The impact of the Euro crisis

Expert Jonathan Worsley says investors have rich pickings in Europe

Jonathan Worsley
Jonathan Worsley

Jonathan Worsley, founder of the Arabian Hotel Investment Conference and CEO, Bench Events, says Middle Eastern investors with cash could find themselves rich pickings in Europe

In recent history, Europe’s financial future has never seemed quite so precarious. To comment with any certainty on the 2012 outlook for the European hotel market really depends on Europe’s politicians showing some leadership by saving the Euro through fiscal and monetary reform or allowing the Euro to collapse, which many economists believe is just a matter of time.

Industry needs a stable political environment to thrive and until the Euro crisis is resolved the sovereign debt crisis will remain, investors will be wary and entrepreneurial investors, with cash, will find themselves rich pickings

I sought advice from industry peers — my brain trust — to get their views on 2012 and for some “now is an excellent time to go shopping”, provided finance is in place. All of my brain trust agreed that owners, with a weak financing structure and a poor product offering, will be severely tested in 2012 with ownership change a possible outcome. As we have seen in the second half of 2011, banks will continue to offload hotels sitting on their balance sheets depressing prices further.

Looking at hotel performance, I was speaking to Elizabeth Randall, managing director of STR Global and she mentioned that in direct response to the softening of European market indicators they have downgraded their RevPAR forecasts on the majority of European markets, 28 out of 32 in fact.

Puneet Chhatwal, chief development officer of The Rezidor Hotel Group predicted “low RevPAR growth for 2012” however, as he rightly points out, it is better than negative. Industry veteran Michael Hirst believes there will be much more constrained leisure demand due to pressure on consumer spending.

However, the consensus seems to be that business and event travel will fare better.
Sir David Michels, president of the British Hospitality Association and board member of the Jumeirah Group,was recently quoted in the Hotel Year Book 2012: “The majority of branded hotels throughout Europe are owned by third-parties, with comparatively few assets owned by the global brands.

“One forecast I am quite relaxed in making is that, beginning in 2012, the big brands will once again invest in hotel real estate”.

Will 2012 see the bricks and brains converge once more?
Turning to the owner’s perspective Anders Nissen, CEO of Pandox, was less optimistic stating: “We have before us a difficult year. Banks will close for new loans which will make it hard for new developments and refinancing will be difficult. This year will be more about increasing market share and productivity rather than new investments and expansion”.

Josh Wyatt, director of Patron Capital Advisors, agreed, he asserted that “2012 is all about consolidating your position and investing in existing assets”.

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Europe and the Middle East
So the question is: how will the Euro crisis affect Middle East markets?
After we saw the bubble burst in 2008-2009 my brain trust indicated that there is less dependence on the European markets than in the past and plans for growth appear to be more stable and sustainable.

As Rezidor’s Chhatwal identified: “Due to economic and cultural links with India and parts of Africa, the Middle East has the advantage of being able to hedge its risks”.

Frank Croston, partner of Hamilton Hotel Partners, pointed out: “The effect of the European market conditions will put pressure on price, particularly those travelling to the Middle East from Europe”.

Given the right conditions, the post-Arab spring could provide a wealth of hotel investment opportunity, which is an appealing prospect in the face of a European slowdown. This feedback was also reflected in the recent meeting of the Arabian Hotel Investment Conference advisory board. The long-term regional sentiment is far from pessimistic.

Moving to Africa, Steve Box of HSBC said recently in The Times: “Africa has been fairly insulated from the financial crisis because of its lack of integration into the global financial system and trade not aid is becoming a reality, not least because of China’s strong role on the continent”.

Marriott has certainly drawn a line in the sand on its plans for growth in the continent by hiring industry guru Alex Kyriakidis from Deloitte as its new chief executive officer Middle East and Africa.

Time for a bargain
Considering the European crisis, conditions are ripe for the famously liquid Middle East investor to start snapping up bargains as rival European buyers struggle to find debt.
Croston suggests that Middle East investors may find a route to market through debt provision and Russell Kett, managing director of HVS, said: “Middle Eastern investors will continue to seek out acquisition opportunities, taking advantage of their strong cash position”.

Derek Gammage, managing director of CBRE Hotels, added: “Once in a generation trophy assets will continue to appeal to Middle East investors and sovereign wealth funds”.

So to sum up, Europe in 2012 will struggle like never before. Those with cash sit in a unique position and companies will continue to reduce their exposure to countries affected by the financial crisis by diversifying into the high-growth markets of the world.

The Arabian Hotel Investment Conference will run from April 30 to May 1 at Madinat Jumeirah in Dubai: www.arabianconference.com

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