Budget hotels to dominate European development as investor interest grows

Source: HVS, 05 November 2010

As the hotel market starts to recover across Europe but credit for new development remains scarce, budget and limited service hotels will continue to be the dominant sector for investment, accounting for a greater proportion of new projects than more up-market hotels.

The lower building costs, the shorter development and market penetration time and the fact that financial backers see a safer and faster return on their investment mean that developers and operators are finding it easier to attract funding for budget hotels.

Our research for the year to August 2010, conducted in conjunction with construction consultancy Davis Langdon, shows that business travel across the European hotel sector is recovering and many midscale and upscale hotels have registered double-figure RevPAR growth. However, this growth has been mainly driven by occupancy rather than average rates, showing that the economic recovery is still fragile and business and leisure travellers remain price-sensitive.

‘Developers, investors, lenders and operators want to take advantage of the opportunities for growth in the current market,’ commented report co-author Arlett Oehmichen, associate director from HVS London Office.

‘Hotel developments have been in decline since the second half of 2008, which was the peak of the most recent hotel development cycle. Since then, the European hotel pipeline has declined at a compound annual rate of 4%, primarily due to a lack of available funding for new projects and lower confidence in the hotel investment market. This decline is expected to continue until 2013-14 when the more recent hotel builds start to trade profitably and development lending becomes more widely available again.’

‘Hotel operators have embraced the opportunities of the current market focusing on optimising their budget brands and developing new concepts that are viable solutions and match the priorities and tastes of modern hotel guests’, commented report co-author Ana Campos-Blanco, associate from HVS London Office.

For a complimentary copy of Branded Budget Hotels in Europe: A Development Guide by Ana Campos Blanco, Arlett Oehmichen and Stephen Frood, partner at Davis Langdon, visit http://www.hvs.com/article/4863/branded-budget-hotels-in-europe-a-development-guide/.

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