These are the key findings from the 2020 Deloitte European Hotel Industry survey, conducted as part of the annual European Hotel Industry Conference. The survey was closed on Thursday 1st October. The survey represents the views of a sample of senior hospitality figures, including owners, operators, lenders, developers and investors.

Hotel industry sentiment
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Top priorities

Stakeholder relationships and workforce health and safety have seen a drop since the last survey in July 2020 as businesses are now better prepared. The significance of remote working capabilities and transaction or expansions have also increased since the last survey in light of the second wave of the virus.

Investment opportunities

Assets with a focus on sharing experiences such as co-working, co-living, student housing and hostels have seen a decline in investment appeal, a total decline of 25 percentage points from the previous year. Hostels for instance plunged from 17% to just 1% as an attractive asset from the previous year. Holiday parks on the other hand climbed from 1% to 8%, possibly driven by the growth in domestic travel.

Risks

Protectionism, otherwise known as closed borders, as a risk for the hotel industry has seen a significant jump of 9 percentage points compared to the previous year, in both Europe and in the UK. While being positioned in the middle of the list, climate change risks has seen a 3 percentage point growth compared to the previous year for the European hotel industry, however this has only grown 1 percentage point for the UK hotel industry. Political tension as a risk saw a decline of 15 percentage points, in both Europe and in the UK. 40% of UK respondents view Brexit as a key risk for the UK hotel industry, ranking third. UK respondents are more concerned about the weakening of the currency with 13% stating it as a risk, compared to Europe where only 7% considered it a risk.

Distressed activity

Disruption and recovery

Spotlight on UK
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Top 10 regional UK cities for investment

Cambridge has reached the number one spot to become the most attractive city for hotel investment in the regions in 2021, pushing Edinburgh back two positions to third place, behind Oxford. Manchester and Bath have remained resilient and Birmingham and Liverpool have fallen behind.

Performance in the UK market

Mixed results regarding revenue and profit growth are expected for both London and Regional UK in 2021. London is expected to see a higher decline in both performance measures vs. the previous year. Pricing expectations for both London and Regional hotels are also expected to be lower than the previous year.

  • Over a quarter of respondents expect Revenue per Available Room (REVPAR) growth to be greater than 9% on 2020 levels in London in 2021, while 26% expecting it to be below -3%. Similarly, 21% expect RevPAR growth on 2020 levels in the regions to be greater than 9% in 2021, while 17% expect growth to be below -3%.
  • Gross Operating Profit per Available Room (GOPPAR) growth is expected to be greater than 9% on 2020 levels in London by 27% of the respondents, while 37% expect it to be negative. 21% of respondents expect GOPPAR growth on 2020 levels to be greater than 9% in 2021 in the regions, while 28% expect it to continue to be negative.
  • 32% of respondents expect Earnings before interest, taxes, depreciation, and amortization (EBITDA) pricing multiples to still be greater than 15x for London hotels with 15% predicting pricing below 8x. 40% expect pricing multiples to be below 10x in the regions with 31% expecting higher multiples at 11-14x.

Financing the UK hotel market

Private equity is expected to be the largest source of equity capital for UK hotel acquisitions in 2021, gaining 35 percentage points from the previous year, compared to institutional investors which is expected to wane. Respondents expect that investment will mainly be sourced from the UK (49%) and North America (46%).

UK outlook

71% of respondents are positive about the long-term future of the UK hotel market and expect a rise in both investment activity (57%) and profitability (61%) over the next 5 years, though just over half believe it will take more than two years for performance to reach pre-pandemic levels. However, half of all respondents believe that a ‘No Deal Brexit’ will lower the attractiveness of London for hotel investment, while 60% believe the Regional UK would be less attractive as a result of it.

Focus on Europe
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Top 10 European cities for investment

Amsterdam remains on top for the fifth year in a row as the most attractive European city for hotel investment in 2021, London reclaims its position pushing Paris into 3rd place. Berlin leaps ahead to 4th place from 16th in the previous year, pushing Lisbon down by one spot to 5th place. Barcelona holds on to 6th position, while Madrid slips down five spots to 10th place.

Financing the European hotel market

Private Equity investment remains the preferred source of equity capital for hotel acquisitions in Europe, with respondent sentiment almost doubling, an increase of 22 percentage points versus the previous year. Demand from Institutional investors and REITs is predicted to soften in 2021, down by 9 percentage points and 10 percentage points respectively from the previous year. Senior bank lending is expected to remain the most common source of debt financing, followed by REIT and distressed debt funds.

  • Almost two-thirds of the respondents (59%) expect hotel investment to come from domestic sources within the EU. Increased activity is expected from the UK (30% up from 17%) and North America (50% up from 38%). Less than a quarter expect hotel investment to be sourced from the APAC and MENA regions.
  • Two-thirds of the respondents view senior bank loans as the most common source of debt financing (dropping to 66% from 90% in the previous year) in the European hotel market; followed by REIT (40% down from 52%) and distressed debt funds 36%.

European outlook and investment cycle

Respondents predict all European markets to be in a downturn in 2021 with views on the UK in particular weighted more negatively. A proportion of respondents however believe that some markets will level out in 2021 (29% for Greece and 25% for The Netherlands).



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