Hotel Online  Special Report

European Hotel Transactions 2003
Country Analysis

CANADIAN LODGING OUTLOOK
February 2004 Year-to-Date


The Canadian Lodging Outlook is a joint monthly publication 
of Smith Travel Research and HVS International, 
Vancouver and Toronto, Canada
.
By: Philippa Bock and Bernard Forster, HVS International - London, U.K.

International's London office has published a review of the European single asset transactions during 2003. This article provides a general overview of transactional activity during 2003 for the European hotel market.

Single Asset Transactions by Country

For the first time in the HVS transactions survey, the Spanish single asset hotel investment market has succeeded in outperforming the UK. In 2003, Spain recorded a total of 28 qualifying transactions totalling approximately €880 million, some 27% of total transactional activity, compared with 27 qualifying transactions for the UK, totalling approximately €780 million. Other European countries with publicly available sales activity included Germany (9 transactions), Ireland and Sweden (6), France (3) and Italy, the Netherlands and Portugal (2).

Despite a challenging period for the European hotel industry, with the majority of cities experiencing a decline RevPAR, the hotel investment market in 2003 has been relatively robust, as investors took advantage of factors such as a low interest rate environment, the continued availability of debt finance and counter-cyclical opportunities. Furthermore, the strong level of single asset hotel investment during 2003 underlines the increased recognition of hotels as a real estate class for a wide range of investors.

The total number of rooms transacted in 2003 increased over 2002 levels by over 50%, equating to approximately 18,700 rooms. The Spanish market has been the most liquid, with over 7,200 rooms transacting during the year. Much of the country's investment activity comes as a result of the fragmented market, with independent owners seeking to dispose of their interests.

The UK, which has historically been the most liquid investment market, experienced buoyant activity, but failed to match the performance of 2002. Investor interest remains strong but, with few distressed sales and owners weathering the depressed trading environment (helped by low interest rates), there have been fewer quality assets available on the market.  Nevertheless, the single asset investment activity, in terms of the number of transactions, in a number of the main European markets, such as Germany, France, Italy, Ireland and the Benelux countries, recorded a sizeable increase in transaction activity by rooms sold and investment volume in 2003. This is due partly to opportunistic buyers taking advantage of the market during the declining and/or bottoming out of the cycle, but also more significantly due to the availability of finance, thanks to the increased transparency as a result of the euro.

Meanwhile, the Eastern European investment market continued to weaken, with no transactions recorded, either by HVS or made public, for major markets such as Prague or Budapest. Eastern European markets are still considered to be high-risk environments and, while many markets are considered to have strong performance potential for the future, investment levels within this region are somewhat hindered by lower loan to value ratios, often higher interest rates, and, in markets such as Warsaw and Budapest, a high level of new supply. Nevertheless, investor interest is expected to increase in 2004 and beyond, as the expansion of the European Union and the eventual introduction of the euro is likely to reduce somewhat the countries risk factors.  In today's market, factors such as the desire to gain increasing international presence, a common currency such as the euro, new sources of investment capital and the underperformance of the stock markets have all influenced the European hotel investment market. In addition, the cyclical nature of the hotel industry has helped nurture the investment levels witnessed in 2003, despite the lack of quality products available in certain markets.

The total sales volume of single asset transactions in 2003 outperformed the performance of the previous year by 44%, rising to approximately €3.1 billion. This impressive level of activity confirms the belief of investors that the European hotel operating markets are approaching the end of a decline and will benefit from counter-cyclical opportunities.

The average price per room paid in 2003 of approximately €175,000 is approximately 1% lower than the average price per room paid in 2002 and 3% lower than 2001. The fall in the average price per room paid is correlated with the operating performance of the European hotel industry. The terrorist atrocities of 11 September 2001, the war in Iraq, the outbreak of SARS, the prolonged economic slowdown of the Eurozone economies and the weakening US dollar have all contributed to a challenging operating environment and these factors have been factored in to the sales price. In addition, the average price per room is affected by the market positioning of those hotels transacting, with the majority of single asset transactions in 2003 being mid-market hotels. However, a number of quality hotel assets also exchanged hands, which somewhat elevated the average price per room.

Quality hotel asset transactions in 2003 achieving a high price per room included the Marriott Champs-Elysées in Paris, Skibo Castle in Scotland and the Royal Crescent and Cliveden Hotels in the UK.
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.Source: HVS International Research
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Note: The transaction price for the Marriott Champs-Elysees is confidential, and we have therefore estimated the average price per room in France for 2003.

