Hotel investors cautious but curious
With the International Hotel Investment Forum (IHIF) just around the corner, I contacted a few colleagues speaking at the IHIF to discuss some of the challenges and opportunities they face in 2012.
They all agreed that the Middle East and Europe face challenging times ahead through either political instability or financial chaos. Nevertheless, tourism is a resilient industry and according to Marriott International’s Ed Fuller: “It is a mistake to view either region as a monolithic block of countries as each country has differing realities and challenges”.
“The Middle East, despite its challenges, remains second only to Asia as the fastest-growing tourism zone in the world. While a few developers are temporarily taking a “wait-and-see” posture, conditions are improving in areas like Tunisia and Morocco and the United Arab Emirates reports the region’s largest pipeline of rooms with 21,238 rooms now under construction. Development also remains strong in Saudi Arabia, Qatar, Egypt and Jordan,” reports Fuller.
Over in Europe, the industry is expected to grow 2-3% in 2012 with nearly 300 hotels or 50,000 rooms expected to open this year.
Chris Day, managing airector, Christie + Co says: “Hotels in Europe on the whole remained both solid businesses and sound investments in 2011. As 2012 takes shape, prospects remain fairly optimistic though funding continues to be the elephant in the room”.
Of the key European markets, Germany seems largely unaffected by the financial stresses but Ed Fuller comments: “The southern European countries can be expected to take advantage of the political situation along Africa’s northern coast by promoting their destinations as low-cost, safe alternatives.”
Article continues on next page ...
Cautious Outlook
An issue affecting the Middle East and Europe alike will be the impact of cautious investors.
“The two great barriers to investment in 2012 will be the excess caution of investors, balanced against the obvious value opportunities presented in Greece, Portugal, Spain, Cyprus, France, Italy, and the lack of funding while financial institutions struggle with existing debt portfolios” says Ömer Isvan, president, Servotel Corporation.
Likewise, Hugh Taylor, chief executive of Michels & Taylor, warns: “It’s likely many of the sector’s owners and banks will have to re-assess those deals that were completed in 2009 and 2010 which were predominantly based on the assumption of a full 2012 recovery.”
Cash buyers will dominate the scene once more and as Day suggests, “there will be a real opportunity for cash buyers to ‘fill their boots’ should distress force more property to the market”.
“Investment in the sector is likely to come from an even more diverse international community, including from the likes of Russia, India and China, but this is likely to be very London-centric investment,” Day continues.
“Concerns remain over funding, so accurate and considered pricing of assets is key to success — every deal next year will be about price”.
Isvan sums it up simply: “The key words for the first half of 2012 are ‘caution’ and ‘confusion’”.
“The sweeping credit note downgrade throughout Europe deflates much of the appetite of the visionless institutional investor, presenting an excellent platform for the ones with vision and ability to dig deep into specific markets. Given the long term nature of hotel investments, whether bull or bear, I am always amazed at the quick reaction of investors to short-term cycles given the growth prospects for the sector.”
Article continues on next page ...
Working together
I believe future growth in the Middle East and Europe will rest in continuing to foster close cooperation between the private and the public sectors.
Fuller has the final words and observes the potential of future opportunity: “Co-operation reinforces the economic benefits of tourism on local economies ensuring the various destinations offer travellers compelling reasons to visit, and keeping faith in the long-term knowledge that people like to travel and they will if they perceive the welcome mat is out”.
Jonathan Worsley is the CEO of Bench Events and co-founder of both the International Hotel Investment Forum and the Arabian Hotel Investment Conference, being held from April 28-30. Visit: www.arabianconference.com