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Hotel Values in Europe - Current Trends

CANADIAN LODGING OUTLOOK
December 2002 Year to date


The Canadian Lodging Outlook is a joint monthly publication 
of Smith Travel Research and HVS International, 
Vancouver and Toronto, Canada

 
By: Russell Kett, HVS International - London

The values of European hotels have, on average, declined in the past two years due to two principal factors - the economic downturns in major demand generating countries such as the USA, Japan and Germany, and the aftermath of the horrific events of 11 September 2001. It is sometimes not fully appreciated that hotel values in 2001 were already on the decline prior to the impact of 9/11.

By the end of 2001, HVS International's annual European Hotel Valuation Index report recorded an overall decline in hotel values among the 28 cities surveyed of 2.6%. This should be set against rises of 7.8% in 2000, 2.0% in 1999 and 7.3% in 1998. Even among the 28 cities there were "winners and losers", as shown in Table 1. Generally the decline in values in 2001 was fuelled by a decline in RevPAR (rooms revenue per available room) but this decline itself was caused mainly by a drop in occupancy rather than room rates.

Table 1  Growth and Decline in Hotel Values - 2001

City
Growth
City
Decline
Moscow
16.9
Istanbul
-14.2
Milan
6.6
London
-13.3
Frankfurt
6.4
Hamburg
-9.1
Munich
5.1
Dublin
-8.5
Berlin
3.8
Stockholm
-6.7
Manchester
2.4
Amsterdam
-6.5
Geneva
1.4
Warsaw
-6.5
Vienna
0.1
Paris
-6.4
Source: HVS International European Hotel Valuation Index 2002

London and Paris still head the league table with hotel values, for a typical international quality four-/five-star hotel, of more than €450,000 per room. Hotels in Milan, Zurich and Geneva had a value of more than €350,000 per room, and Rome, Amsterdam and Madrid's hotels were valued at more than €250,000. It is here that we can also put into context the strong growth in the value of Moscow's hotels (17% in 2001) - from such a small base, with values around the €130,000 mark in 2001, just ahead of the average for hotels in Athens. However, with the Olympic Games scheduled to be held there in 2004 it is likely that hotel values in Athens will show more significant growth in the short to medium term, as investors aim to capitalize on the city's worldwide exposure. At the time we prepared our survey of European hotel values as at the end of 2001 (March 2002) we envisaged a modest growth in values for 2002 of 1.3%. However, as the months of 2002 have progressed, it has become clear that, in the case of most cities, hotel performances have failed to improve and, in some cases, have declined further. Usually a decline in RevPAR performance - especially if coupled with either an actual increase in supply or the prospects of one - will cause hotel values to fall.

Table 2 illustrates the range of values per room in each of the 28 cities surveyed as at the end of 2001:

Table 2 - Hotel Values per room 2001 (€)

City
Value
City
Value
London
481,300
Dublin
181,200
Paris
450,300
Frankfurt
177,100
Milan
412,300
Brussels
176,100
Zurich
371,900
Stockholm
175,400
Geneva
355,850
Birmingham
175,000
Rome
277,900
Hamburg
173,200
Amsterdam
275,500
Budapest
166,300
Madrid
249,200
Copenhagen
164,700
Edinburgh
237,700
Vienna
164,300
Munich
234,300
Istanbul
148,500
EUROPE
228,400
Warsaw
147,800
Barcelona
213,200
Lisbon
138,900
Prague
208,400
Moscow
132,100
Manchester
186,900
Athens
129,400
Berlin
181,500
Source: HVS International -European Hotel Valuation Index 2002

So what else influences hotel values? 

On the positive side, the current low interest rate environment, with rates continuing to fall in some cases, acts to reduce yields and improve values. In some cities, hotels have achieved an improvement in RevPAR and there are better prospects for the future, albeit perhaps benefiting from other cities' miseries. This can be helped further by having a strong brand and effective marketing, by an agile and experienced management who can respond quickly to changes in market and operating conditions. All these can help to achieve improvements in a hotel's net earnings and, therefore, act as a positive stimulus to its value. 

However, there are also negative factors that will work to depress hotel values further. In addition to a decline in RevPAR, the current uncertainty surrounding the future prospects for the hotel sector, the reduction by some lenders in loan-to-value ratios and the increased perception of risk by some investors (thereby increasing yields) all serve to depress hotel values. Add to that a concern that significant capital investment may be required and it is not difficult to see where hotel values will have declined.

