European deal activity down 19% in 2023

High inflation and higher interest rates had a major impact on the European hotel transactions in 2023, with volume down 19% versus 2022, the second lowest level of investment in the past decade, according to the HVS European Hotel Transaction Report, publish in partnership with European brokerage arm HVS Hodges Ward Elliott.

Transaction volume across Europe reached €10.7 billion, with 388 hotels with prices above €7.5 million changing hands – and an average price per hotel that was 9% lower than in the previous year, although significantly ahead of the transaction volume in the years following the global financial crisis.

The report concluded that the worst of the current cycle appears to be over, with interest rates seemingly having peaked.

“The financing environment will be the key driver for increased investment activity as we move through 2024 and with economic headwinds trending more positively and inflation falling, an increase in hotel transactions is expected,” said report co-author Matthias Hecht, a senior associate at HVS HWE.

“Investment activity is already fairly strong this year and the rise in brand offerings and differentiation by various hotel groups will continue to lead to increased conversion acquisitions and this, combined with the huge weight of capital ready to be deployed, looks positive for more hotel transactions,” he said.

The report stated that real estate investment companies were the most active, buying and selling nearly €6 billion of hotel assets but 28% down on the previous year’s activity. Owner-operators were the second most active, transacting €4.1 billion of properties, up 45% on 2022 levels, while investment from private equity firms dropped significantly as they divested their hotel assets to become the largest net sellers, generating a net negative balance of €628 million.

“While hotels were somewhat cushioned by strong top-line performances, higher borrowing costs led to a softening of yields and a slow-down in transactional activity,” commented report co-author Serena Yang, an associate at HVS HWE.

Spain and France saw the most transaction activity, accounting for 44% of total investment volume and emphasizing the renewed focus on southern European leisure markets, pushing the U.K. out of the top slot. Notable was a fall in core asset transaction activity as investor interest focused on value-add assets promising higher returns. There were also fewer distressed sales than many had expected.

Single-asset transaction volume dropped by 17% over the previous year, totaling €7.3 billion, with France seeing the most activity – up 37% – and Spain following with a 26% rise on 2022. Portugal, Denmark and Switzerland also saw uplifts in single-asset activity while the U.K., Germany, Italy, Ireland and Sweden saw single-asset volumes fall.

Overall, portfolio transactions fell 24% in 2023 with total volumes of €3.4 billion. Spain proved the most buoyant market for portfolio activity. Deals in the U.K. were 74% down although sales were boosted by two Hoxton London hotels, the Scottish Crerar Hotel Group and two Warner Leisure hotels.