In spite of the usual ups and downs, and in spite of some ups-and-downs that are decidedly unusual, Europe’s hotel investment sector is heading into 2018 full speed ahead. According to Russell Kett, chairman of HVS' London office, and Chris Day, global managing director at Christie & Co., 2018 seems poised to be a good year for both investment and development across the region.

Ahead of The International Hotel Investment Forum in Berlin, where they are both scheduled to speak, Day and Kett looked at the future of Europe's hotels, and discussed where they expect the big development regions for 2018 to be.

Investment Trends

Investors now see hotels as a core asset class, Day said, reflecting the rising returns the sector can now offer. “At the same time, operators also need to properly evaluate in detail every opportunity by undertaking risk forecasting and market intelligence.”

Perhaps best of all, only a limited number of assets are for sale, keeping supply and demand in balance. “There are strong market dynamics and operating fundamentals,” Kett said. “Occupancy is growing in most locations that haven’t already plateaued, and room rates are also rising. Profitability is under pressure from rising payroll costs, especially in UK hotels [where costs are] fueled by the effects of the Brexit negotiations. Most of the outstanding questions concerning Brexit should be answered during 2018, so at least we won’t have to use this as an excuse for the uncertainty of certain outcomes.”

This will be a year of global growth, Day predicted, and in spite of the looming Brexit, the UK’s economy is still strong. “The pound is moving forward against the dollar and we are seeing a steady increase in interest rates back to a more stable position," he said. "Asian investors particularly view the UK as an attractive investment opportunity thanks to this stability and relatively low value of the pound.”

As the European Central Bank starts its exit from quantitative easing, the euro may begin to weaken against the dollar. “In general, there is a positive outlook for the northern European economies,” Day said. “[Also,] Spain, in particular, due to turmoil in the Middle East, will grow. Therefore, we don’t expect to see a huge impact of the ECB exiting QE.”

Expect more consolidation within the sector this year and beyond, Kett said. InterContinental Hotels Group and Hyatt Corporation are top-of-mind at present, “and no one is sure whether they could be ‘dining’ or ‘dinner,” he said, but other companies like Rezidor Hotel Group, NH Hotel Group and Barcelo Hotel Group may well be under scrutiny. “With Marriott International having publicized the financial benefits of consolidation, other companies will be sure to follow suit as investors put them under pressure to improve earnings,” he said.