Despite the somewhat negative picture presented here, there remains considerable interest in the hotel sector from investors keen to take advantage of the underlying strength in demand for tourism generally and the belief that hotel demand will pick up in time. Major transactions have taken place to underline this point, although there have been somewhat fewer in Europe in the past year, following 9/11. There have been some notable single asset sales, such as the Hotel Arts in Barcelona for €290 million (€ 634,000 per room) to a consortium headed by Patron Capital and Deutsche Bank, and 47 Park Street in London for €43 million (€ 810,000 per room) to Orion Capital. However, most of the main transactions have involved corporate deals including several sale-and-leaseback transactions. These include Orb Estates' acquisition of 37 Thistle hotels in the UK for €950 million - 5,454 rooms at an average of €174,300 per room, and Hilton Group's sale-and-leaseback of ten hotels to the Rotch Group for roughly €250,000 per room. 

There seems to be no shortage of potential buyers - and no shortage of cash available - to acquire hotels. Equally so, owners are not under sufficient pressure (yet?) to be forced into making unwelcome disposals and so the bid-ask price gap is still large: buyers are unwilling to pay the prices commanded by the owners. 

So where are hotel values heading? At the time of writing (December 2002) it has never been so difficult to predict future trends. The hoped-for economic upturn in 2002 has really not materialized and prospects for 2003 are not yet sufficiently encouraging for businesses to increase their travel budgets, up their conference attendances, expand marketing plans and so forth. The imminent possibility of a second Gulf War - and the uncertainty over when it could start - adds further fuel to the fire of uncertainty. Most pundits, myself included, feel that it will be the end of 2003 or into 2004 before any noticeable improvement is achieved. The timing uncertainty is exacerbated by the likelihood that conflict in the Middle East and/or continuing terrorist outrages as recently witnessed in Bali and Mombasa will cause serious disruption to travel plans. Thereafter, growth levels ought to be restored and hotel prospects improved but it may well be several years before the record levels of 2000 will be experienced again.

It seems inevitable that hotel values at the end of 2002 will show a decline on 2001 levels, especially where RevPARs have declined. So far, most lenders have held their nerve and, whilst banking covenants may have been breeched, there has not been the spectacular flurry of receiverships and forced sales which were experienced in the aftermath of the Gulf War in 1991. In time, though, as prospects continue to look uncertain, the bid-ask price differential will start to narrow and we may even start to see some distressed hotel sales in Europe, albeit not without a fight first. 

But on the brighter side, there remains lots of interest currently in the hotel sector -especially from private equity funds and Middle Eastern based sources. There are plenty of willing investors and banks have cash - interest rates remain low, yields have generally held steady, and loan-to-value ratios are typically in the range of 60%-70%. 

Shares in hotel companies in the quoted sector are still trading at significant discounts to net asset values, making them an attractive target for corporate raiders. However, as their 2002 year-end valuations are confirmed, it is likely that this discount will - perhaps initially - be reduced. These are choppy waters for the European hotel industry at present and it will be those with the strongest sea legs and experience of the sector who reach their intended port safely.
 

