According to Savills latest European hotels trend report, emerging European tourist cities such as Dublin, Lisbon and Madrid and alternative operating structures such as non-leased operating structures offer higher yielding opportunities for those investors willing to take on more risk.
Richard Dawes, director in the Savills hotels team, comments: “Our latest research shows that the European hotel market is now a much more mature and liquid asset class than a decade ago with one of the broadest buyer pools in the real estate industry. As yields continue to compress in many of the core markets such as Paris, Amsterdam, London and the big German cities, those who are willing to move up the risk curve in emerging tourist cities and non-leased operating structures are seeing some attractive yield arbitrage.”
European hotel transaction volumes remained high in 2018, exceeding those of 2017 according to RCA. Cross-border investors made up the lion’s share of transactions, accounting for 65.4% of total volumes in 2018, outstripping the 10 year average of 54.9%.
Marie Hickey, director in Savills research team, says: “Expanding consumer spend on experiences such as holidays by European residents, alongside global growth in international travel, highlights the robust demand fundamentals that exist for the European hotel market. Inbound tourist arrivals globally reached 1.4 billion in 2018, according to the World Tourism Organisation UNWTO. Arrivals to Europe accounted for more than half of this, totalling 713 million while increasing 6% compared to the year prior – cementing Europe’s position as global leader in terms of inbound travel and increasing accommodation requirements.”
According to Savills, while well-established tourist cities such as London and Paris account for a sizeable share of international arrivals it is the smaller emerging cities that are reporting the strongest growth. Lisbon, Bucharest, Budapest and Prague have all reported strong growth in airport arrivals over the last three years alongside increasing interest levels as indicated by travel-related Google searches. This has been largely reflected in operational performance, albeit strong operational performance in 2017 and subsequent stock growth in some markets has generated some headwinds to RevPAR performance in 2018.
Larger tourist markets such as Madrid and Amsterdam, which feature in the top 20 growth markets, have also benefited from continued interest levels and improved connectivity. For investors, this growth alongside higher yields relative to more mature cities is likely to prove attractive for those looking for higher yielding opportunities.
Download the full report here