Cross-Border Activity

In 2003 approximately 75% of acquisitions took place within the buyer's country of origin, compared with 85% the previous year. Hotel investment is increasingly becoming a global affair and this trend is set to continue.  Hotel operators seek to build a dominant global presence; meanwhile, quality hotel assets have become a more mainstream asset class, and as such there is an increasing inflow of capital from both debt and equity sources. Cross-border deals in Europe are also facilitated by the euro, as it has allowed greater transparency and increased the pool of potential lenders and investors seeking to invest in European markets.

Conclusion

The European hotel industry during 2002 and 2003 has had to cope with a number of exceptional and unprecedented events. These trials have highlighted the volatile nature of the sector, with the majority of hotel markets experiencing sharp declines in RevPAR. Such circumstances have impacted upon the level of total hotel investment activity during 2002, with a modest recovery made in 2003.

Nevertheless, a number of impressive and interesting deals have completed, resulting from opportunistic investors seeking to acquire strategic assets during a depressed market in anticipation of a resilient restoration of most market's fortunes in the next few years.

The liquidity of the hotel markets within Europe is quite different; however, with the advent of the euro and the lack of available quality products in the traditionally strong hotel investment markets, there has been a rise in cross-border activity by both lenders and investors. With many European cities now positioned at the bottom of their trading cycles, this is likely to stimulate an increased level of investment activity. Consolidation is anticipated to continue, with operators progressing their drive towards global representation. With respect to specific hotel markets, we consider that both Spain and the UK will remain strong investment markets. Meanwhile, other European markets of interest include Germany and Italy. While Central European markets may spark investor interest, the cautious approach currently adopted by lenders may result in fewer transactions in this region, unless the asset is of high quality, with a strong cash flow and within an established market that is not expected to witness significant supply growth in the foreseeable future.

CANADIAN LODGING OUTLOOK
HVS INTERNATIONAL - CANADA
February 2004 Year-to-Date

February 2004
Year to Date
Number
of Rooms
Occupancy Rate 2004 Occupancy Rate 2003 Average Room Rate 2004 Average Room Rate 2003 RevPAR 2004 RevPAR 2003 Room Supply % Change Room Demand % Change
Nova Scotia Area 1,515 38.8% 41.7% $71.54 $73.00 $27.26 $30.44 0.8% -6.2%
Halifax, NS 2,077 48.5% 51.7% $105.79 $102.57 $51.31 $53.03 0.0% -6.0%
Montreal, QC 14,880 50.5% 53.0% $126.07 $127.98 $63.67 $67.83 0.0% -4.6%
Quebec City, QC 3,871 49.0% 54.6% $116.06 $118.72 $56.87 $64.82 1.0% -9.4%
Quebec Area 3,490 47.9% 47.0% $87.44 $82.47 $41.88 $38.76 0.0% 1.8%
Toronto Downtown 12,244 54.3% 55.3% $134.82 $139.22 $73.21 $76.99 -3.2% -4.9%
Toronto North/East 6,838 49.2% 47.8% $109.29 $106.74 $53.77 $51.02 0.0% 3.0%
Toronto Airport/West 6,514 69.8% 70.8% $111.09 $111.82 $77.54 $79.17 -6.5% -7.8%
Ottawa, ON 7,536 54.6% 57.0% $124.27 $124.28 $67.85 $70.84 2.0% -2.2%
Ontario East 3,861 41.8% 42.9% $88.07 $84.59 $36.81 $36.29 0.1% -2.5%
Ontario Southwest 8,213 51.5% 52.6% $96.66 $93.16 $49.78 $49.00 1.7% -0.5%
Ontario North 5,512 44.2% 49.4% $85.47 $83.87 $37.78 $41.43 0.1% -10.4%
Niagara Falls, ON 7,182 31.7% 35.1% $93.35 $89.02 $29.59 $31.25 4.6% -5.6%
Ontario Central 8,014 49.4% 52.4% $99.91 $97.42 $49.36 $51.05 2.4% -3.5%
Winnipeg, MB 3,845 51.5% 48.8% $87.50 $87.83 $45.06 $42.86 0.0% 5.6%
Regina/Saskatoon, SK 3,728 52.7% 56.2% $90.32 $86.82 $47.60 $48.79 -0.2% -6.5%
Calgary, AB 5,247 49.4% 51.2% $111.69 $110.61 $55.17 $56.63 -0.8% -4.4%
Edmonton, AB 5,642 57.7% 57.0% $97.62 $96.26 $56.33 $54.87 1.6% 2.9%
Alberta Area 8,178 51.8% 52.6% $90.24 $86.72 $46.74 $45.61 2.1% 0.6%
Mountain Regions, AB 1,745 53.5% 51.5% $183.72 $166.69 $98.29 $85.85 0.2% 4.0%
Vancouver, BC 13,219 50.5% 48.5% $106.35 $107.33 $53.71 $52.06 0.3% 4.5%
British Columbia Area 8,811 49.2% 51.3% $165.47 $170.22 $81.41 $87.32 1.0% -3.1%
Victoria, BC 3,010 47.8% 44.6% $87.52 $87.34 $41.83 $38.95 0.2% 7.4%
Provinces
Alberta 20,812 52.9% 53.3% $105.50 $103.58 $55.81 $55.21 1.3% 0.6%
British Columbia 26,358 49.4% 48.7% $122.54 $125.48 $60.53 $61.11 0.8% 2.2%
Manitoba 4,231 51.4% 49.0% $86.23 $86.67 $44.32 $42.47 0.0% 4.9%
New Brunswick 2,714 45.8% 49.3% $90.39 $84.96 $41.40 $41.89 1.2% -5.9%
Newfoundland 1,521 52.2% 49.0% $104.45 $99.14 $54.52 $48.58 0.0% 6.6%
Nova Scotia 3,592 44.4% 47.2% $93.19 $90.87 $41.38 $42.89 0.5% -5.3%
Northwest Territories INS INS INS INS INS INS INS INS INS
Ontario 64,809 50.4% 52.3% $109.64 $109.59 $55.26 $57.32 0.4% -3.4%
Prince Edward Island 889 36.2% 30.8% $68.55 $61.75 $24.82 $19.02 0.0% 17.4%
Quebec 23,346 49.8% 52.4% $118.85 $119.29 $59.19 $62.51 0.1% -4.7%
Saskatchewan 5,085 48.5% 51.4% $85.46 $81.44 $41.45 $41.86 -0.1% -5.8%
Yukon Territory 221 INS INS INS INS INS INS INS INS
Canada 153,578 45.7% 47.1% $96.16 $95.10 $43.95 $44.79 0.5% -2.5%

