Hotel investors expecting 'decent return' on capital

08-Mar-2016 - Last updated on 26-Apr-2021 at 20:02 GMT

Hoteliers will be expected to provide a decent return on investment

Investment in the UK's hotel sector is predicted to remain high in 2016, but hotel operators will be expected to work hard and secure a 'decent return' on capital, a law firm has warned.

London is expected to see the most M&A activity in Europe in 2016, with investors still looking to part with their cash despite rising prices, according to the results of the European Hotel Market Survey by international law firm Berwin Leighton Paisner.

However, hotel operators fear they will be expected to work hard for investors with 72 per cent of respondents stating their belief that hotels are perceived as ‘more risky’ than other types of commercial property investment.

Karen Friebe, BLP Hotels group partner, said: “Our experienced owner clients are emphasising that now is the time to proactively manage hotel assets and engage with the operators to ensure a decent return on capital. As one client quoted in the survey says, this is not the market for passive asset collectors."

Franchising and sharing

While pressure to find returns is underlined, the survey of more than 200 people from within the hotel sector found that many are positive about its success with 77 per cent of hoteliers predicting an increase in RevPAR at Europe’s hotels over the next year, with London likely to see the biggest growth.

Other key trends identified from the survey, released for the start of the latest International Hotel Investment Forum (IHIF) in Berlin, include a focus on franchising, which hoteliers believe will continue to be the most popular source of growth for hotel brands in 2016.

The sharing economy remains a concern among 53 per cent of hotel professionals who see the rise of sites such as Airbnb posing a threat to sub-four star hotels.

The survey also found that members of the UK’s hotel sector are divided over whether Britain leaving the European Union would have a positive or negative impact on trade with 54 per cent believing M&A activity and/or RevPAR would be adversely affected, should Britain exit the EU.

Friebe said: “As well as the new legal challenges that the hotel market will face 2016 , namely the introduction of the EU Data Protection Regulation and the National Living Wage, there is added to the mix this year the potential impact of Brexit, alongside the continuing issues posed by competition from the OTAs and the rate parity discussion.

“Market consolidation is also a topic that is likely to remain in the spotlight throughout 2016 but the majority of our survey respondents did not feel that size is the only way to take on the might of the OTAs. It will be interesting to see how owners and operators continue to seek ways to respond to this challenge in the year ahead.”