European hotel investment reached a record high of €23.0 billion in 2018, according to the latest data from leading global real estate advisor, CBRE. This represents a 3.4% increase on a strong 2017, and is 73.2% higher than the ten-year sector average.
The total real estate investment volume for all sectors in Europe saw an increase of 0.3% compared to 2017.
2018 European hotel investment activity was driven by robust growth in the UK, Spain, Italy and Ireland. A strong level of activity in the second and fourth quarters of 2018 saw hotel investment in the UK reach €7.7 billion, an increase of 24% year-on-year. This was driven by several notable deals including portfolios including Project Dragon Glass, the sale of eight Hilton-branded hotels and single assets such as The Midland Hotel in Manchester and the five-star Beaumont Hotel Mayfair in London.
Spain was Europe’s second largest hotel investment market with investment reaching €4.7 billion, up 34.6% year-on-year. Spain saw robust performance growth in several cities which continued to drive investor interest.
The majority of European markets performed at relatively high levels when compared to the ten-year average, with several countries, including Italy, Ireland, Portugal and Switzerland, posting significant year-on-year growth in investment volumes. The Italian hotel investment market surpassed the €1.4 billion mark for the second year running and recorded its seventh consecutive year of annual growth, as robust performance fundamentals continued to attract the interest of international and domestic investors.
Ireland also performed well with 2018 volumes reaching €747 million, representing an increase of 390% year-on-year. Portugal saw a notable uptick registering an increase of 270% year-on-year.
Germany remained broadly stable with 2018 transaction volumes reaching €3.90 billion and remained level with the previous year. Despite a shortage of supply, investment activity accounted for 17.04% of capital deployed into European hotel real estate.
Colin Low, Head of Hotel Investment Properties, EMEA, CBRE Hotels, commented: “2018 was a record year for hotel investment. The growth in key European markets such as the UK and Spain is testament to the strong fundamentals of the hotels sector which continues to attract robust demand from investors across the board.
Non-European buyers accounted for 43% of the European hotel investment volume with Middle East investors, mainly Israeli becoming increasingly active, accounting for 11.1% of capital deployed across the European region in 2018.
Hotel yields shifted downwards in several key European markets in the fourth quarter of 2018 reflecting robust investor demand. Hotel yields in Amsterdam, Athens, Milan and Paris fell across all key operating structures. There was also notable yield contraction recorded in Dublin and Helsinki for hotels operated under a lease agreement.
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