After the unprecedented lows of 2009, hotel property investment experienced a surprisingly strong start to 2010. According to figures released in April by Jones Lang LaSalle Hotels, first quarter transaction volumes reached $2.8bn, a 53% increase on the same period last year.

The most active region was Europe, the Middle East and Africa, which recorded $1.1bn in hotel sales, a 46% year-on-year increase. Likewise, the Americas and Asia Pacific regions recorded sales of $991m and $736m, respectively. According to Arthur de Haast, global CEO at Jones Lang LaSalle Hotels, this increasingly positive picture looks set to continue as the year progresses. “Our first-quarter full-year forecast is that transactions will rise between 25% and 45% against the previous 12 months,” he says. “2009 was the weakest year since we started collecting data in 2000, but there has now been a significant pick-up in transaction volumes. These are not just isolated examples either; all three regions are posting significant growth.”

“We should see a recovery taking place across Europe in 2010, as most destinations reported occupancy growth for the first quarter against the same period last year.”

In line with increased transaction activity, de Haast also expects to see investor confidence growing throughout the year. The company’s latest report highlights Europe, the Middle East and Africa as the regions with the most prolific investors, with interest increasing in stable western European countries.

In the Americas, investor interest from domestic buyers is strong, as is that from international groups, which accounted for 34% of all transactions in the first quarter of 2010. Interest is also healthy across Asia Pacific, especially in Australia and Japan, where $350m-worth of hotel sales were recorded in the first quarter of this year.

Konstanze Auernheimer, director of marketing at STR Global, is also optimistic, but cautiously so. “I think 2010 will be a more positive year, and there will be percentage growth, but this is against weak prior year results,” she says. “We currently expect to see recovery in 2010 but no growth.”

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Some regions are expected to recover more quickly than others. “It does appear that the Asian markets are bouncing back strongly in terms of RevPAR growth,” says de Haast. “Hong Kong has come back extremely strongly, posting figures in March of over 35% year-to-date. Singapore also comes close, with around 17% to 18% RevPAR year-to-date. Other cities, such as London, Paris, New York and Berlin, have all experienced positive starts to the year, as have one or two others in the Middle East.

Some areas are rebounding in terms of visitor arrivals although performance is still down.” Other markets, however, may take longer to recover. “India experienced a fairly difficult end to 2009 and is playing catch-up due to the supply of branded hotel stock relative to the size of the economy,” de Haast adds. “Parts of China are also under-supplied, although not major cities such as Shanghai and Beijing, where there is huge development going on. There are also cities in Brazil where there is domestic market under-supply, with potential in the mid-scale and economy segments.”

In Europe, occupancy levels are also looking up. “We should see a recovery taking place across Europe in 2010, as most destinations reported occupancy growth for the first quarter against the same period last year,” says Auernheimer. “However, average room rates in local currencies are still under pressure in most cases. As all of these results compare against a weak quarter last year, it’s good to see performances improve, but it isn’t a surprise.” STR Global expects London to benefit from the pound’s standing against the euro, and predicts that countries in southern Europe, where economies are still under pressure, will continue to experience hard times.

“Europe hasn’t experienced huge supply increases in recent years, unlike countries such as North America,” she continues. “This steady supply increase means that less new competition came on board. Demand in Europe has improved, and Europe is following Asia Pacific on the road to recovery with North America, the Middle East and Africa regions following behind.”

Lagging behind

For de Haast, recovery in Europe will be sluggish, especially when compared to the rest of the world. “Asia Pacific is the standout region,” he says. “What’s more, everyone thought the Americas would struggle in 2010 but the region  has started to rebound strongly in the last month, at both a macroeconomic and performance level. This is against our original forecast.” With the exception of major cities such as London and Paris, however, Europe may lag behind. “We don’t see southern Europe bouncing back, and the central part of the region is experiencing problems with demand and supply. Scandinavia will lag, and Ireland has major problems in terms of weak demand against new hotels built, which is a real challenge.”

“I think 2010 will be a more positive year, and there will be percentage growth, but this is against weak prior year results.”

Unsurprisingly, London is outperforming the rest of the UK, with most markets struggling to show real growth. In addition, measures introduced to tackle the country’s deficit are expected to constrain consumer spending.

In addition, funding remains a problem for new developments. “For existing hotels, the funding situation has eased a little, with banks becoming more flexible in their lending terms,” says de Haast. “It has to be a compelling story for a bank to lend anywhere for a new project.

However, there is a lot of development in the budget and economy sector, with companies such as Travelodge and Premier Inn, but these companies are using their own balance sheets and not really sourcing third-party debt.” The situation does have one positive element, however. “Some projects are going ahead but it remains extremely difficult,” says de Haast. “Having said that, it will constrain supply, which is good because it will help the recovery as demand comes back.”

In RevPAR terms, the outlook is one of modest improvement. “Looking at the rolling-12 RevPAR from January 2000 to March 2010, there was a peak in March 2001 of €75.80,” says Auernheimer. “The lowest point was €60.30 in January 2004 and the next peak, which came close, was €73.17 in February 2008. The figure dropped to €57.33 in November 2009 and as of March 2010 we are at €57.84. Bearing these figures in mind, we expect it to take between four and five years for RevPAR to recover.”

Looking forward, de Haast agrees that it will take some time for the industry to get back to pre-downturn performance levels. “It will be variable by markets but London is 24-36 months away,” he adds. “Markets such as Paris, Amsterdam and Germany will be recovering relatively nicely. It will probably take around 24 months to reach the peaks of 2007 but the southern and eastern European markets will be more sluggish, while Ireland is in for the long haul.”