Business management & development
bookings. Nor is the pandemic the only bump on the road to recovery. With the future of the global economy distinctly wobbly, the market for hotels continues to be unclear. Even so, the situation is far from hopeless. Just as other areas of hospitality have recovered from the worst of the pandemic, transaction volume will too, buoyed among other things by a resurgence of in-person events and the possibility for distressed deals as Covid-era support comes to an end. Yet, just as elsewhere in the world of hospitality, challenges will remain. Quite apart from the grim geopolitical forecast, after all, investors may struggle to adapt to a world where customer demands are changing and where ESG is arguably becoming more potent. Knock past these obstacles, however, and buyers could still be in for a treat – with serious consequences for hospitality as a whole.
Holding patterns
Few experts are as well placed to explore the current state of hotel transaction volume as Russell Kett. Joining HVS way back in 1995, the next year he became one of the company’s managing directors. As HVS’s chairman since 2012, Kett is a 40-year veteran of the hospitality industry, boasting experience everywhere from investment and strategy through to asset management and valuation. To put it another way, what Kett has to say is worth listening to – and his basic takeaway is that business is still far from normal. Global transactions “clearly not” back to the situation pre-Covid, he says, adding that he only expects the market to return to 2019 levels by 2024. Certainly, the statistics seem to support these basic reflections. Transactional activity, to give one example, was slashed to around €8.6bn across Europe in 2020. Put another way, that was just a third of the figures seen in 2019. To be fair, the market did rebound strongly in 2021, doubling compared with the dreadful year before, while transactions impacted around 613 assets, altogether encompassing 72,000 rooms. Yet, as Kett explains, these broadly impressive figures belie a latent weakness in the market as a whole. “There isn’t that much actually actively being sold,” he stresses. “What makes a transaction is a willing buyer and a willing seller – and you can’t get a transaction unless you’ve got a combination of both. So a lot of people, I suspect, are thinking ‘well maybe I’ll try and hold out for a little longer’.” That last statement, at least, begins to explain the
sluggishness of the transaction market even as the pandemic is fading. Another reason might well be the way that some hotels have been able to survive the storm thanks to outside help. As recently as January 2022, for instance, the French government offered eligible hotels the equivalent to 20% of their staff wage bill. Across the Channel, its counterpart in London
Hotel Management International /
www.hmi-online.com
Russell Kett (pictured) is a 40-year veteran of the hospitality industry.
made up to £10m available to businesses. Of course, that aid is now coming to an end. As Kett puts it: “We could see some distressed disposals of hotels that were largely saved by what I’ll call Covid-related support.” Until then, however, the situation remains unclear.
“What makes a transaction is a willing buyer and a willing seller – and you can’t get a transaction unless you’ve got a combination of both. So a lot of people, I suspect, are thinking ‘well maybe I’ll try and hold out for a little longer’.”
None of this to say that there haven’t been particular bright spots over the past 12 months. To a large extent, these are the places you’d expect, with Kett highlighting Spain as a country that’s seen “quite a lot of volume”. This is clearly reflected in the statistics. According to work by HVS, for example, Spain enjoyed a higher transaction volume in 2021 than the previous two years combined – representing a more than doubling than 2019 levels. That’s shadowed, continues Kett, by the UK, another long- time stalwart. London, for its part, enjoyed the highest investment volume of any city in Europe. As HVS notes, a number of recent deals enjoyed particular attention, including the 646-room Park Plaza Riverbank Hotel, sold for a reported €306m.
New assets In the midst of this uncertain investment environment, the market is having to face a new set of challenges.
95%
The percentage that revenue by hotel room collapsed by within a month of global lockdowns starting. Statista
19
HVS
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