OPENING UP IN EUROPE
While the Eurozone’s economies send mixed signals, investments in the Continent’s luxury hotels are paying off
Hotel markets in North America, Asia and much of the rest of the world are booming; by comparison, the trend in Europe looks less promising. While the global economy appears to be recovering, the regional outlook for Europe is decidedly murkier. Sentiment about the state of the European economy is improving, but deflation continues to be a risk and current growth is clearly“insufficient,”according to Alexander Börsch of Deloitte Research in his Outlook Q3 2014 report.
The Eurozone, he says, is“sending mixed signals,”and he believes the region’s future performance will depend, in great part, on the effectiveness of the European Central Bank’s (ECB) new monetary policy. Declining productivity growth and an aging population are reducing the ability of Europe’s economy to grow, he says.
However, even in the midst of a muddled economic outlook in Europe, increased demand and higher room rates are still providing the impetus to new hotel growth – particularly among upscale properties. The less than bullish outlook for Europe’s current economic picture doesn’t appear to be deterring European hotel developers.
In June 2014 the number of new hotels under contract increased to 910, totaling 145,244 rooms, according to STR Global’s July 2014 Construction Pipeline Report. The “Under Contract”figure includes projects either“In Construction,”“Final Planning” or“Planning”stages but not projects in an “Unconfirmed”stage.
That doesn’t mean the hotel business Continent-wide is seeing an upswing; some nations are faring better than others. Compared to other hotel markets, STR reports Greater London showed the largest number of rooms under construction with 5,110 rooms. Seven other markets reported more than 1,000 rooms under construction: Istanbul (4,798 rooms); Moscow (3,301 rooms); Greater Amsterdam (2,020 rooms); Hamburg (1,678 rooms); Greater Berlin (1,315 rooms); Greater Munich (1,127 rooms); and Vienna (1,093 rooms).
“Improved economic conditions, falling unemployment rates, rising consumer confidence and an increasing number of hotel transactions at the start of the year all led to investors feeling very optimistic about trading expectations in London,” says George Nicholas, executive vice president of Jones Lang LaSalle’s Hotels & Hospitality team.“Currently the demand for hotel investment product is outstripping supply with investment demand being driven from the USA and Asia.”
“Rising confidence”in the London hotel market was the theme of a Hotel Investor Sentiment Survey released in late August by JLL. Furthermore, investors in hospitality have an“expectation of strong trading prospects”over the next six months to two years. Following London, the survey found investor sentiment to be highest in Munich, Amsterdam and Copenhagen.
Emblematic of investor exuberance in the UK, DoubleTree by Hilton recently celebrated the opening of its latest