherlands for the first time bringing the total number of countries covered to 11.
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