GLOBAL property agent Jones Lang LaSalle believes the global hotel investment market is likely to have peaked last year as a result of an unprecedented number of transactions as the credit crunch continues to hit debt-driven buyers.
A report from the agent shows that global hotel transactions rose 56 per cent to $113bn in 2007, although this figure was boosted by a series of huge deals of more than $600m - such as Blackstone`s acquisition of Hilton for $26bn.
The onset of global credit problems in the second half of the year saw volumes fall back and Jones Lang LaSalle predicts that continued pressure on the availability and cost of debt will result in a significant slowdown in transaction activity in 2008.
In the Financial Times, the agent says that other property sectors are likely to take less of a hit from the current troubles in the financial markets.
"The general M&A market is reported to have slowed down around 40 per cent following the subprime crisis, whereas hotel transaction activity has slowed just 17 per cent compared to the same period in 2006," said Arthur de Haast, global chief executive of Jones Lang LaSalle Hotels.
Mr De Haast said that yields - the sum of rent and capital value - had already started to fall, and he believes this will continue until the third quarter of 2008, when he expects the market to start picking back up again.
"More expensive debt and lower loan-to-values will undoubtedly slow the investment market, especially in the US and Europe," the report says, "but there is a wide variance of opinion as to the degree that this will occur."
The hotel sector should benefit from its position as a favoured investment for less-leveraged buyers, such as sovereign wealth funds, high net worth private investors and real estate investment trusts, according to Mr de Haast
But revenue growth is predicted to be slow, so hotel groups will need to keep the cost of inflation under control to avoid problems.
The Blackstone purchase of Hilton significantly boosted last year`s transaction activity. If that deal was to be excluded, the market recorded a 20 per cent year-on-year growth.