London has been replaced by Amsterdam as Europe’s most attractive hotel investment destination, according to research by business advisory firm Deloitte. A survey of more than 100 senior hospitality industry leaders signifies that Chinese and North American investors are expected to dominate the European hotel investment market in 2017.
Nearly two-thirds (62%) of respondents forecast China to provide the largest source of inbound investment into Europe, up from 51% last year, followed by North America (46%).
More than a third (34%) ranked the Dutch capital as the most attractive hotel investment destination in Europe. London (32%) had held the top spot for the last two years. Barcelona (28%) and Dublin (24%) followed.
Following 2015’s bumper year for hospitality mergers and acquisitions, the number of deals in 2016 has been more subdued. Nevertheless, hotel executives are optimistic about the investment opportunities that lie ahead, with 34% believing that the European investment cycle is 12-18 months way from peaking. Close to 60% of respondents see disposals and consolidation as prominent investment themes in the next year.
More than half (52%) of hotel investors cited geopolitical instability in Europe as their number one concern for 2017, followed by deflation and lack of economic growth on the continent (47%). Only a quarter were worried about the UK’s decision to leave the EU, with the various European elections scheduled for 2017 generating greater unease (37%). With these concerns in mind, one-third of respondents cited the budget segment of the market as being the most attractive for investment in 2017, followed by the upscale (24%) and midscale (20%) segments.
For the third year in succession, industry leaders have named Edinburgh (47%) as the most attractive hotel investment destination in the UK outside of London, closely followed by Manchester (46%, up from 40% last year) and a resurgent Birmingham (22%, up from 9%).
In Europe, respondents believe that the Scottish capital is now as attractive to investors as the likes of Rome and Lisbon.
However, slowing economic growth (66%) and increased employee costs (52%) are the principal concerns in the UK regions, followed by the fallout from Brexit (42%). Two-thirds (64%) believe that owners will focus on improving profitability as part of a 2017 strategy.
Despite these concerns, half of industry leaders expect regional UK revpar growth to be between 3%-5% in 2017, and more than a third of respondents (38%) expect to see multiples of 10x, with 20% expecting pricing to be higher at 12x or more.
Nikola Reid, director in Deloitte’s hospitality advisory team, said: “It is reassuring to still see clear signs of optimism. Investors from China and North America are likely to capitalise on the weakness of sterling and still see the Continent as offering potential. Despite initial uncertainty in the immediate aftermath of the Brexit vote, we have recently seen a rejuvenation of interest from foreign capital driven by their appetite for income and the opportunity to capitalise on sterling’s depreciation.”