London, August, 2002—Jones Lang LaSalle Hotels launched its latest HISS last week. In June of this year, 1,800 investors were questioned about their outlook for the future of the hotel investment markets. The results of the bi-annual survey, the only global hotel survey of its kind, show that at this time, there was an optimistic and confident mood amongst hotel investors across the globe. Most significantly short-term performance expectations had increased positively within the European Hotel Market in comparison with the hotel markets of Asia Pacific and the Americas.
Jones Lang LaSalle Hotels is certain that the majority of those questioned, if asked again, would now almost certainly adopt a more cautious “wait and see” stance in the short term. The HISS survey emphasises the current volatility and ever changing nature of global investment markets. The levels of economic recovery that had previously been expected have not been realised and subsequently confidence levels are beginning to diminish. “The short-term prospects for the hotel investment markets is probably more difficult to predict now than it has been over the last five years”, says Mark Wynne-Smith, Executive Vice-President Europe, Jones Lang LaSalle Hotels.
Despite the general economic optimism resulting from the introduction of the Euro, European hotel market performance continues to fluctuate almost on a month-by-month basis. For example, Stockholm is defying previous form by out performing many of the more traditionally vibrant markets. Amsterdam, previously seen as a “bright growth” city is now slowing down.
The optimistic medium term outlook for Europe predicted in HISS is supported by Jones Lang LaSalle Hotels. “The underlying strengths of the hotel market has ensured that buyer sentiment remains strong in these difficult times and improvements in operating markets will reinforce investor confidence,” stated Mark Wynne Smith. The confidence resulting from the introduction of the Euro and Europe`s perceived isolation from the events in the Middle East stands it in good stead for a determined recovery over the coming year. The boom in budget airlines and travel companies, came to the aid of many European cities by attracting significant numbers of visitors at a time when the US and other markets had seen a dramatic fall in traffic post September 11th.
The decline in yields across Europe demonstrates the heightened expectations of investors. “The shift in yields has been exacerbated by the significant amount of available capital compared with relatively few assets being offered for sale along with a low interest rate environment. As confidence grows owner operators and investors will look to expand into new markets and reinforce existing representation in others,” continued Mark Wynne Smith
It is firmly believed that in the medium term a light can be seen at the end of the tunnel in Europe`s operating markets. This is certainly the case in those European cities reliant upon domestic and regional demand. The exceptions are parts of Central and Eastern Europe as well as certain German cities that are suffering from over supply. Despite Amsterdam`s recent decline in performance levels, investors remain confident due to the city`s ability to ride the storm. Paris, a traditional safe haven is slowly beginning to turn a corner. The high levels of trade from middle-eastern business throughout the summer months will stimulate a recovery in the medium to long term. Investor interest in the strategic London market remains strong. The city, due to its gateway status was the first to suffer from the decline in US business traffic, but in terms of room yield, London remains significantly ahead of the rest of Europe. Subsequently the city is expected to lead the Europe wide recovery when it comes. However, while we await a US upturn, European gateway cities heavily reliant on US travellers will continue to suffer.
Across the globe, in Asia Pacific investors believe that hotel markets have experienced the worst of the market cycle. Trading expectations have moved from negative to neutral in the short term. In the Americas some investors argue that the markets have hit rock bottom while others expect further deterioration before a significant and determined recovery commences. Future recovery depends largely on investors` confidence levels and their continued intention to buy assets, whilst hold strategies remain the dominant intention in the short term.