According to the research report 'Spotlight Hotels: Chain reaction results in five-star prospects' published today by international real estate advisor Savills, prime yields for hotel investments decreased twice as fast (-450 bps) since 2014 compared to office (-250 bps) or logistic investment returns (-225 bps) in the Netherlands. In 2019, investor interest in the Dutch hotel market will continue to grow. Savills explains this continued growing demand with the following four factors: the ‘search for yields’, sustainable growth in visitor demand, strong brand performance with long-term leases and a regulation of supply through policy.
The ‘search for yields’
Yield contraction in the Dutch hotel investment market is understandable considering current market dynamics, where the ‘hunt for yields’ has prevailed amongst all real estate asset classes. However, the pace of this contraction for hotels is particularly noteworthy, with current prime hotel investment yields now reflecting those achieved in more conventional commercial real estate products such as offices. However, the yields in Amsterdam are now expected to stabilise, as there is limited room for further contraction.
Sustainable visitor growth
Over the past five years, the Netherlands has seen an annual visitor growth rate of 7%, with the majority of visitor growth being generated from domestic tourism, neighbouring markets and the US. The Dutch hotel market shows a healthy balance of business (37%) and leisure (58%) hotel guests. Amsterdam still attracts the largest number of visitors, and other nearby Dutch cities such as Utrecht and The Hague benefit from this increasing number of visitors.
Whilst a mere 20% of Dutch hotels are brand affiliated, branded hotels account for almost 60% of all Dutch hotel rooms. In 2017 the number of international brands operating in the Netherlands increased by 11.5%. Furthermore, of the eight new brands to enter the Dutch market over the past two years, seven were international. Operational efficiency and stability, in combination with long lease agreements has led to a rise in interest from widening range of investors.
Policy interventions command the playing field of hotel supply
As with other types of real estate, the market for hotels is substantially influenced by policy intervention such as for example the restriction of new hotels developments in Amsterdam. Despite this ban, a total of approximately 3,500 rooms will be added in Amsterdam in 2019 and 2020. Despite these additions, demand is still ahead of supply. This is having an impact on other Dutch cities such as Utrecht, Rotterdam and The Hague who are experiencing an unprecedented rise in hotel developments and investment activity.
Bas Wilberts, Director Alternative Investment at Savills in the Netherlands, says: “The compressed yields, visitor growth (resulting in higher occupancy rate, average daily room rate and revenue per available room), strong international brand performance and limited developments ensure that the Dutch hotel market will retain its core hedging ability in the future, resulting in an increase, and diversification of investor interest.”