 
Contact:
Selina Lai
HVS International – Canada
2120 Queen St. East, Suite 202
Toronto, ON M42 1E2
(416) 686-2260, ext 21
(416) 686-2264 FAX
slai@hvsinternational.com
www.hvsinternational.com

Also See 2003 an Unbelievably Strong Year for US Hotel Sales / Canadian Lodging Outlook - December 2003 Year-to-Date / February 2004
2003 Canadian Hotel Transaction Survey / Canadian Lodging Outlook / January 2004
2002 Canadian Hotel Transaction Survey / Canadian Lodging Outlook / Feb 2003
How To Get The Best Sales Price; Positioning Your Hotel for Sell / Stephen Rushmore / Canadian Lodging Outlook - July 2003 YTD / September 2003
Lodging Market Impact of Hosting Olympic Winter Games; Will Salt Lake City Experience Apply to Vancouver and Whistler? / Canadian Lodging Outlook - June 2003 YTD / August 2003
Year-to-date Occupancy through April is 50.4% for all of Canada / Canadian Lodging Outlook - April 2003 YTD / June 2003
SARS and Its Impact on Tourism in Toronto / Canadian Lodging Outlook - March 2003 YTD / May 2003
Hotel Values in Europe - Current Trends / Canadian Lodging Outlook - December 2002 Year-to-Date / Feb 2003
2002 Canadian Hotel Transaction Survey / Canadian Lodging Outlook / Feb 2003
Performance Clauses Essential In Hotel Management Contract / Stephen Rushmore / Canadian Lodging Outlook / Dec 2002
Separating the Hotel Looker From the Hotel Buyer / Stephen Rushmore / Canadian Lodging Outlook / Sept 2002
Making The Ideal Hotel Investment / Stephen Rushmore / Canadian Lodging Outlook / Aug 2002
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2001 Canadian Hotel Sales / Canadian Lodging Outlook / Jan 2002 
The Effect on Capitalization Rates and Discount Factors After September 11 / Canadian Lodging Outlook / Dec 2001 
So How Bad Was September for Canadian Hotels.. Pretty Bad! / Nov 2001
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Does Supply Generate Demand? / The Canadian Lodging Outlook / May 2001 
Optimism With a Hint of Caution, As Analysts Predict a Softer Year for the Canadian Hotel Industry / Mar 2001 
Limited-Service Growth in Canada - Where’s it Going? / The Canadian Lodging Outlook / January 2001 
HVS Canada in Review - Year End 2000 / The Canadian Lodging Outlook / March 2001 
Canadian Lodging Outlook / May 2000 Year to Date Statistics / HVS International - Canada / July 2000 
The Rule of Thumb Method...Does It Still Hold Weight? / Elaine Sahlins - HVS / Oct 2000
What’s Hot and What’s Not in Western Canadian Hotel Markets / Mar 2000


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