CANADIAN LODGING OUTLOOK
HVS INTERNATIONAL - CANADA
December 2002
Month of December 2002 Number
of Rooms
Occupancy Rate 2002 Occupancy Rate 2001 Average Room Rate 2002 Average Room Rate 2001 RevPAR 2002 RevPAR 2001 Room Supply % Change Room Demand % Change
Nova Scotia Area 1,443 35.2% 36.1% $68.23 $66.67 $24.02 $24.07 0.0% -2.5%
Halifax, NS 2,273 40.1% 36.6% $98.76 $97.72 $39.60 $35.77 0.8% 10.3%
Montreal, QC 15,679 46.2% 45.5% $128.07 $125.07 $59.17 $56.91 0.9% 2.5%
Quebec City, QC 3,590 41.9% 45.9% $111.22 $104.24 $46.60 $47.85 0.3% -8.3%
Quebec Area 3,362 41.7% 40.2% $83.80 $77.60 $34.94 $31.20 0.0% 3.8%
Toronto Downtown 12,377 45.3% 43.8% $135.69 $140.76 $61.47 $61.65 0.0% 3.5%
Toronto North/East 4,099 38.9% 41.7% $104.88 $103.26 $40.80 $43.06 1.6% -5.2%
Toronto Airport/West 4,019 45.6% 45.8% $107.47 $105.96 $49.01 $48.53 0.0% -0.5%
Ottawa, ON 7,615 43.4% 43.4% $118.79 $117.37 $51.55 $50.94 2.7% 2.8%
Ontario East 3,417 32.6% 37.3% $81.40 $77.01 $26.54 $28.72 0.1% -12.5%
Ontario Southwest 8,029 43.9% 43.7% $89.89 $89.95 $39.46 $39.31 0.4% 0.9%
Ontario North 4,771 39.4% 38.7% $84.77 $84.96 $33.40 $32.88 0.6% 2.5%
Niagara Falls, ON 6,686 34.4% 31.8% $100.84 $101.12 $34.69 $32.16 0.0% 8.1%
Ontario Central 13,070 47.3% 46.6% $101.46 $101.95 $47.99 $47.51 4.2% 5.7%
Winnipeg, MB 3,717 46.1% 47.4% $87.31 $84.34 $40.25 $39.98 5.2% 2.2%
Regina/Saskatoon, SK 3,772 40.6% 46.6% $81.05 $79.13 $32.91 $36.87 0.0% -12.9%
Calgary, AB 6,816 43.1% 44.3% $99.99 $99.98 $43.10 $44.29 0.0% -2.7%
Edmonton, AB 5,411 48.4% 54.2% $93.15 $85.57 $45.08 $46.38 0.0% -10.7%
Alberta Area 5,988 41.5% 44.1% $81.98 $82.47 $34.02 $36.37 1.7% -4.1%
Mountain Regions, AB 1,918 51.6% 48.5% $195.98 $168.73 $101.13 $81.83 0.0% 6.5%
Vancouver, BC 12,373 43.3% 42.5% $103.80 $104.19 $44.95 $44.28 1.0% 3.0%
British Columbia Area 4,740 34.4% 34.4% $98.41 $98.90 $33.85 $34.02 1.0% 1.0%
Victoria, BC 2,733 37.6% 38.9% $98.04 $91.62 $36.86 $35.64 -0.7% -4.1%
Province
Alberta 20,102 44.8% 47.2% $103.34 $98.65 $46.30 $46.56 0.8% -4.3%
British Columbia 22,728 42.3% 41.6% $129.05 $125.31 $54.59 $52.13 0.7% 2.3%
Manitoba 4,045 45.3% 46.8% $86.46 $83.47 $39.17 $39.06 3.5% 0.1%
New Brunswick 2,708 38.8% 39.0% $80.27 $78.36 $31.14 $30.56 0.4% -0.3%
Newfoundland 1,245 37.4% 42.2% $92.09 $92.70 $34.44 $39.12 0.0% -11.4%
Nova Scotia 3,716 38.2% 36.5% $87.81 $87.02 $33.54 $31.76 0.2% 5.0%
Northwest Territories INS INS INS INS INS INS INS INS INS
Ontario 63,644 42.7% 42.3% $107.80 $107.88 $46.03 $45.63 1.2% 2.1%
Prince Edward Island 889 23.4% 23.9% $56.99 $55.63 $13.34 $13.30 0.0% -2.3%
Quebec 23,101 44.8% 44.4% $118.86 $114.61 $53.25 $50.89 0.4% 1.3%
Saskatchewan 5,266 38.9% 44.2% $75.56 $74.21 $29.39 $32.80 0.0% -12.1%
Yukon Territory 234 INS INS INS INS INS INS INS INS
Canada 147,678 40.1% 41.0% $107.67 $101.60 $43.18 $41.66 0.8% -1.2%
© Smith Travel Research, 2002. Reproduction or quotation in whole or in part without permission is forbidden. *INS - Insufficient Data

