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One of the questions I am most frequently asked is in what countries and cities should we buy hotels to provide the highest returns? it is also one of the hardest questions to answer, as the hotel property market is cyclical and the cycles can be, and often are, easily upset by external influences which are impossible to predict.
There are, however, some basic principles to consider when looking at new markets to invest in, apart from the obvious supply/demand equation:
- Examine source markets – are they broad, both geographically and by business type? It is clearly better to invest in a city which enjoys visitation from both tourists and business people and if there are good conference, congress and meeting facilities then this is an added bonus. The more market segments you have the less likely you are to suffer if one goes into decline. The same can be said about guests’ geographic origin. Too much reliance on one nationality can be disastrous; many London hotels have still not recovered from the after effects of 9/11 when the Americans simply stopped travelling. Similarly on the vacation front, Mallorca has suffered with the downturn in the German economy.
- Is the basic infrastructure in place and is the hotel easily accessed? If they are not in place, are there plans to improve the existing facilities? EU or The World Bank capital for infrastructure improvements such as new airports, roads etc can make a huge difference to tourism and thus hotel occupancy. Hotels in cities such as Malaga, Lisbon, Barcelona (the Olympic ‘kick-start’ effect) have indirectly benefited from infrastructure improvements. London on the other hand is beginning to suffer as public and private transportation becomes unreliable and expensive.
- Political stability is such an important factor to consider when investing into new countries. Avoid countries where there is unrest or there is a real threat of terrorism. Most people will simply not take a holiday in a country unless they feel perfectly safe.
- The terrorist threat is becoming one of the hardest aspects to consider as by its very nature it is virtually impossible to predict where and when the next atrocity will occur. Recent tragic events in Istanbul have shown us how indiscriminate the attacks can be, and that really nowhere is immune from such an event.
- Choose resorts with interest or special features other than just a good beach i.e. historic or architectural interest. Avoid short season resorts, unless there are exceptional spa or golf or other leisure interests available. People’s tastes are changing and many travellers are seeking places of interest/and or leisure pursuits as well as a beach holiday.
- Consider the access and attractiveness of the destination for weekend visitation. High weekend occupancy often represents the icing on the cake for many City centre hotels. Weekend breaks are becoming more popular as people have higher disposable income, but with less time, and this combines with cheaper and more frequent flights.
- Avoid resorts monopolised by tour operating companies as you can become so reliant on them to the point where the tour companies are determining room rate and occupancy levels.
- Carefully examine and research the possibility for grant aid. Many tourism projects are eligible for government grants and tax concessions which can make a big difference to the deal economics.
So where are the future hot-spots?
Barcelona has performed incredibly well over the last few years, benefiting from major infrastructural improvements, enjoying both business and leisure visitation, and I believe it has even further to go, despite recent new supply.
Lisbon will also benefit from recent major infrastructural improvements and offers tourists historical interest and good beaches nearby. Extensive new supply has pushed the city into penultimate place in the PKF EuroCity rankings, but it only has one way to go from here.
Similarly, Athens with its new airport, new highways and extension to the metro system and the reintroduction of trams, all part of the lead up to the Olympic games next summer, must be worth keeping a close eye on. It would seem that the city will not suffer from the usual hotel over supply problem following the Olympics as only a few new hotels are planned. I would still advise waiting until after the Games though; remember timing is everything when it comes to any property investment.
Major central European cities will no doubt benefit from closer alignment with the E.U., and of these, Prague, Warsaw and Budapest should improve in the medium term, and for the more adventurous the Baltic States and St. Petersburg could show even higher reward, but equally with a higher risk profile.
On the basis of following the money, the real risk takers will look closely at Dubai in the UAE and Doha in Qatar, as both cities are seriously committed to major expansion of their tourism profile and are spending the money to make it happen. There are also grants, tax, and other incentives available for investors. Also committed to expansion is Morocco, politically stable and easily accessed from Europe, where one can combine the historic and architectural interest holiday in say, Marrakech, with the fabulous beaches of Agadir.
These are the places that I think will show the highest growth for hotels in the medium term. That is not to say you should ignore the old faithfuls such as London, Paris, Rome, Geneva etc. If you find a deal in these cities that makes commercial sense, then don’t hesitate. The problem I find, is that most of the transactions on offer in these cities are so highly priced that it is hard to see the logic to make the investment unless there are compelling strategic reasons to have representation.
Bob Lewis established PKF’s international hotel property services in 1990. Since then he has completed hotel transactions with a combined value exceeding
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
