05 November 2018
Good mood, bad trend
hospitalityInside INVESTMENT BAROMETER Fall 2018
• Decreasing willingness to put objects on the market
• Real estate market still remains at high level
On the hotel real estate market, the investment mood is still good, especially concerning those with their own businesses. When looking at the industry and the next few months, the mood is more cautious. This is one result of the "Investment BAROMETER" survey initiated by the online magazine hospitalityInside.com in cooperation with Union Investment around the time of Expo Real Munich every year.
The euphoria is decreasing and thus the entire index of the current hospitalityInside Investment BAROMETER Fall 2018 has dropped by 5.9 percent compared to the previous year. The evaluation of the own business situation, the Business Index, has decreased by 3.9 percent compared to the previous year.
However, the industry is still at a very high level, comparable with autumn 2013, the first year of the common survey held by hospitalityInside and Union Investment. Therefore, this year, most exhibitors at Expo Real left the trade show beaming and content, and 79 percent of the participants of the survey assess the current situation of their business as "good" or "very good". The rest of the people surveyed are mainly "satisfied" with their own situation.
When looking at the future, cautiousness prevails: For the next six months, 69 percent expect a "good" to "very good" development. In the previous year, this was still at 80.6 percent. In 2017, nobody expected a decrease (0 percent) but now it is 9 percent. The expectation index has decreased by 6.1 percent respectively.
In development, spoiled by success, the "very good" expectations have fallen from 22 to 12 percent and the "good" expectation from 56 to 39 percent. 42 percent are "satisfied", and the number of unsatisfied survey participants has even decreased from 8 to 6 percent. At the end of the day, the Development Index has dropped by 6 percent.
Concerning operations, the participants are also more cautious than one year ago. Only 57 percent expect a "good" to "very good" development of turnover (previous year: 67.7 percent), one third expects satisfying turnovers (previous year: 29 percent). 9 percent expect a worse development (previous year: 3.2 percent). The Operation Index has decreased by 4.8 percent.
Transactions still stable
The questions concerning trends were about the decreasing transaction volumes in the hotel real estate market and the reasons for it. Only very few believe that the declining development will diminish or even reverse. 33 percent expect that it will continue just as strongly, while 42 percent believe that it will even increase.
According to the surveyed, transactions are slowing down due to various factors, especially due to the reluctancy of sellers as they hold on to their portfolio because of lacking investment alternatives (30 percent of the stated reasons), and because of the disappearance of the rate of return spread in comparison to other types of usage (20 percent), which was attractive for a very long time. Investors acting more cautiously in the advanced market cycle is also one of the reasons named for the trading of fewer hotels, as well as the decreasing offer of new properties due to a lower number of new buildings being built and finished.
Deep product understanding required
"The hotel real estate with its long-term agreements still promises a continuous interest rate for capital. Therefore, a large number of investors do not want to sell and instead profit from the lease incomes," says Andreas Löcher, Head of Investment Management Hospitality at Union Investment Real Estate GmbH. "Increasing construction and property costs are also a reason to expect further decreasing transaction volumes. Investors, which have developed strategic partnerships, understand developments, and have a deep product understanding for the hotel industry, are well positioned for the medium term."
Transactions and hotel developments will become more difficult. All individual indices are decreasing, especially the Development Index, which has dropped for the third consecutive year after its highest level in the boom year of 2015. Nevertheless, the hotel real estate market is at a high level, the satisfaction is high, and the basic mood is good. The motto is still "to open up", but "to drive with foresight" is becoming more popular again.