CANADIAN LODGING OUTLOOK
HVS INTERNATIONAL - CANADA
December 2002 Year-to-Date
December 2002 Year to Date Number
of Rooms
Occupancy Rate 2002 Occupancy Rate 2001 Average Room Rate 2002 Average Room Rate 2001 RevPAR 2002 RevPAR 2001 Room Supply % Change Room Demand % Change
Nova Scotia Area 1,443 59.0% 59.7% $81.41 $80.95 $48.03 $48.33 0.2% -1.0%
Halifax, NS 2,273 71.0% 71.8% $116.89 $117.80 $82.99 $84.58 4.1% 2.9%
Montreal, QC 15,679 66.5% 66.0% $138.39 $132.82 $92.03 $87.66 1.7% 2.4%
Quebec City, QC 3,590 66.3% 66.5% $137.37 $131.43 $91.08 $87.40 1.4% 1.2%
Quebec Area 3,362 57.6% 56.0% $89.74 $85.08 $51.69 $47.64 0.5% 3.4%
Toronto Downtown 12,377 68.1% 68.1% $163.38 $166.68 $111.26 $113.51 0.0% 0.0%
Toronto North/East 4,099 58.3% 61.1% $106.14 $108.60 $61.88 $66.35 -1.8% -6.3%
Toronto Airport/West 4,019 65.8% 69.1% $111.52 $111.36 $73.38 $76.95 -0.1% -4.9%
Ottawa, ON 7,615 63.8% 67.5% $125.53 $127.27 $80.09 $85.91 2.6% -2.9%
Ontario East 3,417 56.5% 56.8% $92.22 $89.83 $52.10 $51.02 0.1% -0.4%
Ontario Southwest 8,029 60.1% 58.8% $94.84 $94.43 $57.00 $55.52 0.7% 2.9%
Ontario North 4,771 57.7% 58.2% $98.31 $95.46 $56.72 $55.56 0.4% -0.4%
Niagara Falls, ON 6,686 58.7% 56.4% $124.95 $121.99 $73.35 $68.80 0.5% 4.7%
Ontario Central 13,070 62.2% 65.4% $106.38 $105.31 $66.17 $68.87 4.3% -0.9%
Winnipeg, MB 3,717 61.0% 62.4% $90.95 $91.38 $55.48 $57.02 4.4% 2.0%
Regina/Saskatoon, SK 3,772 59.4% 62.2% $84.55 $81.22 $50.22 $50.52 0.8% -3.8%
Calgary, AB 6,816 64.9% 64.4% $114.14 $113.13 $74.08 $72.86 0.4% 1.1%
Edmonton, AB 5,411 72.9% 66.5% $91.61 $96.29 $66.78 $64.03 0.9% 10.5%
Alberta Area 5,988 58.2% 62.9% $88.45 $84.53 $51.48 $53.17 0.9% -6.7%
Mountain Regions, AB 1,918 67.0% 66.0% $222.75 $212.45 $149.24 $140.22 -3.0% -1.4%
Vancouver, BC 12,373 63.3% 63.2% $134.21 $134.01 $84.95 $84.69 1.8% 1.8%
British Columbia Area 4,740 51.6% 51.8% $87.13 $88.21 $44.96 $45.69 0.8% 0.3%
Victoria, BC 2,733 59.8% 59.4% $127.34 $118.11 $76.15 $70.16 0.0% 0.7%
Alberta 20,102 65.2% 64.8% $113.12 $113.56 $73.75 $73.59 0.2% 0.8%
British Columbia 22,728 59.2% 59.4% $130.24 $129.09 $77.10 $76.68 1.0% 0.7%
Manitoba 4,045 60.6% 62.0% $89.82 $90.16 $54.43 $55.90 3.1% 0.7%
New Brunswick 2,708 62.2% 62.4% $94.30 $90.06 $58.65 $56.20 0.2% 0.0%
Newfoundland 1,245 66.1% 66.9% $106.12 $99.01 $70.15 $66.24 0.0% -1.2%
Nova Scotia 3,716 66.4% 67.4% $104.60 $105.67 $69.45 $71.22 1.3% -0.2%
Northwest Territories INS INS INS INS INS INS INS INS INS
Ontario 63,644 62.3% 63.4% $120.07 $120.49 $74.80 $76.39 1.1% -0.7%
Prince Edward Island 889 51.6% 51.0% $97.01 $91.47 $50.06 $46.65 0.0% 1.2%
Quebec 23,101 64.8% 64.3% $131.18 $125.63 $85.00 $80.78 1.2% 2.0%
Saskatchewan 5,266 56.0% 58.3% $79.08 $76.16 $44.28 $44.40 0.5% -3.6%
Yukon Territory 234 INS INS INS INS INS INS INS INS
Canada 147,678 58.8% 60.3% $109.15 $107.34 $64.18 $64.73 0.9% -1.5%
© Smith Travel Research, 2002. Reproduction or quotation in whole or in part without permission is forbidden. *INS - Insufficient Data



 
 
 
 

Contact:
Kimberley Tyls
HVS International 
4235 Prospect Road
North Vancouver, BC V7N 3L6
(604) 988-9743, ext. 21
[email protected]
www.hvsinternational.com

Also See 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
Reporting In at Six Months..../ Canadian Lodging Outlook / July 2002
The Global Approach To Hotel Valuations / Canadian Lodging Outlook / June 2002
Hotel Insurance Premiums on the Rise? / Canadian Lodging Outlook / May 2002 
Hotel Development Cost Can Determine Feasibility / Canadian Lodging Outlook / May 2002 
Hotel Internet Distribution Channels / January 2002 Month-to-Date Results / Canadian Lodging Outlook / April 2002 
2001 Was a Great Year If You Were in Edmonton! / December 2001 Year-to-Date Results / Canadian Lodging Outlook / Feb 2002 
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
So How Bad Was September for Canadian Hotels.. Pretty Bad! / The Canadian Lodging Outlook / September 2001 
Have Hotel Values in Canada Declined Since September 11th? You Bet They Have / The Canadian Lodging Outlook / August 2001 
The Popularity of Boutique Hotels / The Canadian Lodging Outlook / July 2001 
Rising Energy Costs Cause Concern in the Lodging Industry / The Canadian Lodging Outlook / June 2001 
Niagara Falls: With Supply Comes Demand / The Canadian Lodging Outlook / May 2001 
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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